Fundamental Financial Accounting Concepts, 9th Edition
Fundamental Financial Accounting Concepts, 9th Edition
9th Edition
ISBN: 9780078025907
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 10, Problem 31BP
To determine

Prepare an income statement, statement of changes in equity, balance sheet, and statement of cash flows for Year 2016, Year 2017, Year 2018, and Year 2019.

Expert Solution & Answer
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Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Statement of changes in stockholders' equity:

Statement of changes in stockholders' equity records the changes in the owners’ equity during the end of an accounting period by explaining about the increase or decrease in the capital reserves of shares.

Balance Sheet:

Balance sheet summarizes the assets, the liabilities, and the stockholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Statement of cash flows

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Record the transactions in general journal form as follows:

Date and Event numberAccount title and ExplanationPost ref

Debit

 (in $)

Credit (in $)
2016
1.Cash ($300,000×1.03)309,000
     Premium on bonds payable9,000
     Bonds payable300,000
(To record the issuance of bonds payable on premium)
2. Land309,000
     Cash 309,000
(To record the purchase of land)
Year 2016,2017 and 2018
3. Cash 36,000
     Lease Revenue 36,000
(To record  the lease revenue)
4.Interest Expense ($300,000×6%)  18,000
     Cash 18,000
(To record interest expense)
5.Premium on bonds payable600
     Interest expense ($9,00015years)600
(To record the amortization of premium on bonds payable)
Year 2019
6. Cash 310,000
     Gain 1,000
     Land309,000
(To record  the sale of land for gain)
7.Bonds payable 300,000
Loss on bonds redemption4,800
Premium on bonds payable (9,000Amortized premium of $1,800)7,200
     Cash ($300,000×1.04)312,000
(To record redemption of bonds payable)

Table (1)

Post the transactions to T-accounts as follows:

Cash (Year 2016)
1.309,0002.309,000
3.36,0004.18,000
Bal.18,000
Cash (Year 2017)
3.36,0004.18,000
Bal.36,000
Cash (Year 2018)
3.36,0004.18,000
Bal.54,000
Cash (Year 2019)
6.310,0007.312,000
Bal.52,000
Land (Year 2016)
2.309,000
Bal.309,000
Land (Year 2019)
6.309,000
Bal.0
Bonds Payable (Year 2016)
1. 300,000
Bal.300,000
Bonds Payable (Year 2019)
7. 300,000
Bal.0
Premium on bonds payable (Year 2016)
5.6001.9,000
Bal.           8,400
Premium on bonds payable (Year 2017)
5.600
Bal.           7,800
Premium on bonds payable (Year 2018)
5.600
Bal.           7,200
Premium on bonds payable (Year 2019)
7.7,200
Bal.           0
Retained Earnings (Year 2016)
Cl18,600
Bal.18,600
Retained Earnings (Year 2017)
Cl18,600
Bal.37,200
Retained Earnings (Year 2018)
Cl18,600
Bal.55,800
Retained Earnings (Year 2019)
Cl    3,800
Bal.52,000
Lease Revenue (Year 2016)
Cl36,0003.36,000
Bal.0-
Lease Revenue (Year 2017)
Cl36,0003.36,000
Bal.0-
Lease Revenue (Year 2018)
Cl36,0003.36,000
Bal.0-
Interest Expense (Year 2016)
4.18,0005.  600
Cl17,400
Interest Expense (Year 2017)
4.18,0005.  600
Cl17,400
Interest Expense (Year 2018)
4.18,0005.  600
Cl17,400
Bal.0
Gain on sale of land (Year 2019)
Cl1,0006.1,000
Bal.0-
Loss on Bond Redemption (Year 2019)
7.           4,800Cl            4,800
Bal. 0

Prepare an income statement, statement of changes in equity, balance sheet, and statement of cash flows for Year 2016, Year 2017, Year 2018, and Year 2019 as follows:

