pts ABC Company is preparing its month end financial statements for the year

Pts abc company is preparing its month end financial

This preview shows page 12 - 15 out of 15 pages.

PROBLEM 2 (20 pts)ABC Company is preparing its month-end financial statements for the year ending December 31, 2009. In the modified journal on the next page, record an adjusting entry, if necessary, for each economic event described or implied in the list below and indicate whether the item is related to an operating (O), investing (I), or financing (F) activity (arbitrary cash flow classification rules don’t apply). For example, the economic event in a, below, is that the equipment has been used during the year, not that it was previously purchased. a. ABC Company purchased equipment on January 1, 2009 for $12,000. The equipment has a 5 year useful life and an estimated salvage (residual) value of $2,000. (ABC Company uses straight-line depreciation) b. In order to finance additional purchases of equipment, ABC Company borrowed $10,000, on July 1, 2009 and signed a 5 year note with a 12% annual interest rate. Interest payments are due on July 1 each year. c. On October 1, 2009, ABC Company signed a two year rental agreement with XYZ Company. As part of the agreement, ABC Company was required to pay 6 months of rent in advance in the amount of $9,000. d. ABC estimates that it used $750 in utilities during the month of December, 2009. The bill for the utilities will not be received until January. e. On November 30, 2009, Customer A prepaid for services in the amount of $4,000 that were 50% complete as of December 31. f. On December 1, 2009, Customer B signed a contract with ABC for services in the amount $3,000. ABC completed 100% of the services for B, as of December 31, but has not received payment. g. On October 1, 2009, ABC invested in a certificate of deposit (CD) that pays 8% interest. The interest payments are received the day following each calendar quarter. h. ABC’s employees earned wages and salaries of $55,000 since December 15, 2009. Payrolls are paid on the 16 th of the month and the 1 st of the next month.
Image of page 12
Acc 311 - Exam I Form A Page 13 RefACCOUNT DEBITCREDIT O/I/F
Image of page 13
Acc 311 - Exam I Form A Page 14 PROBLEM 3 (15 pts)Information for Monticello Inc. follows. Note the order of the columns in the balance sheetMonticello, Inc.Comparative Balance SheetDecember 31Assets20092008Cash$ 20,000$ 27,000Accounts receivable68,00026,000Inventory54,00010,000Prepaid expenses4,0006,000Land45,00070,000Buildings200,000200,000Accumulated depreciation - buildings<21,000><11,000>Equipment234,00068,000Accumulated depreciation - equipment<33,000><10,000>Total$571,000$386,000Liabilities and Stockholders’ EquityAccounts payable$23,000$ 40,000Accrued expenses payable10,000-0-Bonds payable110,000150,000Common stock220,00060,000Retained earnings208,000136,000Total$571,000$386,000Monticello, Inc.Income StatementFor the Year Ended December 31, 2009Sales$890,000LessCost of goods sold$465,000Operating expenses221,000Interest expense12,000<698,000>Income before taxes$192,000Income tax expense<65,000>Net income$127,000Additional information:1.Operating expenses include depreciation expense and charges from prepaid expenses.2.All investing and financing transactions were for cash and there were no gains or losses.RequiredPrepare a statement of cash flows using the indirect method for Monticello, Inc. :
Image of page 14
Acc 311 - Exam I Form A Page 15 Monticello, Inc. Statement of Cash Flows For the Year Ended December 31, 2009 Cash flows from operations Net cash provided by operating activities Cash flows from investing Net cash used by investing activities Cash flows from financing Net cash provided by financing activities Net decrease in cash Beginning cash balance Ending cash balance
Image of page 15

You've reached the end of your free preview.

Want to read all 15 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture