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Demonstration_Problem_2_Solutions

# Demonstration_Problem_2_Solutions - Demonstration Problem...

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Demonstration Problem 2-1 Solution, part 1. Accounting Equation Assets = Liabilities + Equity Part A, 2003 Cash + Accts. Receiv. = Liabilities + Common Stock + Retained Earnings Beginning Balances \$ -0- \$ -0- \$ -0- \$ -0- \$ -0- 1. Effect of Recognizing Rev. 5,000 5,000 Part B, 2004 1. Effect of Cash Collection 5,000 (5,000) ───── ──── ──── ───── ───── Ending Balances \$5,000 + \$ -0- = \$ -0- + \$ -0- + \$5,000 ═════ ════ ═════ ═════ ═════ Demonstration Problem 2-1 Solution, part 2. Financial Statements Packard Consultants Income Statements For the Years Ended December 31, 2003 2004 Consulting Revenue \$5,000 \$-0- Expenses -0- -0- Net Income \$5,000 \$-0- Statements of Retained Earnings Beginning Retained Earnings \$ -0- \$5,000 Net Income 5,000 -0- Dividends -0- -0- Ending Retained Earnings \$5,000 \$5,000 Balance Sheets at December 31 Assets Cash \$ -0- \$5,000 Accounts Receivable 5,000 -0- Total Assets \$5,000 \$5,000 Equity Retained Earnings \$5,000 \$5,000 Statements of Cash Flows Cash Flows from Operating Activities \$ -0- \$5,000 Cash Flows from Investing Activities -0- -0- Cash Flows from Financing Activities -0- -0- Net Change in Cash -0- \$5,000 Beginning Cash Balance -0- -0- Ending Cash Balance \$ -0- \$5,000 1

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Demonstration Problem 2-2 Solution, part 1. Accounting Equation Assets = Liab. + Equity 2003 Cash + Inv. Sec. = Notes Payable + Int. Pay. + Com. Stock + Ret. Ear. Beginning Balances \$ -0- \$ -0- \$ -0- \$ -0- \$ -0- \$ -0- 1. Effect of Borrowing 10,000 10,000 2. Purch. of Securities (10,000) 10,000 3. Earned Revenue 600 600 4. Accrued Int. Exp. 400 (400) ───── ──── ──── ──── ───── ───── End. / Beg. Balances \$ 600 + \$10,000 = \$10,000 + \$ 400 + \$ -0- + \$ 200 2004 1. Earned Revenue 1,350
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Demonstration_Problem_2_Solutions - Demonstration Problem...

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