ACBU 2222 Lecture Notes - Lecture 3: Retained Earnings, Net Income, Cash Flow Statement

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carminebear339

19 Sep 2016

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Chapter 1 example: ray and barbara neal open softbyte, inc. , a programming company by investing ,000 in exchange for common stock, softbyte purchases computer equipment for ,000 cash, softbyte purchases for ,600 of supplies from acme supply. Cash of ,500 is received, and the balance is billed: expenses paid in cash in september by softbyte are store rent , salaries of employees. Basic financial statements generated after all transactions recorded & financial data summarized w/ summary data being used to generate basic financial statements. Income statement shows company"s profit for specific period. Retained earnings statement summarizes changes that occurred in retained earnings for specific period. Balance sheet summarizes company"s financial position on given date. Interrelationships of financial statements: net income computed 1st & is needed to determine ending balance in retained earnings, retained earnings ending balance needed to prepare balance sheet.

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P1-1A On April 1, Julie Spengel established Spengelâs TravelAgency. The following trans- actions were completed during themonth.

1. Invested $15,000 cash to start the agency.

2. Paid $600 cash for April office rent.

3. Purchased equipment for $3,000 cash.

4. Incurred $700 of advertising costs in the Chicago Tribune, onaccount.

5. Paid $900 cash for office supplies.

6. Performed services worth $10,000: $3,000 cash is receivedfrom customers, and the balance of $7,000 is billed to customers onaccount.

7. Withdrew $600 cash for personal use.

8. Paid Chicago Tribune $500 of the amount due in transaction(4).

9. Paid employeesâ salaries $2,500.

10. Received $4,000 in cash from customers who have previouslybeen billed in transac- tion (6).

Instructions

(a) Prepare a tabular analysis of the transactions using thefollowing column headings: Cash, Accounts Receivable, Supplies,Equipment, Accounts Payable, Ownerâs Capital, Ownerâs Drawings,Revenues, and Expenses.

(b) From an analysis of the ownerâs equity columns, compute thenet income or net loss for April.

lilacjellyfish522

At June 30, 2017, the end of its most recent fiscal year, Primrose Comp Consultantsâ post-closing trial balance was as follows:

	Debit	Credit
Cash	$5,860
Accounts receivable	1,340
Supplies	770
Accounts payable		$450
Unearned service revenue		1,250
Common stock		4,000
Retained earnings		2,270
	$7,970	$7,970

The company underwent a major expansion in July. New staff was hired and more financing was obtained. Culver conducted the following transactions during July 2017, and adjusts its accounts monthly.

July	1	Purchased equipment, paying $4,000 cash and signing a 2-year note payable for $22,400. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month.
	2	Issued 22,400 shares of common stock for $56,000 cash.
	3	Paid $4,200 cash for a 12-month insurance policy effective July 1.
	3	Paid the first 2 (July and August 2017) monthsâ rent for an annual lease of office space for $4,500 per month.
	6	Paid $4,300 for supplies.
	9	Visited client offices and agreed on the terms of a consulting project. Culver will bill the client, Connor Productions, on the 20th of each month for services performed.
	10	Collected $1,340 cash on account from Milani Brothers. This client was billed in June when Culver performed the service.
	13	Performed services for Fitzgerald Enterprises. This client paid $1,250 in advance last month. All services relating to this payment are now completed.
	14	Paid $450 cash for a utility bill. This related to June utilities that were accrued at the end of June.
	16	Met with a new client, Thunder Bay Technologies. Received $13,400 cash in advance for future services to be performed.
	18	Paid semi-monthly salaries for $12,300.
	20	Performed services worth $31,400 on account and billed customers.
	20	Received a bill for $2,500 for advertising services received during July. The amount is not due until August 15.
	23	Performed the first phase of the project for Thunder Bay Technologies. Recognized $11,200 of revenue from the cash advance received July 16.
	27	Received $16,800 cash from customers billed on July 20.

Adjustment data:

1.		Adjustment of prepaid insurance.
2.		Adjustment of prepaid rent.
3.		Supplies used, $1,400.
4.		Equipment depreciation, $550 per month.
5.		Accrual of interest on note payable.
6.		Salaries for the second half of July, $12,300, to be paid on August 1.
7.		Estimated utilities expense for July, $900 (invoice will be received in August).
8.		Income tax for July, $1,340, will be paid in August

*Journalize July Transactions**

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Assignment Choice #1: TrialBalance

Listed below are the transactions for Hunter Marketing, Inc. forthe month of July:

July 1		Hunter begins his marketing company and invests $50,000cash.
July 5		Purchases computers and office equipment on account fromOfficeMax for $10,250.
July 6		Pays rent for office space $800 for the month.
July 6		Employs a secretary, Mary Jones.
July 8		Purchases office supplies for cash at $960.
July 9		Receives $2,430 from customer for services performed.
July 11		Pays miscellaneous office expenses $375.
July 13		Bills customers $4,900 for services performed.
July 15		Pays Office Max $3,500 on account.
July 18		Withdraws $2,000 from business for personal use.
July 20		Hunter appeared on the cover of a local newsmagazine. Relatedarticle extolled Hunterâs expertise as well as the new companyâsvalues and customer service that it brings to companies in thecommunity. This exposure led to increased inquiries fromprospective clients, and Hunter hopes this will increase futuresales.
July 20		Receives $1,900 from customers on account.
July 23		Bills customers $6,320 for services performed.
July 30		Pays the following expenses in cash: office salaries $2,300 andutilities $400.

Use the transactions to complete the following tasks:

Enter the transactions shown above in appropriate general ledgeraccounts (use T-accounts). Use the following ledger accounts: Cash,Accounts Receivable, Supplies on Hand, Office Equipment,Accumulated Depreciation, Accounts Payable, Hunter-Capital, ServiceRevenue, Rent Expense, Miscellaneous Office Expense, OfficeSalaries Expense, Supplies Expense, Utilities Expense, DepreciationExpense and Income Summary.

Prepare an unadjusted trial balance.

Record depreciation using a five-year life on the officeequipment, the straight-line method, and no salvage value. Round towhole numbers. Also, record an adjustment for office supplies usedin the amount of $510.

Prepare an adjusted trial balance.

Prepare an income statement, a statement of retained earnings,and an unclassified balance sheet.

Close the ledger.

Prepare a post-closing trial balance.

Which transaction do you think had the most significant economicimpact on the Company? Why are economically relevant events notrecorded in the financial records?

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ACBU 2222 Lecture Notes - Lecture 3: Retained Earnings, Net Income, Cash Flow Statement

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