Demonstration_Problems_for_Chapter_3

Demonstration_Problems_for_Chapter_3 - Demonstration...

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Demonstration Problems for Chapter 3 Demonstration Problem 3-1 Unearned Revenue Jackson Legal Services was started when a client paid the firm $12,000 cash on October 1, 2006 before Jackson had provided any services. Jackson agreed to provide legal advice to the client for a one-year period beginning on the date of the cash receipt. The closing date for the law practice is December 31. Required 1. Record the events for 2006 and 2007 under an accounting equation. 2. Prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows for 2006 and 2007. 1
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Demonstration Problem 3-2 Deferrals Bill Sanders started a part-time consulting practice, Sanders Consulting Associates (SCA), on January 1, 2005. SCA experienced the following transactions during 2005. 1. Acquired $3,000 cash from issuing common stock. 2. Purchased a $2,000 computer system. 3. Paid $100 cash for supplies. 4. Paid $360 cash for an insurance policy that covered the company for one year beginning March 1, 2005. 5. Recognized $2,800 of consulting revenue for services provided on account. 6. Collected $2,200 of the receivables due from customers. 7. Recognized $1,750 of accrued operating expenses, other than supplies and insurance, that were charged on account (record the liability in accounts payable). 8. Paid suppliers $900 of the amount owed on the accounts payable. 9. On November 1, 2005, Sanders collected $2,880 cash in advance for services to be provided under a one-year contract. 10. Paid dividends of $200 to the stockholders. 11. Purchased land for $2,460 cash. Adjusting Entries: 12. Recognized depreciation expense. The computer was purchased on January 1, 2005. It had a three-year useful life and a $200 salvage value.
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