Effect of deferrals on financial statements: three separate single-cycle examples
Required
a. On February 1, 2011, Elder Company was formed when it acquired SI0,000 cash from the issue of common stock. On June 1, 2011, the Company paid $2,400 cash in advance to rent office space for the coming year. The office space was used as a place to consult with clients. The consulting activity generated $5,200 of cash revenue during 2011. Based on this information alone, record the events in general ledger accounts under the accounting equation. Determine the amount of net income and cash flows from operating activities for 2011.
b. On August 1, 2011, the consulting firm of Craig&Associates was formed. On September 1, 2011, the Company received a $12,000 retainer (was paid in advance) for monthly services to be performed over a one-year period. Assuming that this was the only transaction completed in 2011, prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for 2011.
c. Snell Company had $650 of supplies on hand on January 1, 2011. During 2011 Snell Company purchased $1,500 of supplies on account. A physical count of supplies revealed that $350 of supplies were on hand as of December 31, 2011. Determine the amount of supplies expense that should be recognized in the December 31, 2011, adjusting entry. Use a financial statements model to show how the adjusting entry would affect the balance sheet, income statement, and statement of cash flows.
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