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Unformatted text preview: earnings Plus: Net income $ Less: Dividends - Ending retained earnings $ - Download free ebooks at bookboon.com 47 Accounting Cycle Exercises I Problem 7: Worksheet c) Cash received: $ - From customers ($ 3,200,000 - $ 250,000) - From stockholders - $ - From lenders Cash payments: For rent $ - For wages - For interest - For taxes - For divindends - For land, building, equipment - For repayment of loans - Ending cash $ - $ - d) SMITHSON CORPORATION Balance Sheet December 31, 20X3 Assets Cash Accounts receivable - Land - Building - Equipment - Total assets $ - $ - Liabilities Rent payable $ - Wages payable - Interest payable - Loan payable - Total liabilities Stockholders’ equity Capital stock $ Retained earnings - Total stockholders’ equity - Total liabilities and equity $ - Download free ebooks at bookboon.com 48 Accounting Cycle Exercises I Problem 7: Solution Solution 7 a) and b) SMITHSON CORPORATION Income Statement For the Year Ending December 31, 20X3 Revenues Services to customers $3,200,000 Expenses Rent $ 300,000 Wages 1,620,000 Interest 162,000 Taxes 430,000 $ 688,000 Please click the advert Net income 2,512,000 Download free ebooks at bookboon.com 49 Accounting Cycle Exercises I Problem 7: Solution SMITHSON CORPORATION Statement of Retained Earnings For the Year Ending December 31, 20X3 Beginning retained earnings $ Plus: Net income 688,000 $ 688,000 Less: Dividends 150,000 Ending retained earnings $ 538,000 c) Cash received: $ 2,950,000 From customers ($ 3,200,000 - $ 250,000) 2,000,000 From stockholders 1,500,000 $ 6,450,000 From lenders Cash payments: For rent $ For wages 280,000 1,560,000 For interest 150,000 For taxes 430,000 For divindends 150,000 For land, building, equipment 2,000,000 For repayment of loans 100,000 Ending cash 4,670,000 $ 1,780,000 Download free ebooks at bookboon.com 50 Accounting Cycle Exercises I Problem 7: Solution d) SMITHSON CORPORATION Balance Sheet December 31, 20X3 Assets Cash $1,780,000 Accounts receivable 250,000 Land 400,000 Building 1,000,000 Equipment 600,000 Total assets $4,030,000 Liabilities Rent payable $ Wages payable 20,000 60,000 Interest payable 360° thinking 12,000 Loan payable . 1,400,000 Total liabilities Stockholders’ equity Capital stock $1,492,000 $2,000,000 Retained earnings 538,000 Total stockholders’ equity 2,538,000 Please click the advert Total liabilities and equity 360° thinking . $4,030,000 360° thinking . Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities. Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities. Download free ebooks at bookboon.com 51 Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities. © Deloitte & Touche LLP and affiliated entities. D Accounting Cycle Exercises I Problem 8 Problem 8 Thai Company was formed on January 1, 20X1. The company’s accountant prepared the following income statement, statement of retained earnings, and balance sheet at the conclusion of the first full year of operations. Mr. Thai desires for the company to declare and pay a dividend equivalent to the company’s net income for the year. THAI COMPANY Income Statement For the Year Ending December 31, 20X1 Revenues Services to customers $ 105,000 Expenses Wages $ Rent 45,000 18,000 Net income 63,000 $ 42,000 $ - THAI COMPANY Statement of Retained Earnings For the Year Ending December 31, 20X1 Beginning retained earnings Plus: Net income 42,000 $ Less: Dividends 42,000 - Ending retained earnings $ 42,000 $ 6,000 THAI COMPANY Balance Sheet December 31, 20X1 Assets Cash Accounts receivable 22,500 Equipment 75,000 Total assets $ 103,500 Liabilities Rent payable $ Notes payable 1,500 45,000 Total liabilities $ 46,500 Stockholders’ equity Capital stock $ Retained earnings 15,000 42,000 Total stockholders’ equity 57,000 Total liabilities and equity $ 103,500 Download free ebooks at bookboon.com 52 Accounting Cycle Exercises I Problem 8: Worksheet a) Is the company currently able to declare and pay the dividend? Why or why not? b) Explain why net income can differ from cash provided by operations. c) In addition to operating activities, what other “categories” of business activity can generate or expend cash? Provide examples for each category. d) Prepare a statement of cash flows for Thai Company for the year ending December 31, 20X1. Worksheet 8 a) b) c) d) At this point in your study, you will be challenged to prepare the following statement of cash flows! If you avoid changing the formulas in column “F” of the electronic spreadsheet, you should simplify your search for the correct answer. THAI COMPANY Statement of Cash Flows For the Year Ending December 31, 20X1 Operating activities Cash received from customers $ - Cash paid for wages - Cash paid for rent - Cash provided by operations $ - Investing activities Purchase of equipment - Financing activities Issue stock $ Proceeds of loan - Increase in cash $ Cash, January 1 - Cash, December 31 $ - Download free ebooks at bookboon.com 53 Accounting Cycle Exercises I Problem 8: Solution Solution 8 a) Thai is unable to pay a $42,000 dividend. The company only has $6,000 in available cash. b) In the short run, many things will cause net income to differ from cash provided by operations. For example, various revenues and expenses may have occurred but not yet be funded. In Thai’s case, notice that $22,500 of the revenues have not yet been collected, as evidenced by the increase in accounts receivable. Conversely, $1,500 of the rent cost has not yet been paid, as evidenced by the rent payable liability. c) A business will generate or expend cash from investing activities (like buying and selling property, investment securities, and so forth). A business will also have financing activities that can be a source or use of cash (examples include issuing stock, paying dividends, and borrowing/repaying loans). d) At this point in their studies, most students will be challenged to prepare the following statement of cash flows! The student worksheet includes substantial preformatting to aid the process. Be sure to tell your students to not be discouraged by this complex problem - focus on the central theme that this it is an important financial statement. The preparation and use is the subject of a complete chapter much later in the book. THAI COMPANY Statement of Cash Flows For the Year Ending December 31, 20X1 Operating activities Cash received from customers $ 82,500 Cash paid for wages (45,000) Cash paid for rent (16,500) Cash provided by operations $ 21,000 Investing activities Purchase of equipment - (75,000) Financing activities Issue stock $ Proceeds of loan 15,000 45,000 Increase in cash 60,000 $ Cash, January 1 6,000 - Cash, December 31 $ 54 6,000...
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This homework help was uploaded on 02/26/2014 for the course ACCOUNTING PARCOR taught by Professor Proftamaray during the Spring '14 term at University of the East, Manila.

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