05 Jun Question EXERCISE 3-9A
Question
EXERCISE 3-9A
Exercise 3-9A Recording receivables and identifying their effect on financial
statements
Davos Company performed services on account for $160,000 in 2016. Davos collected $120,000
cash from accounts receivable during 2016, and the remaining $40,000 was collected in cash during 2017.
Required
a. Record the 2016 transactions in T-accounts.
b. Record the 2016 transactions in a horizontal statements model like the following one:
Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow
Cash 1 Accts. Rec. 5 Ret. Earn.
c. Determine the amount of revenue Davos would report on the 2016 income statement.
d. Determine the amount of cash flow from operating activities Davos would report on the
2016 statement of cash flows.
e. Open a T-account for Retained Earnings, and close the 2016 Service Revenue account to the
Retained Earnings account.
f. Record the 2017 cash collection in the appropriate T-accounts.
g. Record the 2017 transaction in a horizontal statements model like the one shown in Requirement b .
h. Assuming no other transactions occur in 2017, determine the amount of net income and the
net cash flow from operating activities for 2017.
a., e. & f.
Assets
=
Stockholders’ Equity
Cash
Accounts Rec.
Retained Earnings
b. & g. NC = Net Change in Cash
Davos Company
Effect of Transactions on the Financial Statements for 2016 and 2017
Assets
=
Liab.
+
Stockholders’ Equity
Rev.
–
Exp.
=
Net Inc.
Cash Flows
No.
Cash
+
Acct. Rec.
=
+
Comm. Stock
+
Retained Earnings
2016
1.
NA
160,000
NA
NA
160,000
160,000
NA
160,000
NA
2.
Bal.
+
=
+
+
–
=
2017
3.
Bal.
160,000
+
-0-
=
+
+
–
=
EXERCISE 3-9A (cont.)
c.
d.
e.
f.
g.
h.
EXERCISE 3-10A
Exercise 3-10A Recording supplies and identifying their effect on financial statements
Sye Chase started and operated a small family architectural firm in 2016. The firm was affected
by two events: (1) Chase provided $25,000 of services on account, and (2) he purchased $2,800
of supplies on account. There were $250 of supplies on hand as of December 31, 2016.
Required
a. Open T-accounts and record the two transactions in the accounts.
b. Record the required year-end adjusting entry to reflect the use of supplies.
c. Record the preceding transactions in a horizontal statements model like the following one:
Assets 5 Liab. 1 Equity Rev. 2 Exp. 5 Net Inc. Cash Flow
Accts. Accts. Ret.
Rec. 1 Supplies 5 Pay. 1 Earn.
d. Explain why the amounts of net income and net cash flow from operating activities differ.
e. Record and post the required closing entries, and prepare a post-closing trial balance.
a. b. & e.
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