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 2, Problem 6BE

a.

To determine

Identify the events whether it is revenue or expense recognition.

a.

Expert Solution
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Explanation of Solution

Revenue recognition principle:

Revenue recognition principle states that every business organization should recognize the revenue when it is earned, no matter, cash related to that obligation is received or not.

Expense recognition principle:

According to this principle, the expense should be recognized when it is actually incurred, doesn’t matter, payment is made or not.

Identify the events whether it is revenue or expense recognition.

EventRevenueExpense
1. Issued common stockNANA
2. Performed service on account$67,000NA
3. Paid Cash dividendsNANA
4. Collected accounts receivableNANA
5. Payment made for operating expensesNA$49,000
6. Performed services for cash$10,000NA
7. Recognized accrued utilities expenseNA$2,000

Table (1)

b.

To determine

Determine the amount of net income that is reported on the income statement for the year 2016.

b.

Expert Solution
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Explanation of Solution

Income statement:

This is a financial statement that shows the net income earned or net loss suffered by Incorporation through reporting all the revenues earned and expenses incurred by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses.

Prepare the income statement to compute the net income.

Incorporation R
Income statement
ParticularsAmount ($)Amount ($)
Total Revenue (1)$77,000 
Less: Total Expenses (2)$51,000
Net income$26,000

Table (2)

Working note:

Calculate the amount of total revenue:

Total Revenue=(Service performed on account+Service performed for cash)=$67,000+$10,000=$77,000 (1)

Calculate the amount of total expenses

Total Expenses=(Operating expenses+Accrued utilities expenses)=$49,000+$2,000=$51,000 (2)

Conclusion

Hence, the amount of net income that is to be reported on the income statement for the year 2016 is $26,000.

c.

To determine

Identify the events that affect the statement of cash flows.

c.

Expert Solution
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Explanation of Solution

Cash Flow Statement:

Cash Flow Statement is a fundamental financial statement that renders valuable information regarding the cash inflows or the cash receipts of a business and the cash outflows or cash payments for a specific period of time.

Identify the events that affect the statement of cash flows.

EventStatement of cash flows
1. Issued common stockFA
2. Performed service on accountNA
3. Paid Cash dividendsFA
4. Collected accounts receivableOA
5. Payment made for operating expensesOA
6. Performed services for cashOA
7. Recognized accrued utilities expenseNA

Table (3)

Note:

FA refers to Financing Activity.

OA refers to Operating Activity.

NA refers to not affected by the event.

d.

To determine

Determine the amount of cash flow from operating activities that is to be reported on the cash flow statement for the year 2016.

d.

Expert Solution
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Explanation of Solution

Cash Flow Statement:

Cash Flow Statement is a fundamental financial statement that renders valuable information regarding the cash inflows or the cash receipts of a business and the cash outflows or cash payments for a specific period of time.

Cash flows from operating activities refer to the cash received or cash paid in day-to-day operating activities of a company.

Prepare the statement of cash flow to calculate the cash flow from operating activities.

Incorporation R
Cash flow statement
ParticularsAmount ($)Amount ($)
Cash flow from operating activities
Cash from revenue (3)$55,000
Cash paid for expenses($49,000)
Net cash flow from operating activities$6,000

Table (4)

Working note:

Calculate the amount of cash from revenue.

Cash from revenue=(Revenue from accounts receivable+Performed service for cash)=$45,000+$10,000=$55,000 (3)

e.

To determine

Identify the balance of the service revenue account before and after closing.

e.

Expert Solution
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Explanation of Solution

The amount of service revenue before closing the revenue account is $77,000.

The amount of service revenue after closed to the retained earnings account is zero.

f.

To determine

Identify the balance of retained earnings account that appears on the balance sheet for the year 2016.

f.

Expert Solution
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Explanation of Solution

Retained earnings:

Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

Prepare the retained earnings statement to calculate the balance of retained earnings.

Incorporation R
Statement of Retained Earnings
ParticularsAmount ($)Amount ($)
Retained earnings, Beginning$0 
Add: Net income$26,000 
Subtotal$26,000 
Less: Dividends($5,000) 
Retained earnings, Ending $21,000

Table (5)

Conclusion

Hence, the balance of retained earnings that appears on the balance sheet for the year 2016 is $21,000.

