Chapert 1and 2
Exercise 1-2: Assume that Kennedy Company acquires $1,600 cash from creditors and $1,800 cash from investors.
a. Explain the primary differences between investors and creditors.
b. If Kennedy has a net loss of $1,600 cash and then liquidates, what amount of cash will the creditors receive? What amount of cash will the investors receive?
c. If Kennedy has net income of $1,600 and then liquidates, what amount of cash will the creditors receive? What amount of cash will the investors receive?
Exercise 1-4:Kenneth Chang recently started a business. During the first few days of operation, Mr. Chang transferred $30,000 from his personal account into a business account for a company he named Chang Enterprises. Chang Enterprises borrowed $40,000 from First Bank. Mr. Chang’s father-in-law, Jim Harwood, invested $64,000 into the business for which he received a 25 percent ownership interest. Chang Enterprises purchased a building from Morton Realty Company. The building cost $120,000 cash. Chang Enterprises earned $28,000 in revenue from the company’s customers and paid its employees $25,000 for salaries expense.
Identify the entities that were mentioned in the scenario and explain what happened to the cash accounts of each entity that you identify.
Exercise 1-9: The December 31, 2012, balance sheet for Classic Company showed total stockholders’ equity of $82,500. Total stockholders’ equity increased by $53,400 between December 31, 2012, and December 31, 2013. During 2013 Classic Company acquired $13,000 cash from the issue of common stock. Classic Company paid an $8,000 cash dividend to the stockholders during 2013.
Exercise 1-12: Marcum Company was started in 2012 when it issued a note to borrow $6,200 cash.
Write an accounting equation, and record the effects of the borrowing transaction under the appropriate general ledger account headings.
Exercise 1-18: Davis Company was started on January 1, 2012. During the month of January, Davis earned $4,600 of revenue and incurred $3,000 of expense. Davis closes its books on December 31 of each year.
Exercise 2-1: Valmont, Inc. experienced the following events in 2012, in its first year of operations.
1. Received $20,000 cash from the issue of common stock.
2. Performed services on account for $50,000.
3. Paid the utility expense of $12,500.
4. Collected $39,000 of the accounts receivable.
5. Recorded $9,000 of accrued salaries at the end of the year.
6. Paid a $5,000 cash dividend to the shareholders.
a. Record the events in general ledger accounts under an accounting equation. In the last column of the table, provide appropriate account titles for the Retained Earnings amounts.
b. Prepare the income statement, statement of changes in stockholder’s equity, balance sheet, and statement of cash flows for the 2012 accounting period.
c. Why is the amount of net income different from the amount of net cash flow from operating activities?
Exercise 2-3: The following events apply to 2012, the first year of operations of Sentry Services.
1. Acquired $45,000 cash from the issue of common stock.
2. Paid $18,000 cash in advance for one-year rental contract for office space.
3. Provided services for $36,000 cash.
4. Adjusted the records to recognize the use of the office space. The one-year contract started on May 1, 2012. The adjustment was made as of December 32, 2012.
a. Write an accounting equation and record the effects of each accounting event under the appropriate general ledger account headings.
b. Prepare an income statement and statement of cash flows for the 2012 accounting period.
c. Explain the difference between the amount of net income and amount of net cash flow from operating activities.
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