ACCT-2010 Lecture 2: Chapter 2 - The Balance Sheet

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29 Jan 2017

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Cash +20,000: loan, equipment equipment +9,600, pay supplier, order software, receive software, receive. Assets resources controlled by a company that have a measurable value that benefits the company by increase cash inflows and reducing cash outflows. Liabilities measurable amount that company owes to creditors. Stockholders" equity owners" claim to resources owned by company. Companies have two sources of financing: debt financing = liabilities, equity financing = stockholders" equity. Key features of financing and investing activities within a company: companies document their activities, company receives something and gives something, each exchange has a dollar amount determined for it. External exchanges involves assets, liabilities, and stockholders" equity between the company and someone else. Internal events events within a company, ex: uses assets to make a product. Accounting cycle or method: analyze the transaction using 3 steps above (key features of financing and investing , record, summarize. Transaction business activity that affects the accounting equation.

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CASH FLOWS
	Instructions:
1.	Prepare journal entries for the selectedtransactions listed below.
2.	Based on the account information in the ledger, theselected transactions below,
	and the other financial statements, preparetheStatement of Cash Flows
	for ABC Company for the year ended June 30,2014
3.	Answer questions A-D.

1. PREPARE THE JOURNAL ENTRIES.

	Some of ABC Company's January transactions arelisted below. They have been
	already been posted to the ledger.

	Partial list of fiscal year ended June 30, 2014transactions for ABC Company:
	a.	Issued 5,000 shares of $1 par common stock forcash, $50,000
	b.	Sold investment for $35,000 of cash.
	c.	Redeemed $55,000 bonds at face value.
	d.	Declared $4,000 in dividends.
	e.	Recorded depreciation on equipment, $18,500
	f.	Paid $3,500 in cash for dividends
	g.	Purchased equipment for cash, $13,450


	PARTIAL JOURNAL		Debit	Credit
a.



b.



c.


d.


e.


f.


g.

DO NOT POSTJOURNAL ENTRIES PREPARED IN INSTRUCTION #1 (THEY ARE ALREADYINCLUDED BELOW).

		LEDGER

		Cash #100				Accounts Pay. #200				Service Revenue #500
	7/1/13	42,480					4,900	7/1/13			0	7/1/13
	activity	101,850	62,350			22,800	21,500				106,500
	a.	50,000					3,600	6/30/14			106,500
	b.	35,000
			55,000	c.
			3,500	f.		Dividends Pay. #210				Depreciation Exp. #600
			13,450	g.			700	7/1/13		0		7/1/13
	6/30/14	95,030			f.	3,500	4,000	d.	e.	18,500
							1,200	6/30/14		18,500
		Accounts Rec. #115
	7/1/13	5,000
		50,400	45,750			Bonds Payable #220				RentExpense #603
	6/30/14	9,650					100,000	7/1/13		0		7/1/13
					c.	55,000				24,000
							45,000	6/30/14		24,000
		Supplies #116
	7/1/13	3,660
		3,050	4,160
	6/30/14	2,550				Common Stock #320				Supplies Expense 610
							10,000	7/1/13		0		7/1/13
							5,000	a.		4,160
							15,000	6/30/14		4,160
		Invest. in XYZ Co #120
	7/1/13	20,000
			20,000	b.		PIC in Ex of Par-CS #322				Salaries Expense #620		7/1/13
	6/30/14	0					20,000	7/1/13		0		7/1/13
							45,000	a.		34,000
							65,000	6/30/14		34,000
		Equipment #130
	7/1/13	86,920
	g.	13,450				Retained Earnings #400				Gain on Sale #700
	6/30/134	100,370					13,160	7/1/13			0	7/1/13
											15,000	b.
											15,000
		Accum. Deprec. #131				Cash Dividends #410
			9,300	7/1/13		0		7/1/13
			18,500	e.	d.	4,000
			27,800	6/30/14		4,000


		Before
		158,060	158,060	-
		After
		292,260	292,260	-

FINANCIALSTATEMENTS

ABC Company						ABC Company
Income Statement						Comparative Balance Sheet
For the Year Ended June 30,2014						June 30,
										2014		2013		Amount of		Type of
Revenue:						Assets								Inc/(Dec)		Activity(ies)
	Service revenue			$	106,500	Current assets:
Operating expenses:							Cash		$	95,030	$	42,480	_____		___
	Depreciation Expense	$	18,500				Accounts Receivable			9,650		5,000	_____		___
	Rent Expense		24,000				Supplies			2,550		3,660	_____		___
	Supplies Expense		4,160					Total current assets		107,230		51,140
	Salaries Expense		34,000			Plant Assets:
	Total operating expenses				80,660		Equipment			100,370		86,920	_____		____
Income from operations					25,840		Less:	Accumulated Depreciation		27,800		9,300	_____		____
								Total plant assets		72,570		77,620
Other revenue:						Investments				0		20,000	_____		____
Gain on sale		$	15,000			Total Assets			$	179,800	$	148,760
Total other revenue					15,000
Net income				$	40,840	Liabilities
						Current liabilities:
							Accounts Payable		$	3,600	$	4,900	_____		_____
							Dividends Payable			1,200		700	_____		_____
								Total current liabilities		4,800		5,600
ABC Company						Long-term liabilities:
Statement of RetainedEarnings							Bonds Payable			45,000		100,000	_____		_____
For the Year Ended June 30,2014								Total liabilities		49,800		105,600

