EXERCISE 3–2A Identifying Deferral and Accrual Events ...



EXERCISE 3–2A Identifying Deferral and Accrual Events Required Identify each of the following events as an accrual, a deferral, or neither. a. Paid cash in advance for a one-year insurance policy. b. Recognized interest income from a certificate of deposit before the cash was received. c. Collected accounts receivable. d. Paid cash for current salaries expense. e. Purchased supplies to be used in the future on account. f. Provided services on account. g. Provided services and collected cash. h. Purchased a delivery van that has a four-year useful life. i. Recognized accrued salaries at the end of the accounting period. j. Paid a cash dividend to the stockholders.

a. accrual

b. accrual

c. deferral

d. deferral

e. accrual

f. neither

g. deferral

h. deferral

i. accrual

j. neither

PROBLEM 1–30B Interrelationships among Financial Statements Best Electronics started the accounting period with $10,000 of assets, $2,200 of liabilities, and $4,550 of retained earnings. During the period, the Retained Earnings account increased by $3,565. The bookkeeper reported that Best paid cash expenses of $5,010 and paid a $625 cash dividend to stockholders, but she could not find a record of the amount of cash that Best received for performing services. Best also paid $1,000 cash to reduce the liability owed to a bank, and the business acquired $2,000 of additional cash from the issue of common stock. Required a. Prepare an income statement, statement of changes in stockholders’ equity, year-end balance sheet, and statement of cash flows for the accounting period. (Hint: Determine the beginning balance in the common stock account before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements.)

|Best Electronics |

|Accounting Equation |

| |

| | | | | |Stockholders’ Equity |

| | | | | |Common | |Retained |

|Event |Assets |= |Liabilities |+ |Stock |+ |Earnings |

|Beginning Balances |10,000 |= | 2,200 |+ | 3,2501 |+ | 4,550 |

|1. Paid Expense |(5,010) | | | | | |(5,010) |

|3. Paid Dividend |(625) | | | | | |(625) |

|4. Paid Liability |(1,000) | |(1,000) | | | | |

|5. Issued Stock |2,000 | | | |2,000 | | |

|6. Revenue* |9,200 | | | | | |9,2002 |

|Ending Balance |14,565 |= | 1,200 |+ |5,250 |+ | 8,115 |

| | | | | | | | |

1Assets ( Liabilities ( Retained Earnings = Common Stock:

$10,000 ( $2,200 ( $4,550 = $3,250

2Increase in Retained Earnings: $3,565

Add: Expenses 5,010

Add: Dividends 625

Revenue $9,200

|Best Electronics |

|Income Statement |

|For the Year Ended December 31, 20-- |

| | | | |

| |Revenue |$9,200 | |

| |Expense |(5,010) | |

| |Net Income |$4,190 | |

| | | | |

|Best Electronics |

|Statement of Changes in Stockholders’ Equity |

|For the Year Ended December 31, 20-- |

| | | | | |

| |Beginning Common Stock |$3,250 | | |

| |Plus: Common Stock Issued |2,000 | | |

| |Ending Common Stock | |$ 5,250 | |

| | | | | |

| |Beginning Retained Earnings |4,550 | | |

| |Plus: Net Income |4,190 | | |

| |Less: Dividends |(625) | | |

| |Ending Retained Earnings | |8,115 | |

| | | | | |

| |Total Stockholders’ Equity | |$13,365 | |

| | | | | |

|Best Electronics |

|Balance Sheet |

|As of December 31, 20-- |

| | | | | |

| |Assets | |$14,565 | |

| | | | | |

| |Liabilities | |$ 1,200 | |

| | | | | |

| |Stockholders’ Equity | | | |

| | Common Stock |$ 5,250 | | |

| | Retained Earnings |8,115 | | |

| |Total Stockholders’ Equity | |13,365 | |

| | | | | |

| |Total Liabilities and Stockholders’ Equity | |$14,565 | |

| | | | | |

|Best Electronics |

|Statement of Cash Flows |

|For the Year Ended December 31, 20-- |

| | | | | |

| |Cash Flows From Operating Activities: | | | |

| | Cash Receipt from Revenue |$9,200 | | |

| | Cash Payment for Expense |(5,010) | | |

| |Net Cash Flow from Operating Activities | |$ 4,190 | |

| | | | | |

| |Cash Flows From Investing Activities | | -0- | |

| | | | | |

| |Cash Flows From Financing Activities: | | | |

| | Cash Receipts from Stock Issue | 2,000 | | |

| | Cash Payment to Creditors |(1,000) | | |

| | Cash Dividend Paid to Stockholders |(625) | | |

| |Net Cash Flow from Financing Activities | |375 | |

| | | | | |

| |Net Increase in Cash | | 4,565 | |

| |Plus: Beginning Cash Balance* | |10,000 | |

| |Ending Cash Balance | |$14,565 | |

| | | | | |

*Assumes all assets are cash.

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