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These exercises help you understand the concepts in this lesson.
- Exercise 2-9A on page. 99
- Exercise 2-14A on page. 100
- Exercise 2-24A on page. 104
- Exercise 2-30A on page. 105
- Exercise 2-31A on page. 106
Exercise 2-9A Prepaid items on financial statements
Therapy Inc. experienced the following events in 2013, its first year of operation:
1. Performed counseling services for $18,000 cash.
2. On February 1, 2013, paid $12,000 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect the amount of rent used during the year.
Required
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 p eriod.
c. Ignoring all other future events, what is the amount of rent expense that would be recognized
in 2014?
Exercise 2-14 A Supplies, unearned revenue, and the financial statements model
Ross, Attorney at Law, experienced the following transactions in 2013, the first year of operations:
1. Purchased $1,500 of office supplies on account.
2. Accepted $36,000 on February 1, 2013, as a retainer for services to be performed evenly over
the next 12 months.
3. Performed 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.
6. Paid $1,200 of the amount due on accounts payable.
7. Determined that at the end of the accounting period, $150 of office supplies remained on
hand.
8. On December 31, 2013, recognized the revenue that had been earned for services performed
in accordance with Transaction 2.
Required
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 example.
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Assets = liabilities + Stk Equity
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EVENT #
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Cash + Supplies = Accts. Pay + Unearn. Rev. + Ret Earn.
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Rev. – Exp. = Net Inc.
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Cash Flow
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1
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NA + 1,500 = 1,500 + NA + NA
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NA – NA = NA
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NA
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Exercise 2-24A Effect of accounting events on the income statement and statement of
cash flows
Required
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.
Net Income Operating Activities
Direction of Amount of Direction of Amount of
Event Change Change Change Change
A NA NA NA NA
a. Acquired $60,000 cash from the issue of common stock.
b. Earned $20,000 of revenue on account. Collected $15,000 cash from accounts receivable.
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.
i. Paid cash for other operating expenses of $2,200.
Exercise 2-30A Identifying source, use, and exchange transactions
Required
Indicate whether each of the following transactions is an asset source (AS), asset use (AU), asset
exchange (AE), or claims exchange (CE) transaction:
a. Performed services for clients on account.
b. Paid cash for salary expense.
c. Acquired cash from the issue of common stock.
d. Incurred other operating expenses on account.
e. Performed services f or cash.
f. Paid cash on accounts payable.
g. Collected cash from accounts receivable.
h. Paid a cash dividend to the stockholders.
i. Received cash for services to be performed in the future.
j. Purchased land with cash.
Exercise 2-31A Identifying asset source, use, and exchange transactions
Required
a. Name an asset use transaction that will affect the income statement.
b. Name an asset use transaction that will not affect the income statement.
c. Name an asset exchange transaction that will not affect the statement of cash flows.
d. Name an asset exchange transaction that will affect the statement of cash flows.
e. Name an asset source transaction that will not affect the income statement.
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