Question

The following transactions apply to Ocktoc Co. for 2014, its first year of operations 1. Received $41,500 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, 2014 2. Received $117,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 7 percent. 3. Paid $72,500 cash for other operating expenses during the year 4. Paid the sales tax due on $97,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until 2015 5. Recognized the accrued interest at December 31, 2014 The following transactions apply to Ocktoc Co. for 2015 1. Paid the balance of the sales tax due for 2015 2. Received $142,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 7 percent. 3. Repaid the principal of the note and applicable interest on April 1, 2015 4. Paid $85,500 of other operating expenses during the year 5. Paid the sales tax due on $117,000 of the service revenue. The sales tax on the balance of the revenue is not due until 2016

Answer 1

OCKTOC CO Effect of Events on the Accounting Equation 2014 and 2015 Stockholders' Equity Common + Assets Liabilities Accounts Titles for Retained Earnings Event Sales Tax+ Payable Interest Payable Notes Payable Retained Earnings Cash Stock 2014 41,500 125,1908,190 + (72,500)- 41,500 + 2. 3 +117,000 (72,500) Revenue Expense:s (6,790) -(6,790) + 1867.50+ +(1,867.50)Expenses Bal 2015 Beg. bal. 87,4001,4001,867.5041,500 87,4001,400+1,867.50 41,500 42,632.50 42,632.50 (1,400) (1,400) + 151,9409,940 + 2. 3a. (41,500)- 3b. (2,490) 142,000 Revenue 41,500) + +(1,867.50) + +(622.50) +(85,500) Expense:s (85,500) = 8,190) End. ba.100,2601,750 Expenses (8,190) + +98,510

Prepare the income statement for 2014 and 2015. (Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) OCKTOC CO Income Statement For the Year Ended December 31, 2014 Revenue 117,000 Expenses Interest Expense 1867.50 72,500 Operating Expenses Total expenses 74,367.50 42,632.50 Net Income OCKTOC CO Income Statement For the Year Ended December 31, 2015 Revenue 142,000 Expenses 622.50 Interest Expense Operating ExpenseS 85,500 Total expenses 86,122.50 55,877.50 Net Income

Prepare the statement of changes in stockholders' equity for 2014 and 2015. (Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) OCKTOC CO Statement of Changes in Stockholders' Equity For the Year Ended December 31, 2014 Opening Retained Earnings 0 117,000 74,367.50) Revenue Expense:s 42.632.50 Ending retained earnings Total stockholders' equity 42,632.50 OCKTOC CO Statement of Changes in Stockholders' Equity For the Year Ended December 31, 2015 Opening Retained Earnings 42.632.50 142,000 86,122.50 Revenue Expense:s Ending retained earnings Total stockholders' equity 98,510 98,510

Prepare the balance sheet for 2014 and 2015. (Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) OCKTOC CO Balance Sheet As of December 31, 2014 Assets Cash 87,400 Total assets 87,400 Liabilities Slaes Tax Payable Interest Payable Notes Payable 1,400 1,867.50 41,500 Total liabilities 44,767.50 Stockholders' Equity Common Stock 0 Retained Earnings 42,632.50 Total stockholders' equity Total liabilities and stockholders' equity 42,632.50 87,400 OCKTOC CO Balance Sheet As of December 31, 2015 Assets Cash 100,260 Total assets 100,260 Liabilities Slaes Tax Payable 1,750 Total liabilities 1,750 Stockholders' Equity Common Stock 0 Retained Earnings 98,510 Total stockholders' equity Total liabilities and stockholders' equity 98,510 100,260

Prepare the statement of cash flows for each year. (Do not round intermediate calculations and round your answers to the nearest whole dollar amount. Amounts to be deducted should be indicated with a minus sign.) OCKTOC CO Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities 42,632.50 Net Income +/ noncash effects on OA +lncrease in Sales Tax Payble +lncrease in Interest Payable 1,400 1,867.50 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities 45,900 0 Borrowed from Notes Pavable 41,500 Net cash flows from financing activities Net change in cash Opening Cash & Cash Equivalent Ending cash balance 41,500 87,400 0 87,400 OCKTOC CO Statement of Cash Flows For the Year Ended December 31, 2015 Cash flows from operating activities 55,877.50 Net Income +/(-) noncash effects on OA +lncrease in Sales Tax Payble Decrease in Interest Payable 350 (1,867.50) 54,360 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities 0 Payment of Notes Payable (41,500) Net cash flow from financing activities Net change in cash Opening Cash & Cash Equivalent Ending cash balance 41,500 12,860 87,400 100,260