Fundamental Financial Accounting Concepts, 9th Edition
Fundamental Financial Accounting Concepts, 9th Edition
9th Edition
ISBN: 9780078025907
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
Question
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Chapter 10, Problem 31AP
To determine

Prepare an income statement, statement of changes in equity, balance sheet, and statement of cash flows for Year 2016, Year 2017, Year 2018, and Year 2019.

Expert Solution & Answer
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Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Statement of changes in stockholders' equity:

Statement of changes in stockholders' equity records the changes in the owners’ equity during the end of an accounting period by explaining about the increase or decrease in the capital reserves of shares.

Balance Sheet:

Balance sheet summarizes the assets, the liabilities, and the stockholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Statement of cash flows

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Record the transactions in general journal form as follows:

Date and Event numberAccount title and ExplanationPost ref

Debit

 (in $)

Credit (in $)
Year 2016
1.Cash ($500,000×0.96)480,000
Discount on bonds payable20,000
     Bonds payable500,000
(To record the issuance of bonds payable on discount)
2. Land480,000
     Cash 480,000
(To record the purchase of land)
Year 2016,2017,and 2018
3. Cash 60,000
     Lease Revenue 60,000
(To record  the lease revenue)
4.Interest Expense ($500,000×8%)  40,000
     Cash 40,000
(To record interest expense)
5.Interest expense ($20,00020years)1,000
Discount on bonds payable1,000
(To record the amortization of discount on bonds payable)
Year 2019
6. Cash 500,000
     Gain 20,000
     Land480,000
(To record  the sale of land for gain)
7.Bonds payable 500,000
Loss on bonds redemption7,000
     Discount on bonds payable ($20,000Amortized discount of $3,000)17,000
     Cash ($500,000×0.98)490,000
(To record redemption of bonds payable)

Table (1)

Post the transactions to T-accounts as follows:

Cash (Year 2016)
1.480,0002.480,000
3.60,0004.40,000
Bal.20,000
Cash (Year 2017)
3.60,0004.40,000
Bal.40,000
Cash (Year 2018)
3.60,0004.40,000
Bal.60,000
Cash (Year 2019)
3.500,0004.490,000
Bal.70,000
Land (Year 2016)
2.480,000
Bal.480,000
Land (Year 2019)
6.480,000
Bal.0
Bonds Payable (Year 2016)
1. 500,000
Bal.500,000
Bonds Payable (Year 2019)
7. 500,000
Bal.0
Discount on bonds payable (Year 2016)
1.20,0005.1,000
Bal.19,000
Discount on bonds payable (Year 2017)
5.1,000
Bal.18,000
Discount on bonds payable (Year 2018)
5.1,000
Bal.17,000
Discount on bonds payable (Year 2019)
7.17,000
Bal.0
Retained Earnings (Year 2016)
Cl19,000
Bal.19,000
Retained Earnings (Year 2017)
Cl19,000
Bal.38,000
Retained Earnings (Year 2018)
Cl19,000
Bal.57,000
Retained Earnings (Year 2019)
Cl13,000
Bal.70,000
Lease Revenue (Year 2016)
Cl60,0003.60,000
Bal.0-
Lease Revenue (Year 2017)
Cl60,0003.60,000
Bal.0-
Lease Revenue (Year 2018)
Cl60,0003.60,000
Bal.0-
Interest Expense (Year 2016)
4.40,000
5.1,000Cl41,000
Interest Expense (Year 2017)
4.40,000
5.1,000Cl41,000
Interest Expense (Year 2018)
4.40,000
5.1,000Cl41,000
Gain on sale of land (Year 2019)
Cl20,0006.20,000
Bal.0-
Loss on Bond Redemption (Year 2019)
7.           7,000Cl          7,000
Bal. 0

Prepare an income statement, statement of changes in equity, balance sheet, and statement of cash flows for Year1, Year2, Year3, and Year 4 as follows:

