Precious Watson opened Precious & Company, an accounting practice, in 2013.
The following summarizes transactions that occurred during 2013:
1. Issued a $100,000 face value discount note to First National Bank on July 1, 2013. The note had an 8 percent discount rate and a one-year term to maturity.
2. Recognized cash revenue of $275,000.
3. Incurred and paid $123,000 of operating expenses.
4. Adjusted the books to recognize interest expense at December 31, 2013.
5. Prepared the necessary closing entries at December 31, 2013.
The following summarizes transactions that occurred in 2014:
1. Recognized $326,000 of cash revenue.
2. Incurred and paid $143,000 of operating expenses.
3. Recognized the interest expense for 2014 and paid the face value of the note.
4. Prepared the necessary closing entries at December 31, 2014.
Required:
a. Show the effects of each of the transactions on the elements of the financial statements, using a horizontal statements model like the one shown here. Use 1 for increase, 2 for decrease, and NA for not affected. The first transaction is entered as an example.
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b. Prepare entries in general journal form for the transactions for 2013 and 2014, and post them to T-accounts.
c. Prepare an income statement, statement of changes in stockholders equity, balance sheet, and statement of cash flows for 2013 and 2014.