BUSINESS ACCCOUNTING

EXERCISE 3-9A

Exercise 3-9A Recording receivables and identifying their effect on financial statements Davos Company performed services on account for $160,000 in 2016. Davos collected $120,000 cash from accounts receivable during 2016, and the remaining $40,000 was collected in cash during 2017.

Required

a. Record the 2016 transactions in T-accounts.

b. Record the 2016 transactions in a horizontal statements model like the following one:
Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow
Cash 1 Accts. Rec. 5 Ret. Earn.

c. Determine the amount of revenue Davos would report on the 2016 income statement.

d. Determine the amount of cash flow from operating activities Davos would report on the 2016 statement of cash flows.

e. Open a T-account for Retained Earnings, and close the 2016 Service Revenue account to the Retained Earnings account.

f. Record the 2017 cash collection in the appropriate T-accounts.

g. Record the 2017 transaction in a horizontal statements model like the one shown in Requirement b .

h. Assuming no other transactions occur in 2017, determine the amount of net income and the net cash flow from operating activities for 2017.

EXERCISE 3-10A

Exercise 3-10A Recording supplies and identifying their effect on financial statements Sye Chase started and operated a small family architectural firm in 2016. The firm was affected by two events: (1) Chase provided $25,000 of services on account, and (2) he purchased $2,800 of supplies on account. There were $250 of supplies on hand as of December 31, 2016.

Required

a. Open T-accounts and record the two transactions in the accounts.

b. Record the required year-end adjusting entry to reflect the use of supplies.

c. Record the preceding transactions in a horizontal statements model like the following one:

Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow
Accts. Accts. Ret.
Rec. 1 Supplies 5 Pay. 1 Earn.

d. Explain why the amounts of net income and net cash flow from operating activities differ.

e. Record and post the required closing entries, and prepare a post-closing trial balance.

EXERCISE 3-15A

Exercise 3-15A Recording prepaid items and identifying their effect on financial statements Cherokee Company began operations when it issued common stock for $80,000 cash. It paid $60,000 cash in advance for a one-year contract to lease delivery equipment for the business. It signed the lease agreement on March 1, 2016, which was effective immediately. Cherokee received $98,000 of cash revenue in 2016.

Required

a. Record the March 1 cash payment in general journal format.

b. Record in general journal format the adjustment required as of December 31, 2016.

c. Record all events in a horizontal statements model like the following one:

Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow
Prep. Common Ret.
Cash 1 Rent 5 Stock 1 Earn.

d. What amount of net income will Cherokee Company report on the 2016 income statement? What is the amount of net cash flow from operating activities for 2016?

e. Determine the amount of prepaid rent Cherokee Company would report on the December 31, 2016, balance sheet.

EXERCISE 3-17A

Exercise 3-17A Pr e paring closing entries

The following financial information was taken from the books of Zone Health Club, a small spa and fitness club:

Account Balances as of December 31, 2016
Accounts Receivable $12,450
Accounts Payable 6,200
Salaries Payable 3,150
Cash 36,750
Dividends 2,000
Operating Expense 35,300
Prepaid Rent 1,200
Rent Expense 8,400
Retained Earnings 1/1/2016 41,250
Salaries Expense 14,500
Service Revenue 65,400
Supplies 650
Supplies Expense 3,150
Common Stock 7,000
Unearned Revenue 6,400
Land 15,000

Required

a. Prepare the journal entries necessary to close the temporary accounts at December 31, 2016, for Zone Health Club.

b. What is the balance in the Retained Earnings account after the closing entries are posted?

PROBLEM 3-31A

Problem 3-31A Effect of errors on the trial balance

The following trial balance was prepared from the ledger accounts of Ricardo Company:

RICARDO COMPANY
Trial Balance
April 30, 2016
Account Title Debit Credit
Cash $ 68,900
Accounts Receivable 30,000
Supplies 1,800
Prepaid Insurance 3,600
Land $ 12,000
Accounts Payable 9,600
Common Stock 100,000
Retained Earnings 27,510
Dividends 8,000
Service Revenue 60,000
Rent Expense 9,600
Salaries Expense 31,500
Operating Expense 32,400
Totals $185,800 $209,110
CHECK FIGURE
Corrected Cash Balance: $69,710

When the trial balance failed to balance, the accountant reviewed the records and discovered the following errors:

1. The company received $560 as payment for services rendered. The credit to Service Revenue was recorded correctly, but the debit to Cash was recorded as $650.

2. A $900 receipt of cash that was received from a customer on accounts receivable was not recorded.

3. A $600 purchase of supplies on account was properly recorded as a debit to the Supplies account. However, the credit to Accounts Payable was not recorded.

4. Land valued at $12,000 was contributed to the business in exchange for common stock. The entry to record the transaction was recorded as a $12,000 credit to both the Land account and the Common Stock account.

5. A $500 rent payment was properly recorded as a credit to Cash. However, the Salaries Expense account was incorrectly debited for $500.

Required

Based on this information, prepare a corrected trial balance for Ricardo Company.

Corrections:

EXERCISE 4-17A

Exercise 4-17A Comprehensive exercise with sales discounts Junker's Stash started the 2016 accounting period with the balances given in the financial statements model shown below. During 2016 Junker's Stash experienced the following business events:

1. Paid cash to purchase $70,000 of merchandise inventory.

2. The goods that were purchased in Event 1 were delivered FOB destination. Freight costs of $1,400 were paid in cash by the responsible party.

3a . Sold merchandise for $72,000 under terms 1/10, n/30.
3b. Recognized $41,900 of cost of goods sold.

4a. Junker's Stash customers returned merchandise that was sold for $2,100.
4b. The merchandise returned in Event 4a had cost Junker's Stash $1,250.

5. The merchandise in Event 3a was sold to customers FOB destination. Freight costs of $1,650 were paid in cash by the responsible party.

6a. The customers paid for the merchandise sold in Event 3a within the discount period. Recognized the sales discount.
6b. Collected the balance in the accounts receivable account.

7. Paid cash of $6,850 for selling and administrative expenses.

8. Sold the land for $9,100 cash.

Required

a. Record the above transactions in a financial statements model like the one shown below:

Event Accts. Com. Ret. Rev./ Cash
No. Cash 1 Rec. 1 Inventory 1 Land 5 Stk. 1 Earn. Gain 2 Exp. 5 Net Inc. Flow
Bal. 80,000 1 0 1 15,000 1 11,000 5 70,000 1 36,000 NA 2 NA 5 NA NA

b. Determine the amount of net sales.

c. Prepare a multistep income statement. Include common size percentages on the income statement.

d. Junker's Stash return on sales ratio in 2015 was 12 percent. Based on the common size data in the income statement, did Junker's Stash expenses increase or decrease in 2016?

e. Explain why the term loss is used to describe the results due to the sale of land.