Retained earnings, July 1,2013				$	13,160	Stockholders' Equity
Net income		$	40,840			Paid in capital :
Less:	Dividends		4,000				Common Stock, $1 par, 50,000 authorized			15,000		10,000	______		_____
Increase in retainedearnings					36,840		Paid in Capital in Excess of Par			65,000		20,000	______		_____
Retained earnings, June 30,2014				$	50,000			Total paid in capital		80,000		30,000
						Retained Earnings				50,000		13,160	______		_____
								Total stockholders' equity		130,000		43,160
						Total liabilities and stockholders' equity			$	179,800	$	148,760


	2. COMPLETE THE STATEMENT OF CASH FLOWS.

	ABC Company
	Statement of Cash Flows
	For the Year Ended June 30, 2014
	Cash flows from operating activities:
		Net income			$
		Adjustments to reconcile net income to netcash
		flow from operating activities:
					$

			Changes in current operating assets andliabilities:





						$

	Cash flows from investing activities:
					$
		Less:




	Cash flows from financing activities:
					$
		Less:		$






	Cash at beginning of period

	Cash at end of period					$



3. QUESTIONS

A.	If the corporation reported income and expensesusing the cash basis (instead of accrual),
	what impact did operational transactions have oncash?			Increase/Decrease Amount		$

B.	What was the of largest specific source of cashinflow during the year?


C.	What was the largest specific source of cashoutflow during the year?


D.	The ending cash balance on the Statement of CashFlows should match the cash balance
	on which other financial statement?

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PROBLEM 14-13 Prepare and interpret a Statement of Cash Flows; Free Cash Flow (L014-1, L014-2, L014-3] Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was avail- able at the end of 2014. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. Rusco Company Comparative Balance Sheet July 31, 2014 and 2013 2014 2013 $ 8.000 120,000 140,000 5,000 273,000 50,000 430,000 60,000 370,000 $693,000 $ 21,000 80,000 90,000 9,000 200,000 70,000 300,000 50,000 250,000 $520,000 Assets Current assets: Cash....... Accounts receivable ................... Inventory ................... Prepaid expenses................. Total current assets ............. Long-term investments ............... Plant and equipment .... Less accumulated depreciation ........ Net plant and equipment .................. Total assets ................... Liabilities and Stockholders' Equity Current liabilities: Accounts payable ....... Accrued liabilities .... Income taxes payable ...... Total current liabilities ......... Bonds payable..... Total liabilities ........ Stockholders' equity: Common stock ........ Retained earnings ..................... Total stockholders' equity ................. Total liabilities and stockholders' equity....... $123,000 8.000 20.000 151,000 70,000 221,000 $ 60,000 17,000 12,000 89,000 89,000 366,000 106.000 472,000 $693,000 346,000 85,000 431,000 $520,000 Rusco Company Income Statement For the Year Ended July 31, 2014 $500,000 300,000 200,000 158,000 42,000 Sales ......... Cost of goods sold .......... Gross margin ...................... Selling and administrative expenses .... Net operating income ............... Nonoperating items: Gain on sale of investments ......... Loss on sale of equipment .......... Income before taxes ................ Income taxes ................. Net income .............. $10,000 (2,000 8,000 50,000 20,000 $ 30,000 The following additional information is available for the year 2014. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $8,000. The equipment had originally cost $20,000 and had accumulated depreciation of $10,000. c. Long-term investments that had cost $20,000 were sold during the year for $30,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Required: 1. Using the indirect method, compute the net cash provided by operating activities for 2014. 2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for 2014. Compute free cash flow for 2014. 4. Explain the major reasons for the decline in the company's cash balance.

Record journal entries for the summarized transactions for2010 (e.g. items 1 - 10 below)

Susieâs Catering Service, a corporation, began business onJanuary 1, 2009. At the end of Year 1, December 31, 2009, thecompanyâs post-closing trial balance appeared as follows:

a/c #	Account name	Balance
100	Cash	38,500
105	Accounts Receivable	4,000
110	Supplies	2,200
115	Prepaid Insurance	1,800
160	Equipment	15,000
165	A/D-Equipment	(3,000)
	Total Assets	58,500

200	Accounts Payable	6,300
205	Notes Payable (short-term)	3,000
210	Wages Payable	1,200
215	Interest Payable	0
220	Income Taxes Payable	700
225	Advances from Customers	2,200
250	Notes Payable (long-term)	9,000
300	Contributed Capital	12,000
305	Retained Earnings	24,000
	Total Liabilities & Owners' Equity	58,500

310	Dividends Declared	0
400	Service Revenue	0
505	Depreciation Expense	0
510	Wages Expense	0
515	Insurance Expense	0
520	Supplies Expense	0
600	Interest Expense	0
650	Income Tax Expense	0

A summary of transactions (1 â 10) which occurred during 2010 areas follows (to be entered into the âgeneral journalâ at December30, 2010):

(1). Earned revenue of $125,000 of which $102,400 had beencollected in cash with $22,600 still due from customers. Thisamount does not include the balance in the âAdvances fromCustomersâ account which will be considered in transaction<8.

(2). Purchased equipment for $2,400 cash.

(3). Issued 1,000 additional shares of stock and received $7,000cash.

(4). Paid cash wages of $56,200, of which $1,200 was payment on thebeginning of the year Wages Payable balance, with the remaining$55,000 paid for work performed during the current year.

(5). Purchased supplies costing $3,000 for future use during theyear. $600 of these purchases remain unpaid for at the end of theyear [i.e. $2,400 was paid in cash with $600 still open on accountto vendors]

(6). Collected the entire Accounts Receivable balance that existedat the beginning of the year.

(7). Paid off all of the beginning Accounts Payable balance.

(8). Near the end of the year received a $1,650 deposit from acustomer for services to be performed next year.

(9). Declared and paid a cash dividend of $9,500.

(10). Paid the âIncome Taxes Payableâ balance that existed at thebeginning of the year.

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ACCT-2010 Lecture 2: Chapter 2 - The Balance Sheet

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