Company OZ
 Financial Statements Year 2016 ($)Year 2017 ($) Year 2018 ($) Year 2019 ($)
 Income Statements for the Year Ended December 31
Lease Revenue60,00060,00060,0000
Interest Expense(41,000)(41,000)(41,000)0
Operating Income19,00019,00019,0000
Non-operating income or expense:
Gain on sale of land00020,000
Loss on bond redemption000(7,000)
 Net Income$19,000$19,000$19,000$13,000
Statement of changes in Stockholders’ Equity
Common stock0000
Beginning retained earnings019,00038,00057,000
Add: Net income19,00019,00019,00013,000
Ending retained earnings19,00038,00057,00070,000
Total stockholders’ Equity$19,000$38,000$57,000$70,000
 Balance Sheets as of December 31
 Assets Year 2016 Year 2017 Year 2018 Year 2019
 Cash20,00040,00060,00070,000
 Land480,000480,000480,0000
 Total Assets500,000520,000540,00070,000
 Liabilities
 Bonds Payable500,000500,000500,0000
 Discount on bonds payable(19,000)(18,000)(17,000)0
Total Liabilities481,000482,000483,0000
 Stockholders’ Equity
 Retained Earnings19,00038,00057,00070,000
 Total Liabilities and Stockholders’ Equity500,000520,000540,00070,000
 Statements of Cash Flows for the Year Ended December 31
 Cash Flows From Operating Activity:
 Receipts from lease60,00060,00060,0000
 Paid for Interest(40,000)(40,000)(40,000)0
 Net Cash Flow from Operating Activity20,00020,00020,0000
 Cash Flows From investing Activity:
 Receipt from sale of land000500,000
 Paid to purchase land(480,000)000
Net Cash Flow from Investing Activity(480,000)00500,000
 Cash Flows From Financing Activity:
 Proceeds from bond issue480,000000
 Repayment of bond000(490,000)
Net Cash Flow from Financing Activity480,00000(490,000)
 Net Change in Cash20,00020,00020,00010,000
 Add: Beginning Cash Balance020,00040,00060,000
Ending Cash Balance$20,000$40,000$60,000$70,000

Table (2)

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Chapter 10 Solutions

Fundamental Financial Accounting Concepts, 9th Edition

Ch. 10 - Prob. 11QCh. 10 - Prob. 12QCh. 10 - Prob. 13QCh. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Prob. 18QCh. 10 - Prob. 19QCh. 10 - Prob. 20QCh. 10 - Prob. 21QCh. 10 - Prob. 22QCh. 10 - Prob. 23QCh. 10 - Prob. 24QCh. 10 - Prob. 25QCh. 10 - Prob. 26QCh. 10 - Prob. 27QCh. 10 - Prob. 28QCh. 10 - Prob. 29QCh. 10 - Prob. 1AECh. 10 - Prob. 2AECh. 10 - Prob. 3AECh. 10 - Prob. 4AECh. 10 - Prob. 5AECh. 10 - Prob. 6AECh. 10 - Prob. 7AECh. 10 - Prob. 8AECh. 10 - Prob. 9AECh. 10 - Prob. 10AECh. 10 - Prob. 11AECh. 10 - Prob. 12AECh. 10 - Prob. 13AECh. 10 - Prob. 14AECh. 10 - Prob. 15AECh. 10 - Prob. 16AECh. 10 - Prob. 17AECh. 10 - Prob. 18AECh. 10 - Prob. 19AECh. 10 - Prob. 20AECh. 10 - Prob. 21AECh. 10 - Prob. 22AECh. 10 - Prob. 23AECh. 10 - Prob. 24AECh. 10 - Prob. 25AECh. 10 - Prob. 26APCh. 10 - Prob. 27APCh. 10 - Prob. 28APCh. 10 - Prob. 29APCh. 10 - Prob. 30APCh. 10 - Prob. 31APCh. 10 - Prob. 32APCh. 10 - Prob. 33APCh. 10 - Prob. 34APCh. 10 - Prob. 1BECh. 10 - Prob. 2BECh. 10 - Prob. 3BECh. 10 - Prob. 4BECh. 10 - Prob. 5BECh. 10 - Prob. 6BECh. 10 - Prob. 7BECh. 10 - Prob. 8BECh. 10 - Prob. 9BECh. 10 - Prob. 10BECh. 10 - Prob. 11BECh. 10 - Prob. 12BECh. 10 - Prob. 13BECh. 10 - Prob. 14BECh. 10 - Prob. 15BECh. 10 - Prob. 16BECh. 10 - Prob. 17BECh. 10 - Prob. 18BECh. 10 - Prob. 19BECh. 10 - Prob. 20BECh. 10 - Prob. 21BECh. 10 - Prob. 22BECh. 10 - Prob. 23BECh. 10 - Prob. 24BECh. 10 - Prob. 25BECh. 10 - Prob. 26BPCh. 10 - Prob. 27BPCh. 10 - Prob. 28BPCh. 10 - Prob. 29BPCh. 10 - Prob. 30BPCh. 10 - Prob. 31BPCh. 10 - Prob. 32BPCh. 10 - Prob. 33BPCh. 10 - Prob. 34BPCh. 10 - Prob. 1ATCCh. 10 - Prob. 3ATCCh. 10 - Prob. 4ATCCh. 10 - Prob. 5ATCCh. 10 - Prob. 6ATCCh. 10 - Prob. 7ATCCh. 10 - Prob. 9ATCCh. 10 - Prob. 10ATCCh. 10 - Prob. 1CP
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