Question

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Alcorn Service Company was formed on January 1, 2018.

Events Affecting the 2018 Accounting Period

1. Acquired $78,000 cash from the issue of common stock.

2. Purchased $4,800 of supplies on account.

3. Purchased land that cost $54,000 cash.

4. Paid $4,800 cash to settle accounts payable created in Event 2.

5. Recognized revenue on account of $78,000.

6. Paid $39,000 cash for other operating expenses.

7. Collected $56,000 cash from accounts receivable.

Information for 2018 Adjusting Entries

8. Recognized accrued salaries of $5,000 on December 31, 2018.

9. Had $2,000 of supplies on hand at the end of the accounting period.

  

Events Affecting the 2019 Accounting Period

1. Acquired $38,000 cash from the issue of common stock.

2. Paid $5,000 cash to settle the salaries payable obligation.

3. Paid $9,000 cash in advance to lease office space.

4. Sold the land that cost $54,000 for $54,000 cash.

5. Received $10,200 cash in advance for services to be performed in the future.

6. Purchased $2,800 of supplies on account during the year.

7. Provided services on account of $50,000.

8. Collected $51,000 cash from accounts receivable.

9. Paid a cash dividend of $4,000 to the stockholders.

10. Paid other operating expenses of $37,500.

  

Information for 2019 Adjusting Entries

11. The advance payment for rental of the office space (see Event 3) was made on March 1 for a one-year term.

12. The cash advance for services to be provided in the future was collected on October 1 (see Event 5). The one-year contract started on October 1.

13. Had $2,100 of supplies remaining on hand at the end of the period.

14. Recognized accrued salaries of $5,700 at the end of the accounting period.

15. Recognized $2,200 of accrued interest revenue.

1. b-1. Prepare an income statement for 2018 and 2019.

2. b-2. Prepare the statement of changes in stockholders’ equity for 2018 and 2019.

3. b-3. Prepare the balance sheet for 2018 and 2019.

4. b-4. Prepare the statement of cash flows for 2018 and 2019, using the vertical statements model.

Alcorn Service Company was formed on January 1, 2018. Events Affecting the 2018 Accounting Period 1. Acquired $78,000 cash from the issue of common stock. 2. Purchased $4,800 of supplies on account. 3. Purchased land that cost $54,000 cash. 4. Paid $4,800 cash to settle accounts payable created in Event 2. 5. Recognized revenue on account of $78,000. 6. Paid $39,000 cash for other operating expenses. 7. Collected $56,000 cash from accounts receivable. Information for 2018 Adjusting Entries 8. Recognized accrued salaries of $5,000 on December 31, 2018. 9. Had $2,000 of supplies on hand at the end of the accounting period. Events Affecting the 2019 Accounting Period 1. Acquired $38,000 cash from the issue of common stock. 2. Paid $5,000 cash to settle the salaries payable obligation. 3. Paid $9,000 cash in advance to lease office space. 4. Sold the land that cost $54,000 for $54,000 cash. 5. Received $10,200 cash in advance for services to be performed in the future. 6. Purchased $2,800 of supplies on account during the year. 7. Provided services on account of $50,000. 8. Collected $51,000 cash from accounts receivable. 9. Paid a cash dividend of $4,000 to the stockholders. 10. Paid other operating expenses of $37,500.

Answer 1

Alcorn Service Company 2018 Journal Enteries Trans. Particulars 1 Cash a/c Dr. To Common Stock (Common stock issued for cash) Debit in $ Credit in $ 78000 78000 2 4800 Supplies a/c Dr. To Accounts Payable (Supplies on account) 4800 3 Dr. 54000 Land a/c To Cash (Land purchased) 54000 4 Dr. 4800 Accounts Payable a/c To Cash (Creditors paid) 4800 5 78000 Accounts Receivable a/c Dr. To Revenue (Revenue on account) 78000 6 39000 Operating expenses a/c Dr. To Cash (Expenses paid) 39000 7 Dr. 56000 Cash a/c To Accounts Receivable (Cash from debtors) 56000 Adjusting Enteries Date Particulars 31.12.2018 Salaries Expense a/c To Salary Payable (Salary accrued) Dr. Debit in $ Credit in $ 5000 5000 2800 31.12.2018 Supplies Expense a/c Dr. To Supplies (Supplies expensed) 4800 - 2000 2800

Worksheet For the period ending 31.12.2018 Unadjusted Adjustments Adjusted Particulars Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Cash 36200 36200 Accounts Receivable 22000 22000 Supplies 4800 2800 2000 Land 54000 54000 Accounts Payable Salary Payable 5000 5000 Common Stock 78000 78000 Revenue 78000 78000 Operating expenses 39000 39000 Salaries Expense 5000 5000 Supplies Expense 2800 2800 Totals 156000 156000 7800 7800 161000 161000 78000 Statement of Income For the period ending 31.12.2018 Revenue Less: Operating expenses Salaries Expense Supplies Expense Net Income 39000 5000 2800 46800 31200 Statement of Retained Earnings For the period ending 31.12.2018 Net Income 31200

