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a.
Identify the amount of revenue that is reported on the 2018 income statement.
a.
Explanation of Solution
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.
- The amount of revenue recognized is $62,000 (Amount earned by providing services to the customers) is reported on the income statement.
b.
Identify the amount of cash flow from revenue will be reported on the statement of cash flows.
b.
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.
- The amount of cash flows from revenue that is reported on the statement of cash flows is $51,000 (Amount collected from accounts receivable).
c.
Calculate the amount of net income for the period.
c.
Explanation of Solution
Net income:
Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
Prepare the income statement to calculate the amount of net income.
| Incorporation L | ||
| Income statement | ||
| Particulars | Amount ($) | Amount ($) |
| Revenue | $62,000 | |
| Less: Expenses | ||
| Operating expenses | $39,000 | |
| Net income | $23,000 | |
Table (2)
The amount of net income for the period is $23,000.
d.
Identify the amount of cash flow from operating activities for the period.
d.
Explanation of Solution
Cash Flow Statement:
Cash Flow Statement is a fundamental financial statement that renders valuable information regarding the cash inflows or the cash receipts of a business and the cash outflows or cash payments for a specific period of time.
Cash flows from operating activities refer to the cash received or cash paid in day-to-day operating activities of a company.
Prepare the statement of cash flow to calculate the cash flow from operating activities.
| Incorporation L | ||
| Cash flow statement | ||
| Particulars | Amount ($) | Amount ($) |
| Cash flow from operating activities | ||
| Cash from revenue | $51,000 | |
| Cash paid for expenses | $31,000 | |
| Net cash flow from operating activities | $20,000 | |
Table (3)
The net cash flow from operating activities for the period is $20,000.
e.
Explain the reason for difference in the net income from cash flow from operating activities.
e.
Explanation of Solution
There is a difference of $11,000
f.
Identify the amount of net cash flow from investing activities.
f.
Explanation of Solution
Investing activities:
Investing activities refer to the activities carried out by a company for acquisition of long term assets. The examples for investing activities are purchase of equipment, long term investment, sale of land, and others. Investing cash flows causes changes in non-current assets.
- The amount of
cash outflow from investing activities is $21,000 (Purchase of land).
g.
Identify the amount of net cash flow from financing activities.
g.
Explanation of Solution
Financing activities:
Financing activities refer to the activities carried out by a company to mobilize funds to carry out the business activities. The examples for financing activities are purchase of bonds, issuance of common shares, and others. Financing cash flows have an impact on non-current liabilities and
- The amount of
cash inflow from financing activities is $40,000 (Issue of common stock).
h.
Identify the amount of total assets, total liabilities, and total stockholders’ equity will be reported on the year-end balance sheet.
h.
Explanation of Solution
Balance sheet:
This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors.
Prepare the balance sheet to identify the amount of total assets, total liabilities, and total stockholders’ equity.
| Incorporation L | ||
| Balance sheet | ||
| Particulars | Amount ($) | Amount ($) |
| Assets | ||
| Cash | $39,000 | |
| Accounts receivable | $11,000 | |
| Land | $21,000 | |
| Total assets | $71,000 | |
| Liabilities | ||
| Accounts payable | $8,000 | |
| Total liabilities | $8,000 | |
| Stockholders' equity | ||
| $40,000 | ||
| Common stock | $23,000 | |
| Total stockholders' equity | $63,000 | |
| Total liabilities and stockholders' equity | $71,000 | |
Table (4)
The amount of total assets, liabilities, and equity that will be reported on the year-end balance sheet is $71,000, $8,000, and $63,000 respectively.
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Chapter 2 Solutions
Survey Of Accounting
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Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning