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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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During 20X2, Norton Company had the following transactions:

  1. a. Cash dividends of $20,000 were paid.
  2. b. Equipment was sold for $9,600. It had an original cost of $36,000 and a book value of $18,000. The loss is included in operating expenses.
  3. c. Land with a fair market value of $50,000 was acquired by issuing common stock with a par value of $12,000.
  4. d. One thousand shares of preferred stock (no par) were sold for $14 per share.

Norton provided the following income statement (for 20X2) and comparative balance sheets:

Chapter 14, Problem 24BEA, During 20X2, Norton Company had the following transactions: a. Cash dividends of 20,000 were paid. , example  1

Chapter 14, Problem 24BEA, During 20X2, Norton Company had the following transactions: a. Cash dividends of 20,000 were paid. , example  2

 Required:

Prepare a worksheet for Norton Company.

To determine

Construct a worksheet for the N Company.

Explanation

Worksheet:

The chart prepared in a spreadsheet format as a helping tool in accounting is known as worksheet. With the help of worksheet, a cash flow statement can be prepared with less confusion and complexity.

The worksheet for the N Company is shown in the table below:

Worksheet: N Company
At December 31, 20X2
Transactions
Particulars20X1 ($)Debit ($)Credit ($)20X2 ($)
Assets:
Cash108,000 (1) 114,000 222,000
Accounts receivable66,000 (2) 7,600 73,600
Inventory96,000 (3) 30,00066,000
Plant and equipment156,000 (4) 36,000120,000
Accumulated depreciation(78,000)(4) 18,000(5) 12,000(72,000)
Land30,000(6) 50,000 80,000
    Total assets378,000  489,600
 
Liabilities and stockholder’s equity:
Accounts payable48,000 (7) 24,00072,000
Wages payable6,000(8) 2,400 3,600
Bonds payable36,000(9) 14,000 22,000
Preferred stock6,000 (10) 14,00020,000
Common stock60,000 (11) 12,00072,000
Paid-in capital in excess of par60,000 (11) 38,00098,000
Retained earnings162,000(13) 20,000(12) 60,000202,000
    Total liabilities and stockholder’s equity378,000  489,600

Table (1)

The analysis of transactions is as follows:

(1). Change in cash:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Cash114,000 
      Net increase in cash 114,000
 (Being the change in cash recorded)  

Table (2)

Increase in accrual cash balance by $114,000 from the beginning to the end of the year is recorded.

(2). Change in accounts receivable:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Accounts receivable7,600 
      Operating cash 7,600
 (Being the increase in accounts receivable recorded)  

Table (3)

Increase in accounts receivable by $7,600 is recognized on the income statement but is not collected. This cash inflow should be adjusted in the net income.

(3). Decrease in inventory:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash30,000 
      Inventory 30,000
 (Being the increase in inventory recorded)  

Table (4)

With decrease in inventory by $30,000, the operating cash is increased. The decrease in inventory does not show an outflow of cash.

(4). Sale of equipment:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash8,400 
 Cash from investing activities9,600 
 Accumulated depreciation18,000 
      Plant and equipment 36,000
 (Being the loss on sale of equipment recorded)  

Table (5)

The operating cash flows are increased by $8,400; so, the loss on sale should be added back to the net income for the adjustment. The cash from investing activities records the value at which the equipment is sold which is $9,600. The accumulated depreciation is debited to record the expense. The plant and equipment account is credited to record the original cost of the equipment.

(5). Accumulated depreciation expense:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash6,000 
      Accumulated depreciation 6,000
 (Being the accumulated depreciation recorded)  

Table (6)

There is net decrease in accumulated depreciation of $6,000($18,000$12,000).

(6). Land for common stock:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Land50,000 
      Noncash investing activities 50,000
 (Being fair value of land recorded)  

Table (7)

Land account is debited with the fair value at which land is acquired. The noncash investing activities is credited with the amount to record the cash inflow by investing activities.

(7). Accounts payable:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash24,000 
      Accounts payable 24,000
 (Being the increase in accounts payable recorded)  

Table (8)

The increase in accounts payable by $24,000 shows that all the purchases were not from cash

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