Question

activities would be reported on the 2018 statement of d. What amount of total liabilities would be reported on the Dee J e. What amount of retained earnings would be reported on the December 31, 2018, balance f. What amount of cash flow from financing activities would be reported on the 20 cash flows? g. What amount of interest expense would be reported on the 2019 income statement? h. What amount of cash flows from operating activities would be reported on the 2017 statement? i. What amount of assets would be reported on the December 31, 2019, balance sheet? Problem 7-27 Accounting for short-term debt and sales tax-two accounting cycles The following transactions apply to Walnut Enterprises for 2018, its first year of operations: 1. Received $50,000 cash from the issue of a short-term note with a 6 percent interest rate and a one- year maturity. The note was made on April 1. 2018. 2. Received $130,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent. 3. Paid $62,000 cash for other operating expenses during the year. 4. Paid the sales tax due on S110,000 of the service revenue for the vear. Sales tax on the balance of the revenue is not due until 2019. 5. Recognized the accrued interest at December 31, 2018. The following transactions apply to Walnut Enterprises for 2019: 1. Paid the balance of the sales tax due for 2018. 2. Received $201.000 cash plus applicable sales tax from performing services. The services are sub ject to a sales tax rate of 6 percent. 3. Repaid the principal of the note and applicable interest on April 1, 2019. 4. Paid $102.500 of other operating expenses during the year. 5. Paid the sales tax due on $185,000 of the service revenue. The sales tax on the balance of the revenue is not due until 2020. Required a. Organize the transaction data in accounts under an accounting equation. b. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for 2018 and 2019. Problem 7-28 Contingent liabilities Required 2. Give an example of a contingent liability that is probable and reasonably estimable. How would this type of liability be shown in the accounting records? b. Give an example of a contingent liability that is reasonably possible or probable but not renen ably estimable. How would this type of liability be shown in the accounting records? c. Give an example of a contingent liability that is remote. How is this type of liability shown in accounting records? Problem 7-29 Current liabilities bols of Ripley Company

Problem 7-27

Answer 1

	Shareholder’s Equity = Assets – Liabilities			Amt in $
		Asset	Liability	Shareholder’s Equity
	Transactions in 2018	Current Assets + Non Current Assets	Current Liabilties + Non Current Liabilties	Share Capital + Retained Earnings
1	Cash received for Issue of note	50,000	50,000	-
	Interest @6% from 1st Apr 18	-	2,250	-2,250
2	Cash received for performing services + applicable taxes	1,37,800	7,800	1,30,000
3	Paid for other operating expenses	-62,000	-	-62,000
4	Paid Sales tax on service revenue on $110,000, on balance not due	-6,600	-6,600	-
5	Recognized the accrued interest at 31st Dec 2018	-	750	-750
		Asset	Liability	Shareholder’s Equity
	Transactions in 2019	Current Assets + Non Current Assets	Current Liabilities + Non Current Liabilities	Share Capital + Retained Earnings
1	Paid balance tax (total $7,800 - paid $6,600)	-1,200	-1,200	-
2	Cash received for performing services + applicable taxes	2,13,060	12,060	2,01,000
3	Repaid the Principal of the note & applicable interest	-53,000	-53,000	-
4	Paid for other operating expenses	-1,02,500	-	-1,02,500
5	Paid Sales tax on service revenue on $185,000, on balance not due	-11,100	-11,100	-

Income Statement	2,018	2,019
Sales	1,30,000	2,01,000
Cost of Goods Sold	-	-
Gross Profit	1,30,000	2,01,000
Operating Expenses
Selling Expenses	-	-
Administrative Expenses	62,000	1,02,500
Total Operating Expenses	62,000	1,02,500
Operating Income	68,000	98,500
Interest Expenses	3,000	12,060
Income before taxes	65,000	86,440
Income tax	-
Net Income after taxes	65,000	86,440

Balance Sheet as at 31st Dec 2018
Current Assets	Amt in $	Current Liabilities	Amt in $
Cash	1,19,200	Accounts payable	50,000
Accounts Receivable		Accrued Expenses	4,200
Total CA	1,19,200	Total CL	54,200
Long term Assets		Owner's Equity
Less : Accumulated Depreciation	-	Retained Earnings	65,000
Total LT Assets	-	Total Owner's Equity	65,000
Total Assets	1,19,200	Total Liabilities	1,19,200
	-
Balance Sheet as at 31st Dec 2019
Current Assets	Amt in $	Current Liabilities	Amt in $
Cash	1,64,460	Accounts payable	-
Accounts Receivable	-	Accrued Expenses	960
Total CA	1,64,460	Total CL	960
Long term Assets	-	Owner's Equity
Less : Accumulated Depreciation	-	Retained Earnings	1,63,500
Total LT Assets	-	Total Owner's Equity	1,63,500
Total Assets	1,64,460	Total Liabilities	1,64,460
	-

Example of Contingent liability

a.If a liability is reasonably estimable then the same is set aside in Balance sheet and paid when the same is due- Example is some Sales tax due for $100,000 but the same is under court & liability is not firm

b.Liability is possible but not estimable - that is given in Notes to the Balance Sheet, example an law suit by a customer to pay for damaged goods