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- Exercise 2-15A on page 110
Exercise 2-15A Pre paid items on financial statements
Life, Inc., experienced the following events in 2016, its first year of operation:
- Performed counseling services for $36,000 cash.
- On February 1, 2016, paid $18,000 cash to rent office space for the coming year.
- Adjusted the accounts to reflect the amount of rent used during the year.
Based on this information alone:
- Record the events under an accounting equation.
- Prepare an income statement, balance sheet, and statement of cash flows for the 2016
- Ignoring all other future events, what is the amount of rent expense that would be recognized
- Exercise 2-19A on page 111
Exercise 2-19A Supplies, unearned revenue, and the financial statements model
Hart, Attorney at Law, experienced the following transactions in 2016, the first year of
- Accepted $36,000 on April 1, 2016, as a retainer for services to be performed evenly over the
next 12 months.
- Performed legal services for cash of $54,000.
- Purchased $2,800 of office supplies on account.
- Paid $2,400 of the amount due on accounts payable.
- Paid a cash dividend to the stockholders of $5,000.
- Paid cash for operating expenses of $31,000.
- Determined that at the end of the accounting period $200 of office supplies remained on
- On December 31, 2016, recognized the revenue that had been earned for services performed
in accordance with Transaction 1.
Show the effects of the events on the financial statements using a horizontal statements model
like the following one. In the Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. Use NA
to indicate accounts not affected by the event. The first event has been recorded as an example.
Assets 5 Liabilities 1 Stk. Equity
No. Cash 1 Supplies 5 Accts. Pay 1 Unearned. Rev. 1 Ret. Earn. Rev. 2 Exp. 5 Net Inc. Cash Flow
- 36,000 1 NA 5 NA 1 36,000 1 NA NA 2 NA 5 NA 36,000 OA
- Exercise 2-27A on page 113
Exercise 2-27A Effect of accounting events on the income statement and statement
of cash flows
Explain how each of the following events or series of events and the related adjusting entry will
affect the amount of net income and the amount of cash flow from operating activities reported
on the year-end financial statements. Identify the direction of change (increase, decrease, or NA)
and the amount of the change. Organize your answers according to the following table. The first
event is recorded as an example. If an event does not have a related adjusting entry, record only
Cash Flows from
Net Income Operating Activities
Event/ Direction of Amount of Direction of Amount of
Adjustment Change Change Change Change
a NA NA Decrease $9,000
Adj Decrease $2,250 NA NA
- Paid $9,000 cash on October 1 to purchase a one-year insurance policy.
- Purchased $2,000 of supplies on account. Paid $500 cash on accounts payable. The ending
balance in the Supplies account, after adjustment, was $300.
- Provided services for $10,000 cash.
- Collected $2,400 in advance for services to be performed in the future. The contract called for
services to start on May 1 and to continue for one year.
- Accrued salaries amounting to $5,600.
- Sold land that cost $3,000 for $3,000 cash.
- Acquired $15,000 cash from the issue of common stock.
- Earned $12,000 of revenue on account. Collected $8,000 cash from accounts receivable.
- Paid cash operating expenses of $4,500.
- Exercise 2-29A on page 114
Exercise 2-29A Identifying source, use, and exchange transactions
Indicate whether each of the following transactions is an asset source (AS), asset use (AU), asset
exchange (AE), or claims exchange (CE) transaction.
- Acquired cash from the issue of stock.
- Paid a cash dividend to the stockholders.
- Paid cash on accounts payable.
d . Incurred other operating expenses on account.
- Paid cash for rent expense.
- Performed services for cash.
- Performed services for clients on account.
- Collected cash from accounts receivable.
- Received cash for services to be performed in the future.
- Purchased land with cash.
- Exercise 2-30A on page 114
Exercise 2-30A Identifying asset source, use, and exchange transactions
- Name an asset use transaction that will not affect the income statement.
- Name an asset exchange transaction that will affect the statement of cash flows.
- Name an asset source transaction that will not affect the income statement.
- Name an asset source transaction that will not affect the statement of cash flows.
- Name an asset source transaction that will affect the income statement.