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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, Evans Company had the following transactions:

  1. a. Cash dividends of $6,000 were paid.
  2. 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.
  3. c. Land with a fair market value of $15,000 was acquired by issuing common stock with a par value of $3,600.
  4. 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:

Chapter 14, Problem 32BEB, During 20X2, Evans Company had the following transactions: a. Cash dividends of 6,000 were paid. b. , example  1

Chapter 14, Problem 32BEB, During 20X2, Evans Company had the following transactions: a. Cash dividends of 6,000 were paid. b. , example  2

 Required:

Prepare a worksheet for Evans Company.

To determine

Construct a worksheet for the E 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 E Company is shown in the table below:

Worksheet: E Company
At December 31, 20X2
Transactions
Particulars20X1 ($)Debit ($)Credit ($)20X2 ($)
Assets:
Cash32,400 (1) 34,200 66,600
Accounts receivable19,800 (2) 2,280 22,080
Inventory28,800 (3) 9,00019,800
Plant and equipment46,800 (4) 10,80036,000
Accumulated depreciation(23,400)(4) 5,400(5) 3,600(21,600)
Land9,000(6) 15,000 24,000
    Total assets113,400  146,880
 
Liabilities and stockholder’s equity:
Accounts payable14,400 (7) 7,20021,600
Wages payable1,800(8) 720 1,080
Bonds payable10,800(9) 4,200 6,600
Preferred stock1,800 (10) 4,2006,000
Common stock18,000 (11) 3,60021,600
Paid-in capital in excess of par18,000 (11) 11,40029,400
Retained earnings48,600(13) 6,000(12) 18,00060,600
    Total liabilities and stockholder’s equity113,400  146,880

Table (1)

The analysis of transactions is as follows:

(1). Change in cash:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Cash34,200 
      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:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Accounts receivable2,280 
      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:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash9,000 
      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:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash3,120 
 Cash from investing activities2,280 
 Accumulated depreciation5,400 
      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:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash1,800 
      Accumulated depreciation 1,800
 (Being the accumulated depreciation recorded)  

Table (6)

There is net decrease in accumulated depreciation of $1,800($5,400$3,600).

(6). Land for common stock:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Land15,000 
      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:

DateAccount Title and Explanation

Debit

($)

Credit

($)

 Operating cash7,200 
      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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