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Chapter 2 Solutions

Fundamental Financial Accounting Concepts, 9th Edition

Ch. 2 - Prob. 11QCh. 2 - Prob. 12QCh. 2 - Prob. 13QCh. 2 - Prob. 14QCh. 2 - Prob. 15QCh. 2 - Prob. 16QCh. 2 - Prob. 17QCh. 2 - Prob. 18QCh. 2 - Prob. 19QCh. 2 - Prob. 20QCh. 2 - Prob. 21QCh. 2 - Prob. 22QCh. 2 - Prob. 23QCh. 2 - Prob. 24QCh. 2 - Prob. 25QCh. 2 - Prob. 26QCh. 2 - Prob. 27QCh. 2 - Prob. 28QCh. 2 - Prob. 29QCh. 2 - Prob. 30QCh. 2 - Prob. 31QCh. 2 - Prob. 32QCh. 2 - Prob. 33QCh. 2 - Prob. 34QCh. 2 - Prob. 1AECh. 2 - Prob. 2AECh. 2 - Prob. 3AECh. 2 - Prob. 4AECh. 2 - Prob. 5AECh. 2 - Prob. 6AECh. 2 - Prob. 7AECh. 2 - Prob. 8AECh. 2 - Prob. 9AECh. 2 - Prob. 10AECh. 2 - Prob. 11AECh. 2 - Prob. 12AECh. 2 - Prob. 13AECh. 2 - Prob. 14AECh. 2 - Prob. 15AECh. 2 - Prob. 16AECh. 2 - Prob. 17AECh. 2 - Prob. 18AECh. 2 - Prob. 19AECh. 2 - Prob. 20AECh. 2 - Prob. 21AECh. 2 - Prob. 22AECh. 2 - Prob. 23AECh. 2 - Prob. 24AECh. 2 - Prob. 25AECh. 2 - Prob. 26AECh. 2 - Prob. 27AECh. 2 - Prob. 28AECh. 2 - Prob. 29AECh. 2 - Prob. 30AECh. 2 - Prob. 31AECh. 2 - Prob. 32AECh. 2 - Prob. 33AECh. 2 - Prob. 34AECh. 2 - Prob. 35AECh. 2 - Prob. 36AECh. 2 - Prob. 37APCh. 2 - Prob. 38APCh. 2 - Prob. 39APCh. 2 - Prob. 40APCh. 2 - Prob. 41APCh. 2 - Prob. 42APCh. 2 - Prob. 43APCh. 2 - Prob. 44APCh. 2 - Prob. 45APCh. 2 - Prob. 1BECh. 2 - Prob. 2BECh. 2 - Prob. 3BECh. 2 - Prob. 4BECh. 2 - Prob. 5BECh. 2 - Prob. 6BECh. 2 - Prob. 7BECh. 2 - Prob. 8BECh. 2 - Prob. 9BECh. 2 - Prob. 10BECh. 2 - Prob. 11BECh. 2 - Prob. 12BECh. 2 - Prob. 13BECh. 2 - Prob. 14BECh. 2 - Prob. 15BECh. 2 - Prob. 16BECh. 2 - Prob. 17BECh. 2 - Prob. 18BECh. 2 - Prob. 19BECh. 2 - Prob. 20BECh. 2 - Prob. 21BECh. 2 - Prob. 22BECh. 2 - Prob. 23BECh. 2 - Prob. 24BECh. 2 - Prob. 25BECh. 2 - Prob. 26BECh. 2 - Prob. 27BECh. 2 - Prob. 28BECh. 2 - Prob. 29BECh. 2 - Prob. 30BECh. 2 - Prob. 31BECh. 2 - Prob. 32BECh. 2 - Prob. 33BECh. 2 - Prob. 34BECh. 2 - Prob. 35BECh. 2 - Prob. 36BECh. 2 - Prob. 37BPCh. 2 - Prob. 38BPCh. 2 - Prob. 39BPCh. 2 - Prob. 40BPCh. 2 - Prob. 41BPCh. 2 - Prob. 42BPCh. 2 - Prob. 43BPCh. 2 - Prob. 44BPCh. 2 - Prob. 45BPCh. 2 - Prob. 1ATCCh. 2 - Prob. 3ATCCh. 2 - Prob. 4ATCCh. 2 - Prob. 5ATCCh. 2 - Prob. 6ATCCh. 2 - Prob. 7ATCCh. 2 - Prob. 8ATCCh. 2 - Prob. 9ATCCh. 2 - Prob. 10ATCCh. 2 - Prob. 1CP
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