Fundamental Financial Accounting Concepts
Fundamental Financial Accounting Concepts
10th Edition
ISBN: 9781259918186
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 2, Problem 1CP

a.

To determine

Record the given transactions in an accounting equation and give the appropriate account titles for the amounts reported in the retained earnings column.

a.

Expert Solution
Check Mark

Explanation of Solution

Record the given transactions in an accounting equation and give the appropriate account titles for the amounts reported in the retained earnings column.

Fundamental Financial Accounting Concepts, Chapter 2, Problem 1CP

Table (1)

Cash: Cash represents the cash reserves available with the company at a point of time.

Accounts receivable: Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Prepaid Expense: Prepaid expense refers to the expense made for the service prior to the consumption or utilization, and is recorded as an asset.

Accounts payable: Accounts payable is a liability of the firm, which refers to the accounts which the company owes for purchase of certain goods or services in the past; hence it is shown in the balance sheet.

Unearned revenue: It is an advance made by the buyer before receiving the product or service. In upcoming period, the seller will have an obligation to provide goods or perform the services to the buyer for the payment already received. It is a current liability until the goods are delivered or the service is performed.

Common stock: These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.

Retained earnings: Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth. In other words, Accumulated amount of all net income less the accumulated amount of dividends declared till date is known as retained earnings.

Revenues: Revenue refers to the income received from the business activity or sale of the output, during the accounting period.

Expenses: Expenses refer to the cost incurred on the necessary purchases of the fixed assets by the firm, or the production of the goods and services, during the accounting period.

Working notes:

Calculate the rent expense

$4,800 paid in advance for one year contract to rent office space (event no. 4). Rent expense recognized for eight months.

Rent expense=Prepaid Rent×Monthsused12months=$2,400×8months12months=$1,600 (1)

Calculate revenue recognized from transaction 8.

Rent expense=Revenue received in Advance ×Number of monthsserviceprovided6 months=$600×4months6months=$400 (2)

b)

To determine

Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 2.

b)

Expert Solution
Check Mark

Explanation of Solution

Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 2.

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

Incorporation PSS
Income Statement
For the Year Ended December 31, Year 2
Particulars Amount ($)

Amount

($)

Service Revenue   $21,400
Expenses    
Salaries Expense $9,200  
Other Operating Expenses 6,200  
Advertising Expense 1,500  
Supplies Expense 585  
Rent Expense 1,600  
Total Expenses   19,085
Net Income   $ 2,315

Table (2)

Statement of changes in stockholders’ equity: It is one of the financial statements which report the changes in the stockholders equity from the beginning stockholder's equity to ending stockholder's equity.

Incorporation PSS
Statement of changes in stockholders’ Equity
For the Year Ended December 31, Year 2
Particulars

Amount

 ($)

Amount

($)

Beginning Common Stock 6,000  
Add: Common Stock Issued 2,000  
Ending Common Stock   8,000
Beginning Retained Earnings 1,500  
Add: Net Income 2,315  
Less: Dividends (1,000)  
Ending Retained Earnings   2,815
Total Stockholders’ Equity   10,815

Table (3)

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

Incorporation PSS
Balance Sheet
As of December 31, Year 2
Particulars

Amount

 ($)

Amount

($)

Assets    
Cash $8,900  
Accounts Receivable 1,500  
Supplies 65  
Prepaid Rent 800  
Land 4,000  
Total Assets   $15,265
Liabilities    
Accounts Payable $1,050  
Unearned Revenue 200  
Salaries Payable 1,200  
Notes Payable 2,000  
Total Liabilities   $  4,450
Stockholders’ Equity    
Common Stock $8,000  
Retained Earnings 2,815  
Total Stockholders’ Equity   10,815
Total Liabilities and Stockholders’ Equity   $15,265

Table (4)

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.

Incorporation PSS
Statement of cash flows
For the Year Ended December 31, Year 2
Particulars

Amount

 ($)

Amount

($)

Cash Flows From Operating Activities:    
Cash Receipts from Customers (3) $20,100  
Cash Payment for Expenses (4) (17,700)  
Net Cash Flow from Operating Activities   $2,400
Cash Flows From Investing Activities:   0
Cash Flows From Financing Activities:    
Cash Receipts from Stock Issue $ 2,000  
Cash Payments on Loan (3,000)  
Cash Payments for Dividends (1,000)  
Net Cash Flow from Financing Activities   (2,000)
Net Increase in Cash   400
Add: Beginning Cash Balance   8,500
Ending Cash Balance   $8,900

Table (5)

Working note:

Calculate the cash receipts from the customers.

Particulars

Amount

 ($)

Cash sales 6,000
Cash received from unearned income 600
Collection of accounts receivables 13,500
Cash receipts from  the customers 20,100

(3)

Table (6)

Calculate the cash payments for expenses.

