Survey Of Accounting
Survey Of Accounting
4th Edition
ISBN: 9780077862374
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 28P

a.

To determine

Use a horizontal statements model to show the effect of the transactions on the elements of financial statements.

a.

Expert Solution
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Explanation of Solution

Financial Statements:

Financial statements are complete record of all the financial transactions that take place in the business during a particular financial year. They report important financial information such as assets, liabilities, revenues and expenses of the company to the internal and external users for taking necessary decision. They help them to know the financial status of the business for a particular period.

Record the transactions in a horizontal statements model:

Survey Of Accounting, Chapter 6, Problem 28P

Table (1)

Working note 1: Determine the depreciation rate applied each year.

Useful life = 5 years

Depreciation rate = 100%5 years × 2= 40%

Working note 2: Calculate the depreciation expense using Double-declining-balance method.

Calculate the depreciation expense for 2014.

Depreciation for 2014=(Beginning book value × Depreciation rate)=$37,450×40100=$14,980

Working note 3: Calculate the depreciation expense for 2015.

Depreciation for 2015=((Beginning book value – Depreciation for 2014)×Depreciation rate)=(($37,450$14,980)×40100)=$8,988

Working note 4: Calculate the depreciation expense for 2016.

Depreciation for 2016=((Beginning book value – (Depreciation for 2014+Depreciation for 2015))×Depreciation rate)=(($37,450($14,980+$8,988))×50100)=$55,000$17,968×50100=$9,741

b.

To determine

Use a vertical model to present financial statements for 2014, 2015, and 2016.

b.

Expert Solution
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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.

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.

Use a vertical model to present financial statements for 2014, 2015, and 2016 as follows:

Incorporation E
Financial Statements
For the year ended December 31
Income Statements
 201420152016
Service Revenue$65,000$68,000$70,000
Expenses:   
Maintenance Expense0   (2,500)0
Computer Service Expense   (1,500)(1,500)(1,200)
Depreciation Expense   (14,980)    (8,988)     (9,741)
Total Expenses   (16,480)    (12,988)   (10,941)
Net Income$48,520$55,012$59,059
    
Statement of Changes in Stockholder's Equity
Beginning Common Stock0$80,000$80,000
Add: Stock Issued80,00000
Ending Common Stock80,00080,00080,000
Beginning Retained Earnings048,520103,532
Add: Net Income48,52055,01259,059
Ending Retained Earnings48,520103,532162,591
Total Stockholders’ Equity$128,520$183,532$242,591

Table (2)

Incorporation E
Financial Statements
Balance Sheet as of December 31
 201420152016
Assets   
Cash$106,050$170,050$232,850
Computer37,45037,45037,450
Less: Accumulated Depreciation       (14,980)        (23,968)        (27,709)
Total Assets$128,520$183,532$242,591
    
Liabilities$0$0$0
    
Stockholders’ Equity   
Common Stock80,00080,00080,000
Retained Earnings48,520103,532162,591
Total Stockholders’ Equity$128,520$183,532$242,591
Total Liabilities and Stockholders' Equity$128,520$183,532$242,591

Table (3)

Incorporation E
Statement of Cash Flows
For the Year Ended December 31
Particulars2014 (in $)2015 (in $)2016 (in $)
Cash Flows From Operating Activities:   
Inflow from revenue65,00068,00070,000
Outflow for expenses(1,500)(4,000)(1,200)
Net Cash Flow from operating activities63,50064,00068,800
    
Cash Flows From Investing Activities:   
Outflow to purchase Computer(37,450)0(6,000)
Net Cash Flow from investing activities(37,450)0(6,000)
    
Cash Flows From Financing Activities:   
Inflow from stock issue80,00000
Net Cash Flow from financing activities80,00000
    
Net Increase in Cash106,05064,00062,800
Add: Beginning Cash Balance0106,050170,050
Ending Cash Balance$106,050$170,050$232,850

(Table 4)

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Chapter 6 Solutions

Survey Of Accounting

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Accounting for Derivatives_1.mp4; Author: DVRamanaXIMB;https://www.youtube.com/watch?v=kZky1jIiCN0;License: Standard Youtube License
Depreciation|(Concept and Methods); Author: easyCBSE commerce lectures;https://www.youtube.com/watch?v=w4lScJke6CA;License: Standard YouTube License, CC-BY