Question

Exercise 3-10B

James Jones received a $90,000 cash advance on March 1, Year 1. for legal services to be performed EX н E h. Assuming no other transactions occur in Year 2, determine the amount of net income and the g. Show the Year 2 transaction in a horizontal statements model like the one shown in Requiremena Laura Moss started and operated a small family consulting firm in Year 1. The firm was affected by two events: (1) Moss provided $36,000 of services on account, and (2) she purchased $10,000 of sur f. Record the Year 2 cash collection in the appropriate T-accounts. cash flow from operating activities for Year 2. 1,3-3, 3-4 Exercise 3-10B Recording supplies and identifying their effect on financial statements plies on account. There were $1,800 of supplies on hand as of December 31, Year 1. 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. Show the above transactions in a horizontal statements model like the following one: Assets Liab. + Equity Rev. Exp. Net Inc. Cash Flow Accts. Rec. Accts. Pay Ret. Earn. + Supplies + 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 3-11B Recording unearned revenue and identifying its effect on financial statements -1

Answer 1

a.

Account Receivable
Account Title	Amount	Amount	Account Title
Service Revenue	$         36,000.00

Service Revenue
Account Title	Amount	Amount	Account Title
		$   36,000.00	Account Receivable

Supplies
Account Title	Amount	Amount	Account Title
Account Payable	$         10,000.00

Account Payable
Account Title	Amount	Amount	Account Title
		$   10,000.00	Supplies

b.

Date	Accounts Title & Explanation	Debit	Credit
31-Dec	Supplies Expense (10000-1800)	$     8,200.00
	Supplies		$         8,200.00

c.

Assets	=	Liab.	+	Equity	Revenue	-	Expense	=	Net Income	Cash Flow
Accts. Rec.	+	Supplies	=	Accts. Pay.	+	Ret. Earn.		-		=
$ 36,000.00	+		=		+	$   36,000.00	$     36,000.00	-		=	$      36,000.00	0
	+	$   10,000.00	=	$ 10,000.00	+	$                  -		-		=	$                      -	0
	+	$    -8,200.00	=		+	$     8,200.00		-	$     -8,200.00	=	$         8,200.00	0

d. There is difference in amount of net income and cash flow because

1. Services are performed for $36000 but no cash is collected .

2. Supplies of $10000 are purchased but not for cash.

Hence cash transactions are not incurred so cash flow statement is not affected.

e.

Date	Accounts Title & Explanation	Debit	Credit
	Closing Entries
31-Dec	Service Revenue	$   36,000.00
	Retained Earnings		$      36,000.00
31-Dec	Retained Earnings	$     8,200.00
	Supplies Expense		$         8,200.00

Trial Balance
	Debit	Credit
Account Receivable	$   36,000.00
Supplies	$     1,800.00
Accounts Payable		$    10,000.00
Retained Earnings		$    27,800.00
	$   37,800.00	$    37,800.00