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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
During 20X2, Evans Company had the following transactions:
- a. Cash dividends of $6,000 were paid.
- b. Equipment was sold for $2,880. It had an original cost of $10,800 and a book value of $5,400. The loss is included in operating expenses.
- c. Land with a fair market value of $15,000 was acquired by issuing common stock with a par value of $3,600.
- d. One thousand shares of preferred stock (no par) were sold for $4.20 per share.
Evans provided the following income statement (for 20X2) and comparative balance sheets:
Required:
Prepare a worksheet for Evans Company.
Construct a worksheet for the E Company.
Worksheet:
The chart prepared in a spreadsheet format as a helping tool in accounting is known as worksheet. With the help of worksheet, a cash flow statement can be prepared with less confusion and complexity.
The worksheet for the E Company is shown in the table below:
| Worksheet: E Company | ||||
| At December 31, 20X2 | ||||
| Transactions | ||||
| Particulars | 20X1 ($) | Debit ($) | Credit ($) | 20X2 ($) |
| Assets: | ||||
| Cash | 32,400 | (1) 34,200 | 66,600 | |
| Accounts receivable | 19,800 | (2) 2,280 | 22,080 | |
| Inventory | 28,800 | (3) 9,000 | 19,800 | |
| Plant and equipment | 46,800 | (4) 10,800 | 36,000 | |
| Accumulated depreciation | (23,400) | (4) 5,400 | (5) 3,600 | (21,600) |
| Land | 9,000 | (6) 15,000 | 24,000 | |
| Total assets | 113,400 | 146,880 | ||
| Liabilities and stockholder’s equity: | ||||
| Accounts payable | 14,400 | (7) 7,200 | 21,600 | |
| Wages payable | 1,800 | (8) 720 | 1,080 | |
| Bonds payable | 10,800 | (9) 4,200 | 6,600 | |
| Preferred stock | 1,800 | (10) 4,200 | 6,000 | |
| Common stock | 18,000 | (11) 3,600 | 21,600 | |
| Paid-in capital in excess of par | 18,000 | (11) 11,400 | 29,400 | |
| Retained earnings | 48,600 | (13) 6,000 | (12) 18,000 | 60,600 |
| Total liabilities and stockholder’s equity | 113,400 | 146,880 | ||
Table (1)
The analysis of transactions is as follows:
(1). Change in cash:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Cash | 34,200 | ||
| Net increase in cash | 34,200 | ||
| (Being the change in cash recorded) |
Table (2)
Increase in accrual cash balance by $34,200 from the beginning to the end of the year is recorded.
(2). Change in accounts receivable:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Accounts receivable | 2,280 | ||
| Operating cash | 2,280 | ||
| (Being the increase in accounts receivable recorded) |
Table (3)
Increase in accounts receivable by $2,280 is recognized on the income statement but is not collected. This cash inflow should be adjusted in the net income.
(3). Decrease in inventory:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Operating cash | 9,000 | ||
| Inventory | 9,000 | ||
| (Being the increase in inventory recorded) |
Table (4)
With decrease in inventory by $9,000, the operating cash is increased. The decrease in inventory does not show an outflow of cash.
(4). Sale of equipment:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Operating cash | 3,120 | ||
| Cash from investing activities | 2,280 | ||
| Accumulated depreciation | 5,400 | ||
| Plant and equipment | 10,800 | ||
| (Being the loss on sale of equipment recorded) |
Table (5)
The operating cash flows are increased by $3,120; 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 $2,280. The accumulated depreciation is debited to record the expense. The plant and equipment account is credited to record the original cost of the equipment.
(5). Accumulated depreciation expense:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Operating cash | 1,800 | ||
| Accumulated depreciation | 1,800 | ||
| (Being the accumulated depreciation recorded) |
Table (6)
There is net decrease in accumulated depreciation of $1,800
(6). Land for common stock:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Land | 15,000 | ||
| Noncash investing activities | 15,000 | ||
| (Being fair value of land recorded) |
Table (7)
Land account is debited with the fair value at which land is acquired. The noncash investing activities is credited with the amount to record the cash inflow by investing activities.
(7). Accounts payable:
| Date | Account Title and Explanation |
Debit ($) |
Credit ($) |
| Operating cash | 7,200 | ||
| Accounts payable | 7,200 | ||
| (Being the increase in accounts payable recorded) |
Table (8)
The increase in accounts payable by $7,200 shows that all the purchases were not from cash
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