Particulars

Amount

 ($)

Payment of prepaid rent 2,400
Payment of salaries 8,000
Payment of accounts payable 5,800
Payment of advertising expenses 1,500
Cash payments for expenses 17,700

(4)

Table (7)

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Chapter 2 Solutions

Fundamental Financial Accounting Concepts

Ch. 2 - Prob. 11QCh. 2 - Prob. 12QCh. 2 - Prob. 13QCh. 2 - Prob. 14QCh. 2 - Prob. 15QCh. 2 - Prob. 16QCh. 2 - Prob. 17QCh. 2 - Prob. 18QCh. 2 - Prob. 19QCh. 2 - Prob. 20QCh. 2 - Prob. 21QCh. 2 - Prob. 22QCh. 2 - Prob. 23QCh. 2 - Prob. 24QCh. 2 - Prob. 25QCh. 2 - Prob. 26QCh. 2 - Prob. 27QCh. 2 - Prob. 28QCh. 2 - Prob. 29QCh. 2 - Prob. 30QCh. 2 - Prob. 31QCh. 2 - Prob. 32QCh. 2 - Prob. 33QCh. 2 - Prob. 34QCh. 2 - Prob. 1AECh. 2 - Prob. 2AECh. 2 - Prob. 3AECh. 2 - Prob. 4AECh. 2 - Prob. 5AECh. 2 - Prob. 6AECh. 2 - Prob. 7AECh. 2 - Prob. 8AECh. 2 - Prob. 9AECh. 2 - Prob. 10AECh. 2 - Prob. 11AECh. 2 - Prob. 12AECh. 2 - Prob. 13AECh. 2 - Prob. 14AECh. 2 - Prob. 15AECh. 2 - Prob. 16AECh. 2 - Prob. 17AECh. 2 - Prob. 18AECh. 2 - Prob. 19AECh. 2 - Prob. 20AECh. 2 - Prob. 21AECh. 2 - Prob. 22AECh. 2 - Prob. 23AECh. 2 - Prob. 24AECh. 2 - Prob. 25AECh. 2 - Prob. 26AECh. 2 - Prob. 27AECh. 2 - Prob. 28AECh. 2 - Prob. 29AECh. 2 - Prob. 30AECh. 2 - Prob. 31AECh. 2 - Prob. 32AECh. 2 - Prob. 33AECh. 2 - Prob. 34AECh. 2 - Prob. 35AECh. 2 - Prob. 36AECh. 2 - Prob. 37APCh. 2 - Prob. 38APCh. 2 - Prob. 39APCh. 2 - Prob. 40APCh. 2 - Prob. 41APCh. 2 - Prob. 42APCh. 2 - Prob. 43APCh. 2 - Prob. 44APCh. 2 - Prob. 45APCh. 2 - Prob. 1BECh. 2 - Prob. 2BECh. 2 - Prob. 3BECh. 2 - Prob. 4BECh. 2 - Prob. 5BECh. 2 - Prob. 6BECh. 2 - Prob. 7BECh. 2 - Prob. 8BECh. 2 - Prob. 9BECh. 2 - Prob. 10BECh. 2 - Prob. 11BECh. 2 - Prob. 12BECh. 2 - Prob. 13BECh. 2 - Prob. 14BECh. 2 - Prob. 15BECh. 2 - Prob. 16BECh. 2 - Prob. 17BECh. 2 - Prob. 18BECh. 2 - Prob. 19BECh. 2 - Prob. 20BECh. 2 - Prob. 21BECh. 2 - Prob. 22BECh. 2 - Prob. 23BECh. 2 - Prob. 24BECh. 2 - Prob. 25BECh. 2 - Prob. 26BECh. 2 - Prob. 27BECh. 2 - Prob. 28BECh. 2 - Prob. 29BECh. 2 - Prob. 30BECh. 2 - Prob. 31BECh. 2 - Prob. 32BECh. 2 - Prob. 33BECh. 2 - Prob. 34BECh. 2 - Prob. 35BECh. 2 - Prob. 36BECh. 2 - Prob. 37BPCh. 2 - Prob. 38BPCh. 2 - Prob. 39BPCh. 2 - Prob. 40BPCh. 2 - Prob. 41BPCh. 2 - Prob. 42BPCh. 2 - Prob. 43BPCh. 2 - Prob. 44BPCh. 2 - Prob. 45BPCh. 2 - Prob. 1ATCCh. 2 - Prob. 3ATCCh. 2 - Prob. 4ATCCh. 2 - Prob. 5ATCCh. 2 - Prob. 6ATCCh. 2 - Prob. 7ATCCh. 2 - Prob. 8ATCCh. 2 - Prob. 9ATCCh. 2 - Prob. 10ATCCh. 2 - Prob. 1CP
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