2-9A Prepaid items on financial statements
Therapy Inc. experienced the following events in
2013, its first year of operation:
counseling services for $18,000 cash.
February 1, 2013, paid $12,000 cash to rent office space for the coming year.
the accounts to reflect the amount of rent used during the year.
Based on this information alone
a. Record the events under an accounting equation
b. Prepare an income statement, balance sheet, and
statement of cash flows for the 2013 accounting period.
c. Ignoring all other future events, what is the
amount of rent expense that would be recognized in 2014?
2-14A Supplies, unearned revenue, and the financial statements model.
Ross, Attorney at Law, experienced the following
transactions in 2013, the first year of operations:
$1,500 of office supplies on account.
$36,000 on February 1, 2013, as a retainer for services to be performed evenly
over the next 12 months.
legal services for cash of $84,000.
4. Paid cash
for salaries expense of $32,000
5. Paid a
cash dividend to the stockholders of $8,000.
$1,200 of the amount due on accounts payable.
that at the end of the accounting period, $150 of office supplies remained on
December 31, 2013, recognized the revenue that had been earned for services
performed in accordance with Transaction 2.
Show the effects of the events on the financial
statements using a horizontal statements model like the following one. In the Cash Flow column, use the initials OA
to designate operating activity, IA for investing activity, FA for financing
activity, and NC for net change in cash.
Use NA to indicate accounts not affected by the event. The first event has been recorded as an
2-24A - Effect of accounting events on the income statement and statement of
Explain how each of the following events or series
of events and the related adjusting entry will affect the amount of net income and the amount of cash flow from operating activities
reported on the year-end financial statements.
Identify the direction of change (increase, decrease, or NA) and the
amount of the change. Organize your
answers according to the following table.
The first event is recorded as an example. If an event does not have a related adjusting
entry, record only the effects of the event.
a. Acquired $60,000 cash from the issue of common
b. Earned $20,000 of revenue on account. Collected $15,000 cash from accounts
c. Paid $4,800 cash on October 1 to purchase a
one-year insurance policy.
d. Collected $12,000 in advance for services to be
performed in the future. The contract
called for services to start on August 1 and to continue for one year.
e. Accrued salaries amounting to $5,000.
f. Sold land that cost $15,000 for 15,000 cash.
g. Provided services for $9,200 cash
h. Purchased $2,000 of supplies on account. Paid $1,500 cash on accounts payable. The ending balance in the Supplies account,
after adjustment, was $800.00.
i. Paid cash for other operating expenses of $2,200.