Question: Exercise 2-15: A Pre paid items on financial statements Life, Inc., experienced the following events in 2016, its first year of operation:

1. Performed counseling services for $36,000 cash.

2. On February 1, 2016, paid $18,000 cash to rent office space for the coming year.

3. Adjusted the accounts to reflect the amount of rent used during the year.

Required: Based on this information alone:

a. Record the events under an accounting equation.

b. Prepare an income statement, balance sheet, and statement of cash flows for the 2016 accounting period.

c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2017?

Exercise 2-19: A Supplies, unearned revenue, and the financial statements model Hart, Attorney at Law, experienced the following transactions in 2016, the first year of operations:

1. Accepted $36,000 on April 1, 2016, as a retainer for services to be performed evenly over the next 12 months.

2. Performed legal services for cash of $54,000.

3. Purchased $2,800 of office supplies on account.

4. Paid $2,400 of the amount due on accounts payable.

5. Paid a cash dividend to the stockholders of $5,000.

6. Paid cash for operating expenses of $31,000.

7. Determined that at the end of the accounting period $200 of office supplies remained on hand.

8. On December 31, 2016, recognized the revenue that had been earned for services performed in accordance with Transaction 1.

Required: 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.

Event

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 1. 36,000 1 NA 5 NA 1 36,000 1 NA NA 2 NA 5 NA 36,000 OA

Exercise 2-27: A Effect of accounting events on the income statement and statement of cash flows

Required: 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 ChangeChangeChange

a NA NA Decrease $9,000

Adj Decrease $2,250 NA NA

a. Paid $9,000 cash on October 1 to purchase a one-year insurance policy.

b. Purchased $2,000 of supplies on account. Paid $500 cash on accounts payable. The ending balance in the Supplies account, after adjustment, was $300.

c. Provided services for $10,000 cash.

d. 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.

e. Accrued salaries amounting to $5,600.

f. Sold land that cost $3,000 for $3,000 cash.

g. Acquired $15,000 cash from the issue of common stock.

h. Earned $12,000 of revenue on account. Collected $8,000 cash from accounts receivable.

i. Paid cash operating expenses of $4,500.

Exercise 2-29: A Identifying source, use, and exchange transactions

Required: Indicate whether each of the following transactions is an asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE) transaction.

a. Acquired cash from the issue of stock.

b. Paid a cash dividend to the stockholders.

c. Paid cash on accounts payable.

d . Incurred other operating expenses on account.

e. Paid cash for rent expense.

f. Performed services for cash.

g. Performed services for clients on account.

h. Collected cash from accounts receivable.

i. Received cash for services to be performed in the future.

j. Purchased land with cash.

Exercise 2-30: A Identifying asset source, use, and exchange transactions

Required: a. Name an asset use transaction that will not affect the income statement.

b. Name an asset exchange transaction that will affect the statement of cash flows.

c. Name an asset source transaction that will not affect the income statement.

d. Name an asset source transaction that will not affect the statement of cash flows.

e. Name an asset source transaction that will affect the income statement.