Chapter 2 Lab Handout Connect HW Problems 1 E 2 19 Supplies Unearned Revenue and the financial statements model 1 2 3 4 5 6 7 8 Hart Attorney at Law experienced the following transactions in Year 1 the first year of operations Accepted 18 700 on April 1 Year 1 as a retainer for services to be performed evenly over the next 12 months Performed legal services for cash of 61 500 Purchased 1 300 of office supplies on account Paid 1 170 of the amount due on accounts payable Paid a cash dividend to the stockholders of 4 100 Paid cash for operating expenses of 21 700 Determined that at the end of the accounting period 135 of office supplies remained on hand On December 31 Year 1 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 Flow column use the initials OA to designate operating activity IA for investing activity FA for financing activity NC for net change in cash and NA to indicate accounts not affected by the event The first event has been recorded as an example Do not round intermediate calculations Enter any decreases to account balances and cash outflows with a minus sign HART ATTORNEY AT LAW Effect of Transactions on the Financial Statements for Year 1 Assets Ev en t 1 2 3 Liabilities Stockhold ers Equity Statement of Cash Flows Income Statement Accou Unearn Suppli nts ed Retained Reven Expen Net Cash es Payabl Reven Earnings ue se Income e ue 18 700 18 700 18 700 OA 61 500 61 500 61 500 61 500 61 500 OA 1 300 1 300 NA 1 170 OA 4 1 170 1 170 5 4 100 4 100 6 21 700 21 700 7 1 165 1 165 4 100 FA 21 700 21 700 21 700 OA 1 165 1 165 NA 8 To tal s 14025 14 025 53 230 135 130 4 675 48 560 75 525 22 865 2 E 2 15 Prepaid items on financial statements 14 025 NA 52 660 53 230 NC Life Inc experienced the following events in Year 1 its first year of operation 1 Performed counseling services for 25 200 cash 2 On February 1 Year 1 paid 17 400 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 in general ledger accounts under an accounting equation b Prepare an income statement balance sheet and statement of cash flows for the Year 1 accounting period c Ignoring all other future events what is the amount of rent expense that would be recognized in Year 2 LIFE INC Effect of Events on the Accounting Equation Assets Stockholders Equity Retained Earnings Event Cash 1 Performed services 2 Prepaid rent Prepaid Rent 25 200 17 400 17 400 3 Used rent Totals 15 950 1 450 9 250 LIFE INC Income Statement For the Year Ended December 31 Year 1 25200 Expense 1 950 Net income 9250 LIFE INC Balance Sheet 15950 7 800 Revenue 25 200 As of December 31 Year 1 Assets Cash 7 800 Prepaid rent 1 450 Total assets 9250 Liabilities 0 Stockholders Equity 9 250 Retained earnings Total stockholders equity 9 250 Total liabilities and stockholders equity 9 250 LIFE INC Statement of Cash Flows For the Year Ended December 31 Year 1 Cash flows from operating activities Cash receipt from revenue Cash payment for rent 25 200 17 400 Net cash flow from operating activities 7 800 Cash flows from investing activities 0 Cash flows from financing activities 0 Net change in cash Plus Beginning cash balance 7 800 0 Ending cash balance 7 800 3 E2 12 Supplies and the financial statements model Pizza Express Inc began the Year 2 accounting period with 8 500 cash 6 000 of common stock and 2 500 of retained earnings Pizza Express was affected by the following accounting events during Year 2 a b c d Purchased 12 500 of supplies on account Earned and collected 26 000 of cash revenue Paid 11 000 cash on accounts payable Adjusted the records to reflect the use of supplies A physical count indicated that 2 100 of supplies was still on hand on December 31 Year 2 Required a Show the effects of the events on the financial statements using a horizontal statements model given below In the Cash Flows column use OA to designate operating activity IA for investing activity FA for financing activity NC for net change in cash and NA to indicate accounts not affected by the event The beginning balances have been recorded as an example Enter any decreases to account balances and cash outflows with a minus sign PIZZA EXPRESS INC Effect of Events on Financial Statements for Year 2 Liabilitie Stockholders Assets Income Statement s Equity Stateme Even nt of Retaine Account Net t Cash Supplie Commo d Revenu Expens Cash s Incom Flows s n Stock Earning e e Payable e s Beg 8 500 6 000 2 500 Bal 1 2 3 4 Total 23 50 s 0 2 100 1 500 6 000 18 100 26 000 10 400 15 600 15 00 0 4 E 2 17 Unearned items on financial statements Yard Designs YD experienced the following events in Year 1 its first year of operation 1 On October 1 Year 1 YD collected 31 200 for consulting services it agreed to provide during the coming year 2 Adjusted the accounts to reflect the amount of consulting service revenue recognized in Year 1 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 Year 1 accounting period c Ignoring all other future events what is the amount of service revenue that would be recognized in Year 2 YARD DESIGNS Accounting Equations for the Year 1 Assets Liabilities Stockholders Equity Event Cash Unearned Revenue Event Adj 31 200 23 400 Retained Earnings YARD DESIGNS Income Statement For the Year Ended December 31 Year 1 Revenue Expense Net income YARD DESIGNS Balance Sheet As of December 31 Year 1 Assets 7 800 Cash Total assets Liabilities Unearned revenue Total liabilities Stockholders Equity Retained earnings Total stockholders equity Total liabilities and stockholders equity YARD DESIGNS Statement of Cash Flows For the Year Ended December 31 Year 1 Cash flows from operating activities Cash receipt from revenue Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash Plus Beginning cash balance Ending cash balance