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UMass Amherst ACCOUNTG 221 - Chapter 2 Lab Handout & Connect HW Problems

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Chapter 2 Lab Handout & Connect HW Problems1. E 2-19: Supplies, Unearned Revenue, and the financial statements modelHart, Attorney at Law, experienced the following transactions in Year 1, the first year of operations:1. Accepted $18,700 on April 1, Year 1, as a retainer for services to be performed evenly over the next 12 months.2. Performed legal services for cash of $61,500.3. Purchased $1,300 of office supplies on account.4. Paid $1,170 of the amount due on accounts payable.5. Paid a cash dividend to the stockholders of $4,100.6. Paid cash for operating expenses of $21,700.7. Determined that at the end of the accounting period, $135 of office supplies remained on hand.8. On December 31, Year 1, recognized the revenue that had been earned for services performed in accordance with Transaction 1.RequiredShow 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 LAWEffect of Transactions on the Financial Statements for Year 1EventAssets = Liabilities +Stockholders'EquityIncome StatementStatementof CashFlowsCash +Supplies=AccountsPayable+UnearnedRevenue+RetainedEarningsRevenue–Expense=NetIncome1. 18,700 + = + 18,700 + – = 18,700 OA2. 61,500 + = + + 61,500 61,500 – = 61,500 61,500 OA3. --- + 1,300 = 1,300 + +---– --- = ------NA4. (1,170) + = (1,170) + +---– --- = --- (1,170) OA5. (4,100) + = + + (4,100) --- – --- = --- (4,100) FA6. (21,700) + = + + (21,700) – 21,700 = (21,700)(21,700)OA7. + (1,165) = + + (1,165) – 1,165 = (1,165) NA8. + = + (14025) + 14,025 – = 14,025 NATotals53,230 + 135 = 130 + 4,675 + 48,560 75,525 – 22,865 = 52,660 53,230 NC2. E 2-15: Prepaid items on financial statementsLife, 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. RequiredBased 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 EquationEventAssets = Stockholders’ EquityCash Prepaid Rent = Retained Earnings1. Performed services 25,200 = 25,2002. Prepaid rent (17,400) 17,400 = ---3. Used rent (15950) = (15,950)Totals 7,800 1,450 = 9,250LIFE, INC.Income StatementFor the Year Ended December 31, Year 1Revenue 25200Expense (1,950)Net income 9250LIFE, INC.Balance SheetAs of December 31, Year 1AssetsCash 7,800Prepaid rent 1,450Total assets 9250Liabilities 0Stockholders’ Equity 9,250Retained earningsTotal stockholders’ equity 9,250Total liabilities and stockholders’ equity 9,250LIFE, INC.Statement of Cash FlowsFor the Year Ended December 31, Year 1Cash flows from operating activities:Cash receipt from revenue 25,200Cash payment for rent (17,400)Net cash flow from operating activities 7,800Cash flows from investing activities0Cash flows from financing activities0Net change in cash 7,800Plus: Beginning cash balance0Ending cash balance 7,8003. E2-12: Supplies and the financial statements modelPizza Express Inc. began the Year 2 accounting period with $8,500 cash, $6,000 of commonstock, and $2,500 of retained earnings. Pizza Express was affected by the following accounting events during Year 2:a. Purchased $12,500 of supplies on account.b. Earned and collected $26,000 of cash revenue.c. Paid $11,000 cash on accounts payable.d. 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. Requireda. 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 toaccount balances and cash outflows with a minus sign.)PIZZA EXPRESS INC.Effect of Events on Financial Statements for Year 2EventAssets =Liabilities+Stockholders'EquityIncome StatementStatement ofCashFlowsCash +Supplies=AccountsPayable+Common Stock+RetainedEarningsRevenue–Expense=NetIncomeBeg.Bal8,500 + = + 6,000 + 2,500 – =1. + = + + – =2. + = + + – =3. + = + + – =4. + = + + – =Totals23,500+ 2,100 = 1,500 + 6,000 + 18,100 26,000 – 10,400 = 15,60015,0004. E 2-17: Unearned items on financial statementsYard 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 Year1. RequiredBased 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 inYear 2?YARD DESIGNSAccounting Equations for the Year 1EventAssets = Liabilities + Stockholders’ EquityCash = Unearned Revenue + Retained EarningsEvent = +Adj. = +31,200 = 23,400 + 7,800YARD DESIGNSIncome StatementFor the Year Ended December 31, Year 1RevenueExpenseNet incomeYARD DESIGNSBalance SheetAs of December 31, Year 1AssetsCashTotal assetsLiabilitiesUnearned revenueTotal liabilitiesStockholders’ EquityRetained earningsTotal stockholders’ equityTotal liabilities and stockholders’ equityYARD DESIGNSStatement of Cash FlowsFor the Year Ended December 31, Year 1Cash flows from operating activitiesCash receipt from revenueNet cash flow from operating activitiesCash flows from investing activitiesCash flows from


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