Com 42 accounting cycle exercises i problem 5

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Unformatted text preview: mounts reflect balances as of December 31, 20X9, unless otherwise implied. Unfortunately, the company has been unable to locate its listing of assets, but all other information is complete, albeit in disarray. Capital stock $375,000 Wage expense 60,000 Revenue 120,000 Rent expense 33,000 Beginning retained earnings 133,500 Utilities expense 16,500 Accounts payable 18,750 Dividends 3,750 Notes payable 75,000 a) Determine Glasgow’s net income for the year ending December 31, 20X9. b) How much are total assets of the company, as of December 31, 20X9? c) If you were told that assets included an accounts receivable of $7,500 for services provided during 20X9, and that such transactions had been excluded in calculating the given “revenue” amount, how would this influence your answer to part (a) above? Worksheet 6 a) Revenue $ 120,000 b) c) Download free ebooks at bookboon.com 44 Accounting Cycle Exercises I Problem 6: Solution Solution 6 a) Revenue $ 120,000 Less expenses Wage expense $ 60,000 Rent expense 33,000 Utilities expense 16,500 Net income 109,500 $ 10,500 b) Beginning retained earnings $ Plus: Net income 133,500 10,500 $ Less: Dividends 144,000 3,750 Ending retained earnings $ 140,250 Capital stock $ 375,000 Ending retained earnings 140,250 Total stockholders’ equity $ 515,250 Accounts payable $ 18,750 Notes payable 75,000 Total liabilities $ 93,750 Total liabilities $ 93,750 Total stockholders’ equity 515,250 Total assets $ 609,000 c) If, indeed, $7,500 of services was rendered on account, it should have been included in revenues. This would result in an increase in net income (and therefore retained earnings and total equity) to match the increase in total assets. Revenues are to be recorded as earned. Download free ebooks at bookboon.com 45 Accounting Cycle Exercises I Problem 7 Problem 7 Smithson Exploration Corporation was formed on January 1, 20X3. The company was formed by Cliff Smithson with the goal of conducting geophysical support services related to natural gas drilling operations in the Unita Basin region of eastern Utah. The company’s initial capitalization consisted of shareholder investments of $2,000,000 and an additional bank loan of $1,500,000. During the first year of operation, the company purchased land, buildings, and equipment in the amount of $400,000, $1,000,000, and $600,000, respectively. (Hint: In subsequent chapters you will be introduced to the concepts of depreciation relating to certain of these assets; for now you may ignore this issue). During 20X3, the company signed contracts to deliver consulting services with a total value of $5,000,000. By year’s end, $3,200,000 of services had been provided and billed under these agreements. The other $1,800,000 of work will not be performed until 20X4. All amounts billed had been collected during 20X3, with the exception of December’s billings in the amount of $250,000. The Smithson’s are quite confident that the December billing will be collected in the normal course of business in early 20X4. Expenses paid during 20X3 included rent ($280,000), wages ($1,560,000), interest ($150,000), and taxes ($430,000). In addition, the company had incurred rent ($20,000), wages ($60,000), and interest ($12,000) related to 20X3 activity that was not yet paid as of the end of 20X3. Brain power Please click the advert By 2020, wind could provide one-tenth of our planet’s electricity needs. Already today, SKF’s innovative knowhow is crucial to running a large proportion of the world’s wind turbines. Up to 25 % of the generating costs relate to maintenance. These can be reduced dramatically thanks to our systems for on-line condition monitoring and automatic lubrication. We help make it more economical to create cleaner, cheaper energy out of thin air. By sharing our experience, expertise, and creativity, industries can boost performance beyond expectations. Therefore we need the best employees who can meet this challenge! The Power of Knowledge Engineering Plug into The Power of Knowledge Engineering. Visit us at www.skf.com/knowledge Download free ebooks at bookboon.com 46 Accounting Cycle Exercises I Problem 7: Worksheet Smithson Exploration declared and paid dividends to shareholders in the amount of $150,000 during 20X3. Smithson also repaid $100,000 of the original bank loan. a) Prepare an income statement for Smithson Corporation for the year ending December 31, 20X3. b) Prepare a statement of retained earnings for Smithson Corporation for the year ending December 31, 20X3. c) Prepare calculations showing that cash is $1,780,000 as of December 31, 20X3. d) Prepare a balance sheet for Smithson Corporation as of December 31, 20X3. Worksheet a) and b) SMITHSON CORPORATION Income Statement For the Year Ending December 31, 20X3 Revenues Services to customers $ - Expenses Rent $ - Wages - Interest - Taxes - Net income $ - $ - SMITHSON CORPORATION Statement of Retained Earnings For the Year Ending December 31, 20X3 Beginning retained...
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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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