Answered: Prepare a statement of cash flows for Year 2. (Cash outflows should be indicate

FINANCIAL ACCOUNTING

10th Edition

ISBN: 9781259964947

Author: Libby

Publisher: MCG

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Question

100%

The trial balance of Pacilio Security Services, Inc. as of January 1, Year 2, was as follows:


Cash	$	8,500
Land		4,000
Notes Payable		5,000
Common Stock		6,000
Retained Earnings		1,500

During Year 2, Pacilio Security Services experienced the following transactions:

Acquired an additional $2,000 from the issue of common stock.
Paid $3,000 on the debt owed to the Small Business Government Agency. The loan is interest-free.
Performed $21,000 of security services for numerous local events during the year; $15,000 was on account and $6,000 was cash.
On May 1, rented a small office building. Paid $2,400 for 12 months’ rent in advance.
Purchased supplies on account for $650.
Paid salaries expense for the year of $8,000.
Incurred other operating expenses on account, $6,200.
On September 1, Year 2, a customer paid $600 for services to be provided over the next six months.
Collected $13,500 of accounts receivable during the year.
Paid $5,800 on accounts payable.
Paid $1,500 of advertising expenses for the year.
Paid a cash dividend to the shareholders of $1,000.
The market value of the land was determined to be $5,000 at December 31, Year 2.

Information for Adjustments

There was $65 of supplies on hand at the end of the year.
Recognized the expired rent.
Recognized the revenue earned from Transaction 8.
Accrued salaries were $1,200 at December 31, Year 2.

Required
a. Show the effects of the events on the financial statements using a horizontal statements model given below. In the Cash Flows column, use OA to designate operating activity, IA for investing activity, FA for financing activity, NC for net change in cash and NA to indicate accounts not affected by the event. The beginning balances have been recorded as an example.
b. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 2.
c. Indicate whether the transaction increases (+), decreases (–), or increases and decreases (+/-) for each element of the financial statements. Also, in the Cash Flow column, use the letters OA to designate operating activity, IA for investing activity, FA for financing activity. The first transaction is recorded as an example.