Question

Simpson Company had the following balances in its accounting records as of December 31, Yeart Assets Cash Accounts Receivable Land Total $ 40,000 9,000 51,000 $100,000 Liabilities and Equity Accounts Payable Common Stock Retained Earnings Total $ 7,500 45,000 47,500 $100,000 The following accounting events apply to Simpson Company's Year 2 fiscal year: Jan. 1 Acquired $20,000 cash from the issue of common stock. Feb. 1 Paid $6,000 cash in advance for a one-year lease for office space. Mar. 1 Paid a $2,000 cash dividend to the stockholders. Apr. 1 Purchased additional land that cost $15,000 cash. May 1 Made a cash payment on accounts payable of $5,500. July 1 Received $9,600 cash in advance as a retainer for services to be performed monthly over the coming year Sept. 1 Sold land for $30,000 cash that had originally cost $30,000. Oct. 1 Purchased $2,500 of supplies on account. Dec. 31 Earned $58,000 of service revenue on account during the year. 31 Received cash collections from accounts receivable amounting to $46,000. 31 Incurred other operating expenses on account during the year that amounted to $28,000. 31 Recognized accrued salaries expense of $6,500. 31 Had $50 of supplies on hand at the end of the period. 31 The land purchased on April i had a market value of $20,000

Answer 1

Simpson Company Stockholders Equity Liabilties Assets Retained Earnings Titles Cash Accounts Rec Prepaid Rent Supplies Land = Accounts Payable Salaries Payable Unearned Revenue Common Stock Retained Earnings Calculation Date Bal 40,000 9,000 51,000 7,500 45,000 47,500 1-Jan 20,000 20,000 + 1-Feb (6,000) 6,000 + + (2,000) (2,000) Dividends 1-Mar + + 1-Apr 15,000) 15,000 + (5,500) (5,500) 1-May 1-Jul + + 9,600 9,600 + (30,000) 1-Sep 30,000 + 2,500 1-Oct 2,500 + 31-Dec 58,000 58,000 Service Revenue + + 31-Dec (46,000) 46,000 + + Other operating expense (28,000) 31-Dec 28,000 + + Salaries expense 31-Dec (6,500) 6,500 + + (2,450) (2,450) Supplies expense 31-Dec =2.500-50 + + 31-Dec No entry + + (5,500) Rent expense 6,000/12*11 31-Dec (5,500) + -9,600/12 6 (4,800) 31-Dec 4,800 Service Revenue Bal 65,000 65,850 117,100 21,000 500 50 36,000= 32,500 6,500 4,800+ Under US GAAP, fixed assets cannot be revalued upwards Note

a Land 36,000 b Net cashflow from operating activities Advance receipts from customers 9,600 Cash receipts from customers 46,000 (5,500) Cash payments to creditors Cash payments for rent (6,000) Net cashflow from operating activities 44,100 c Rent expense 5,500 d Total Liabilities Accounts Payable 32,500 Salaries Payable 6,500 Unearned Revenue 4,800 Total Liabilities 43,800 e Supplies expense 2,450 f Unearned Revenue 4,800 g Net cashflow from investing activities (15,000) Purchase of Land Proceeds from sale of land 30,000 Net cashflow from investing activities 15,000 h Total expenses Other operating expense 28,000 Salaries expense 6,500 Supplies expense 2,450 Rent expense 5,500 Total expenses 42,450 i Service Revenue 58,000 Service Revenue Service Revenue 4,800 62,800 Service Revenue Cashflow from financing activities Proceeds from issue of common stock 20,000 Dividends paid (2,000) Cashflow from financing activities 18,000 k Net Income Service Revenue 62,800 Total expenses (42,450) Net Income 20,350 IRetained Earnings Beginning Balance 47,500 Net Income 20,350 Dividends (2,000) Retained Earnings 65,850