Balance sheet As at 31.12.2018 Assets Current Assets Cash Accounts Receivable Supplies Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities 36200 Salary Payable 5000 22000 2000 60200 Shareholders Equity Common Stock 78000 54000 Retained Earnings 31200 109200 114200 Total Liabilities & equity 114200 Non Current Assets Land Total Assets 31200 Statement of Cashflows For the period ending 31.12.2018 Cashflow from Operating Activity Net Income Adjustments: Increase in Accounts Receivable Increase in Supplies Increase in Salaries Payable Cash generated from Operating Activity -22000 -2000 5000 -19000 12200 Cashflow from Investing Activity Land purchased Cash used for Investing Activity -54000 -54000 78000 Cashflow from Financing Activity Common Stock issued Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 78000 36200 36200

2019 Journal Enteries Trans. Particulars i Cash a/c To Common Stock (Common stock issued for cash) Dr. Debit in $ Credit in $ 38000 38000 Dr. 5000 Salary Payable a/c To Cash (Salary accrued paid) 5000 Dr. 9000 Prepaid Rent a/c To Cash (Advance rent) 9000 Dr. 54000 Cash a/c To Land (Land sold) 54000 5 Dr. 10200 Cash a/c To Unearned Revenue (Advance from client) 10200 6 2800 Supplies a/c Dr. To Accounts Payable (Supplies on account) 2800 50000 Accounts Receivable a/c Dr. To Revenue (Revenue on account) 50000 8 51000 Cash a/c Dr. To Accounts Receivable (Cash from debtors) 51000 9 Dr. 4000 Cash Dividend a/c To Cash (Dividend paid) 4000 37500 Operating expenses a/c Dr. To Cash (Expenses paid) 37500 Adjusting Enteries Date Particulars 31.12.2019 Rent Expense a/c Dr. To Prepaid Rent (Rent expensed) 9000 x 10/12 Debit in $ Credit in $ 7500 7500 2550 31.12.2019 Unearned Revenue a/c Dr. To Revenue (Revenue recognized) 10200 x 3/12 2550 31.12.2019 Supplies Expense a/c Dr. 2700 To Supplies (Supplies expensed) 2000 + 2800-2100 2700 Dr. 5700 31.12.2019 Salaries Expense a/c To Salary Payable (Salary accrued) 5700 Dr. 2200 31.12.2019 Interest Receivable a/c To Interest Revenue (Interest accrued) 2200

Worksheet For the period ending 31.12.2019 Unadjusted Adjustments Adjusted Particulars Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Cash 133900 133900 Interest Receivable 2200 2200 Accounts Receivable 21000 21000 Supplies 4800 2700 2100 Prepaid Rent 9000 7500 1500 Land Accounts Payable 2800 2800 Salary Payable 5700 5700 Unearned Revenue 10200 2550 7650 Common Stock 116000 116000 Retained Earnings 31200 31200 Cash Dividend 4000 4000 Revenue 50000 2550 52550 Interest Revenue 2200 2200 Operating expenses 37500 37500 Salaries Expense 5700 5700 Rent Expense 7500 7500 Supplies Expense 2700 2700 Totals 210200 210200 20650 20650 2 18100 218100 Statement of Income For the period ending 31.12.2019 Interest Revenue Revenue 2200 52550 54750 Less: Operating expenses Salaries Expense Rent Expense Supplies Expense Net Income 37500 5700 7500 2700 53400 1350 Statement of Retained Earnings For the period ending 31.12.2019 Beginning Balance Net Income 31200 1350 32550 -4000 28550 Cash Dividend

Balance sheet As at 31.12.2019 Assets Current Assets Cash Interest Receivable Accounts Receivable Supplies Prepaid Rent 21000 Amounts in $ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities 133900 Accounts Payable 2800 2200 Salary Payable 5700 Unearned Revenue 7650 16150 2100 1500 160700 Shareholders Equity Common Stock 116000 Retained Earnings 28550 144550 160700 Total Liabilities & equity 160700 Total Assets 1350 Statement of Cashflows For the period ending 31.12.2019 Cashflow from Operating Activity Net Income Adjustments: Decrease in Accounts Receivable Increase in Interest Receivable Increase in Supplies Increase in Salaries Payable Increase in Accounts Payable Increase in Prepaid Rent Increase in Unearned Revenue Cash generated from Operating Activity 1000 -2200 -100 700 2800 -1500 7650 8350 9700 Cashflow from Investing Activity Land Sold Cash generated from Investing Activity 54000 54000 38000 -4000 Cashflow from Financing Activity Common Stock issued Cash Dividend paid Cash used for Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 34000 97700 36200 133900