Company W
 Financial Statements 2016 ($)2017 ($) 2018 ($) 2019 ($)
 Income Statements for the Year Ended December 31
Lease Revenue36,00036,00036,0000
Interest Expense(17,400)(17,400)(17,400)0
Operating Income18,60018,60018,6000
Non-operating income or expense:
Gain on sale of land0001,000
Loss on bond redemption000(4,800)
 Net Income$18,600$18,600$18,600$(3,800)
Statement of changes in Stockholders’ Equity
Common stock0000
Beginning retained earnings018,60037,20055,800
Add: Net income18,60018,60018,600(3,800)
Ending retained earnings18,60037,20055,80052,000
Total stockholders’ Equity$18,600$37,200$55,800$52,000
 Balance Sheets as of December 31
 Assets 2016 2017 2018 2019
 Cash18,00036,00054,00052,000
 Land309,000309,000309,0000
 Total Assets$327,000$345,000$363,000$52,000
 Liabilities
 Bonds Payable300,000300,000300,0000
 Premium on bonds payable8,4007,8007,2000
Total Liabilities308,400307,800307,2000
 Stockholders’ Equity
 Retained Earnings18,60037,20055,80052,000
 Total Liabilities and Stockholders’ Equity$327,000$345,000$363,000$52,000
 Statements of Cash Flows for the Year Ended December 31
 Cash Flows From Operating Activity:
 Receipts from lease36,00036,00036,0000
 Paid for Interest(18,000)(18,000)(18,000)0
 Net Cash Flow from Operating Activity18,00018,00018,0000
 Cash Flows From investing Activity:
 Receipt from sale of land000310,000
 Paid to purchase land(309,000)000
Net Cash Flow from Investing Activity(309,00000310,000
 Cash Flows From Financing Activity:
 Proceeds from bond issue309,000000
 Repayment of bond000(312,000)
Net Cash Flow from Financing Activity309,00000(312,000)
 Net Change in Cash18,00018,00018,000(2,000)
 Add: Beginning Cash Balance018,00036,00054,000
Ending Cash Balance$18,000$36,000$54,000$52,000

Table (2)

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Chapter 10 Solutions

Fundamental Financial Accounting Concepts, 9th Edition

Ch. 10 - Prob. 11QCh. 10 - Prob. 12QCh. 10 - Prob. 13QCh. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Prob. 18QCh. 10 - Prob. 19QCh. 10 - Prob. 20QCh. 10 - Prob. 21QCh. 10 - Prob. 22QCh. 10 - Prob. 23QCh. 10 - Prob. 24QCh. 10 - Prob. 25QCh. 10 - Prob. 26QCh. 10 - Prob. 27QCh. 10 - Prob. 28QCh. 10 - Prob. 29QCh. 10 - Prob. 1AECh. 10 - Prob. 2AECh. 10 - Prob. 3AECh. 10 - Prob. 4AECh. 10 - Prob. 5AECh. 10 - Prob. 6AECh. 10 - Prob. 7AECh. 10 - Prob. 8AECh. 10 - Prob. 9AECh. 10 - Prob. 10AECh. 10 - Prob. 11AECh. 10 - Prob. 12AECh. 10 - Prob. 13AECh. 10 - Prob. 14AECh. 10 - Prob. 15AECh. 10 - Prob. 16AECh. 10 - Prob. 17AECh. 10 - Prob. 18AECh. 10 - Prob. 19AECh. 10 - Prob. 20AECh. 10 - Prob. 21AECh. 10 - Prob. 22AECh. 10 - Prob. 23AECh. 10 - Prob. 24AECh. 10 - Prob. 25AECh. 10 - Prob. 26APCh. 10 - Prob. 27APCh. 10 - Prob. 28APCh. 10 - Prob. 29APCh. 10 - Prob. 30APCh. 10 - Prob. 31APCh. 10 - Prob. 32APCh. 10 - Prob. 33APCh. 10 - Prob. 34APCh. 10 - Prob. 1BECh. 10 - Prob. 2BECh. 10 - Prob. 3BECh. 10 - Prob. 4BECh. 10 - Prob. 5BECh. 10 - Prob. 6BECh. 10 - Prob. 7BECh. 10 - Prob. 8BECh. 10 - Prob. 9BECh. 10 - Prob. 10BECh. 10 - Prob. 11BECh. 10 - Prob. 12BECh. 10 - Prob. 13BECh. 10 - Prob. 14BECh. 10 - Prob. 15BECh. 10 - Prob. 16BECh. 10 - Prob. 17BECh. 10 - Prob. 18BECh. 10 - Prob. 19BECh. 10 - Prob. 20BECh. 10 - Prob. 21BECh. 10 - Prob. 22BECh. 10 - Prob. 23BECh. 10 - Prob. 24BECh. 10 - Prob. 25BECh. 10 - Prob. 26BPCh. 10 - Prob. 27BPCh. 10 - Prob. 28BPCh. 10 - Prob. 29BPCh. 10 - Prob. 30BPCh. 10 - Prob. 31BPCh. 10 - Prob. 32BPCh. 10 - Prob. 33BPCh. 10 - Prob. 34BPCh. 10 - Prob. 1ATCCh. 10 - Prob. 3ATCCh. 10 - Prob. 4ATCCh. 10 - Prob. 5ATCCh. 10 - Prob. 6ATCCh. 10 - Prob. 7ATCCh. 10 - Prob. 9ATCCh. 10 - Prob. 10ATCCh. 10 - Prob. 1CP
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