Demonstration_Problems_for_Chapter_2

Demonstration_Problems_for_Chapter_2 - Demonstration...

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Demonstration Problems for Chapter 2 Demonstration Problem 2-1 Revenue Earned on Account Part A Packard Consultants was started in 2003. During that year the company earned $5,000 of consulting revenue on account . Assume this is the only event experienced by Packard during 2003. Required 1. Record the event under an accounting equation. 2. Prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows for 2003. Part B During 2004, Packard Consultants collected $5,000 cash from the account receivable it established in Part A. Required 1. Record the event under an accounting equation. 2. Prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows for 2004. 1
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Demonstration Problem 2-2 Accrued Interest Payable Part A Canton Company experienced the following accounting events during 2003: 1. Canton Company borrowed $10,000 cash from the National Bank on September 1, 2003. 2. Canton invested the borrowed money in securities. 3. Canton earned investment revenue of $600 cash. 4. As of December 31, 2003, accrued interest (interest expense) on Canton’s bank loan was $400. Required 1. Record the events under an accounting equation. 2. Prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows for 2003. Part B Canton Company experienced the following accounting events during 2004: 1. Canton earned investment revenue of $1,350 cash in 2004. 2. Canton sold its securities for $10,000 cash. 3. Canton accrued interest of $800 on the bank loan. 4. Canton paid cash for the interest due on the bank loan. 5. Canton repaid the $10,000 bank loan with cash. Required 1. Record the events under an accounting equation. 2. Prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows for 2004. Demonstration Problem 2-3 Accrued Interest Computations Johnson Company borrowed $1,000 cash by issuing a one-year note to McCoy Com- pany. McCoy charged Johnson interest on the note at a 12 percent annual rate. Both companies close their books on December 31, 2003. Required Determine the amount of accrued interest expense Johnson would report and the amount of accrued interest revenue McCoy would report at December 31, 2003 under each of the three following independent assumptions of the note issue date. The note was issued (money was borrowed) on (1) April 1, 2003; (2) June 1, 2003; and (3) October 1, 2003.
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