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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Analyzing the Accounts

The controller for Summit Sales Inc. provides the following information on transactions that occurred during the year:

a. Purchased supplies on credit, $18,600

b. Paid $14,800 cash toward the purchase in Transaction a

c. Provided services to customers on credit1 $46,925

d. Collected $39,650 cash from accounts receivable

e. Recorded depreciation expense, $8,175

f. Employee salaries accrued, $15,650

g. Paid $15,650 cash to employees for salaries earned

h. Accrued interest expense on long-term debt, $1,950

i. Paid a total of $25,000 on long-term debt, which includes $1.950 interest from Transaction h

j. Paid $2,220 cash for l year’s insurance coverage in advance

k. Recognized insurance expense, $1,340, that was paid in a previous period

l. Sold equipment with a book value of $7,500 for $7,500 cash

m. Declared cash dividend, $12,000

n. Paid cash dividend declared in Transaction m

o. Purchased new equipment for $28,300 cash.

p. Issued common stock for $60,000 cash

q. Used $10,700 of supplies to produce revenues

Summit Sales uses the indirect method to prepare its statement of cash flows.

Required:

1. Construct a table similar to the one shown at the top of the next page. Analyze each transaction and indicate its effect on the fundamental accounting equation. If the transaction increases a financial statement element, write the amount of the increase preceded by a plus sign (+) in the appropriate column. If the transaction decreases a financial statement element, write the amount of the decrease preceded by a minus sign (-) in the appropriate column.

2. Indicate whether each transaction results in a cash inflow or a cash outflow in the “Effect on Cash Flows” column. If the transaction has no effect on cash flow, then indicate this by placing “none" in the “Effect on Cash Flows" column.

3. For each transaction that affected cash flows, indicate whether the cash flow would be classified as a cash flow from operating activities, cash flow from investing activities, or cash flow from financing activities. If there is no effect on cash flows, indicate this as a non-cash activity.

Chapter 11, Problem 38E, Analyzing the Accounts The controller for Summit Sales Inc. provides the following information on

To determine

(a)

Concept introduction:

Cash flow statement shows inflow and outflow of cash and it is divided into three categories, i.e., operating, investing and financing activities. It is also known as statement of cash flows.

To construct:

A table and to indicate the effect of each transaction on the financial accounts in terms of cash inflow and cash outflow.

Explanation

Table showing the effect of each transaction on the financial accounts:

Assets ($) Liabilities and Equity ($)
Transactions Current Non-Current Current Non-Current Equity
Purchased supplies on credit, $18,600 18,600 18,600
Paid $14,800 cash towards purchase in above 14,800 14,800
Provided services to customer on credit, $46,925 +46,925 +46,925
Collected $39,650 cash from account receivable ±39,650
Record Depreciation expense, $8,175 8,175 8,175
Employee salary accrued, $15,650 15,650 15,650
Paid $15,650 cash to employees for salaries earned 15,650 15,650
Accrues Interest expense on long-term debt, $1,950 1,950 1,950
Paid
To determine

(b)

Concept introduction:

Cash flow statement shows inflow and outflow of cash and it is divided into three categories, i.e., operating, investing and financing activities. Itis also known as statement of cash flows.

To construct:

A table and indicate the effect of each transaction on the financial accounts in terms of cash inflow and cash outflow.

To determine

(c)

Concept introduction:

Cash flow statement shows inflow and outflow of cash and it is divided into three categories, i.e., operating, investing and financing activities. Itis also known as statement of cash flows.

To construct:

A table and indicate the effect of each transaction on the financial accounts in terms of cash inflow and cash outflow.

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