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Business Accounting
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Exercise 3-9A Recording receivables and identifying their effect on financial statements

Davos Company performed services on account for $160,000 in 2016. Davos collected $120,000

cash from accounts receivable during 2016, and the remaining $40,000 was collected in cash during 2017.

Required

a. Record the 2016 transactions in T-accounts.

b. Record the 2016 transactions in a horizontal statements model like the following one:

Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow

Cash 1 Accts. Rec. 5 Ret. Earn.

c. Determine the amount of revenue Davos would report on the 2016 income statement.

d. Determine the amount of cash flow from operating activities Davos would report on the

2016 statement of cash flows.

e. Open a T-account for Retained Earnings, and close the 2016 Service Revenue account to the

Retained Earnings account.

f. Record the 2017 cash collection in the appropriate T-accounts.

g. Record the 2017 transaction in a horizontal statements model like the one shown in Requirement b .

h. Assuming no other transactions occur in 2017, determine the amount of net income and the

net cash flow from operating activities for 2017.

Exercise 3-10A Recording supplies and identifying their effect on financial statements

Sye Chase started and operated a small family architectural firm in 2016. The firm was affected

by two events: (1) Chase provided $25,000 of services on account, and (2) he purchased $2,800

of supplies on account. There were $250 of supplies on hand as of December 31, 2016.

Required

a. Open T-accounts and record the two transactions in the accounts.

b. Record the required year-end adjusting entry to reflect the use of supplies.

c. Record the preceding transactions in a horizontal statements model like the following one:

Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow

Accts. Accts. Ret.

Rec. 1 Supplies 5 Pay. 1 Earn.

d. Explain why the amounts of net income and net cash flow from operating activities differ.

e. Record and post the required closing entries, and prepare a post-closing trial balance.

 

Exercise 3-15A Recording prepaid items and identifying their effect on financial

statements

Cherokee Company began operations when it issued common stock for $80,000 cash. It paid

$60,000 cash in advance for a one-year contract to lease delivery equipment for the business. It

signed the lease agreement on March 1, 2016, which was effective immediately. Cherokee received

$98,000 of cash revenue in 2016.

Required

a. Record the March 1 cash payment in general journal format.

b. Record in general journal format the adjustment required as of December 31, 2016.

c. Record all events in a horizontal statements model like the following one:

Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow

Prep. Common Ret.

Cash 1 Rent 5 Stock 1 Earn.

d. What amount of net income will Cherokee Company report on the 2016 income statement?

What is the amount of net cash flow from operating activities for 2016?

e. Determine the amount of prepaid rent Cherokee Company would report on the December 31,

2016, balance sheet.

 

 

Exercise 3-17A Pr e paring closing entries

The following financial information was taken from the books of Zone Health Club, a small spa

and fitness club:

Account Balances as of December 31, 2016

Accounts Receivable $12,450

Accounts Payable 6,200

Salaries Payable 3,150

Cash 36,750

Dividends 2,000

Operating Expense 35,300

Prepaid Rent 1,200

Rent Expense 8,400

Retained Earnings 1/1/2016 41,250

Salaries Expense 14,500

Service Revenue 65,400

Supplies 650

Supplies Expense 3,150

Common Stock 7,000

Unearned Revenue 6,400

Land 15,000

Required

a. Prepare the journal entries necessary to close the temporary accounts at December 31, 2016,

for Zone Health Club.

b. What is the balance in the Retained Earnings account after the closing entries are posted?

 

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