Fundamental Financial Accounting Concepts
Fundamental Financial Accounting Concepts
10th Edition
ISBN: 9781259918186
Author: Thomas P Edmonds, Christopher Edmonds, Frances M McNair, Philip R Olds
Publisher: McGraw-Hill Education
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Chapter 3, Problem 36AP

a.

To determine

Record the 10 events in general journal format of Company BC.

a.

Expert Solution
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Explanation of Solution

Journal:

Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Record the 10 events in general journal format of Company BC as follows:

Event Account titles and Explanation Debit Credit
1. Office furniture $12,000  
       Cash   $12,000
  (To record purchase of office furniture)    
       
2. Prepaid insurance $5,400  
       Cash   $5,400
  (To record cash paid for prepaid insurance)    
       
3. Supplies $1,800  
       Cash   $1,800
  (To record purchase of supplies for cash)    
       
4. Cash $39,000  
       Service revenue   $39,000
  (To record cash paid for service provided)    
       
5. Salaries expenses $9,000  
       Cash   $9,000
  (To record cash paid for salaries expenses)    
       
6. Cash $12,000  
       Unearned revenue   $12,000
  (To record cash received for service yet to provide)    
       
7. Depreciation expense (1)  $2,500  
       Accumulated depreciation    $2,500
  (To record depreciation expenses incurred at the end of the accounting period)    
       
8. Insurance expense (2) $4,500  
       Prepaid insurance   $4,500
  (To record insurance expenses incurred at the end of the accounting period)    
       
9. Supplies expense $1,550  
       Supplies (3)   $1,550
  (To record supplies expenses incurred at the end of the accounting period)    
       
10. Unearned revenue (4) $9,000  
       Service revenue   $9,000
  (To record unearned revenue incurred at the end of the accounting period)    

Table (1)

Working notes:

Calculate depreciation expense.

Depreciation expense = Book value Salvage valueEstimated useful life=($12,000$2,000)4years=$2,500 (1)

Calculate insurance expense.

Insurance expense = Prepaid insurance ×Time period=$5,400×10months12 Months=$4,500 (2)

Calculate supplies.

Supplies(Adjustment) =Purchase of supplies Ending balance of supplies=$1,800$250=$1,550  (3)

Calculate unearned revenue.

Unearned revenue =Cash paid ×Time period=$12,000×9months12 months=$9,000 Fundamental Financial Accounting Concepts, Chapter 3, Problem 36AP , additional homework tip  1 (4)

b.

To determine

Prepare an income statement, balance sheet and statement of cash flows of Company BC.

b.

Expert Solution
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Explanation of Solution

Income statement:

Income statement is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Prepare an income statement of Company BC as follows:

Company BC
Income Statement
For the Year Ended December 31, Year 2
Particulars Amount Amount
Service revenue   $48,000
Less: Expenses:    
Salaries expenses $9,000  
Depreciation expenses $2,500  
Insurance expenses $4,500  
Supplies expense $1,550  
Total expenses   $17,550
Net income   $30,450

Table (1)

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. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet of Company BC as follows:

Company BC
Balance Sheet
For the Year Ended December 31, Year 2
  Amount Amount
Assets:    
Cash   $47,800
Prepaid insurance   $900
Supplies   $250
Office furniture $12,000  
Less: Accumulated depreciation 2,500 $9,500
Total assets   $58,450
     
Liabilities:    
Unearned revenue   $3,000
Total liabilities   $3,000
     
Stockholders' equity:    
Common stock $13,000  
Retained earnings $42,450  
Total stockholders' equity   $55,450
     
Total liabilities and stockholders' equity   $58,450

Table (2)

Statement of cash flows:

It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Prepare the statement of cash flows of Company BC as follows:

Company BC
Statement of Cash Flows
For the Year Ended December 31, Year 2
Particulars Amount Amount
Cash flow from operating activities:    
Received cash from customers (6) $51,000  
Less: Paid cash for expenses (7) ($16,200)  
Net cash flow from operating activities   $34,800
     
Cash flows from investing activities:    
Purchased office furniture ($12,000)  
Net cash flow from investing activities   ($12,000)
     
Cash flows from financing activities:    
Net cash flow from financing activities   $0
     
Net change in cash   $22,800
Add: Opening cash balance   $25,000
Ending cash balance   $47,800

Table (3)

Working note:

Calculate T- Accounts for 10 events.

Fundamental Financial Accounting Concepts, Chapter 3, Problem 36AP , additional homework tip  2

Figure (1)

Fundamental Financial Accounting Concepts, Chapter 3, Problem 36AP , additional homework tip  3

Figure (2) (5)

Calculate received cash from customers.

Received cash from customers = Service revenue + Unearned revenue =$39,000+$12,000=$51,000 (6)

Calculate paid cash for expenses.

Paid cash for expenses = Prepaid insurance + Supplies + Salaries expenses= $5,400 +$1,800 +$9,000= $16,200 (7)

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Chapter 3 Solutions

Fundamental Financial Accounting Concepts

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