ACC 100 Lecture Notes - Lecture 4: Retained Earnings, The Monthly, Income Statement
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Morrison Accounting Services was organized on June 2 by a group of accountants to provide accounting and tax services to small businesses. The following transactions occurred during the first month of business:
June 2 | Received contributions of $10,000 from each of the three owners of the business in exchange for shares of stock. (Capital Stock) |
June 5 | Purchased a computer system for $12,000. The agreement with the vendor requires a down payment of $2,500 with the balance due in 60 days. (Computer; Cash; Accounts Payable) |
June 8 | Signed a two-year promissory note (Note Payable) at the bank and received cash of $20,000. |
June 15 | Billed $12,350 to clients for the first half of June. Clients are billed twice a month for services performed during the month, and the bills are payable within ten days. (Accounts Receivable; Service Revenue) |
June 17 | Paid a $900 bill from the local newspaper for advertising for the month of June. (Advertising Expense) |
June 23 | Received the amounts billed to clients for services performed during the first half of the month. |
June 28 | Received and paid gas, electric, and water bills (Utilities Expense). The total amount is $2,700. |
June 29 | Received the landlordâs bill for $2,200 for rent on the office space the Morrison leases. The bill is payable by the 10th of the following month. (Rent Expense; Rent Payable) |
June 30 | Paid salaries and wages for June. (Salaries Expense) The total amount is $5,670. |
June 30 | Billed $18,400 to clients for the second half of June. |
June 30 | Declared and paid dividends in the amount of $6,000. (Dividends) |
Prepare journal entries on the books of Morrison Accounting Services to record the transactions entered into during the month. Ignore depreciation expense and interest expense (weâll get to that later in the semester.)
Prepare a trial balance in good form at June 30. List the accounts in the following order: assets, liabilities, ownersâ equity, revenue, expenses, dividends. (You will find it helpful to set-up and post to T-accounts; the T-accounts are not required to be turned in for grading.)
Prepare the following financial statements in good form:
Income statement for the month of June
Statement of retained earnings for the month of June
Classified balance sheet at June 30.
In proper General Journal format,record the transactions for the month; include descriptions of eachtransaction with your journal entry. Use only the accounts shown inthe chart of accounts.
8/1 YOUfiled a charter with the State of Louisiana to form the YOURAccounting Corporation. The charter authorizes you to issue 5000shares of $2 par common stock. The state charged you a $75 fee tofile the charter. Since your business is not yet approved, you hadto pay this fee using personal funds.
9/1 Youreceived your charter from the State of Louisiana and officiallyopened your business. Your first order of business wasto become a shareholder of YOUR Accounting Corp. To do this, youpurchased 500 shares of common stock by issuing a check to YOURAccounting Corp for $10,000. You used this money to open a checkingaccount at First Funds Bank.
9/1 Yourented an office for YOUR Accounting Corp. The monthly rent is$500, with the first monthâs rent due immediately. You issue check#100 to Office Builders for the first monthâs rent.
9/2 Youthen went to the Apple store and purchased a new computer systemfor your business. Your Mac Pro cost $2700 and your new printercost $450. You set up a 30-day account with Apple to make thispurchase.
9/3 Youordered business cards and stationary from Marketing Media onaccount. The order totaled $250 and will be shipped FOBDestination. (Record all purchases of supplies in the Supplies onHand account).
9/4 Youdecided to purchase a new vehicle for your business. Upon visitingPro-Auto, you decide on a new SUV at a cost of $55,000. Thisvehicle will be used 100% for business purposes. You finance thevehicle with Pig E Bank at a rate of 5% for 6 years. Your firstmonthly payment is due on October 4.
NOTE: You will need to create a loan amortization schedule todetermine the amount of the monthly note and the interest expensefor each month. You can use a website such as www.bankrate.com tocreate the schedule. When recording your journal entries, round allamounts to the nearest dollar.
9/5 Youwent to the KEM Supply to purchase supplies for your business at acost of $600. KEM opened a customer charge account for you. Thepayment terms on your account will be 2/10, net 30. The time periodfor determining the payment amount begins on the purchase date.
9/6 Youpurchased a one-year auto insurance policy from InsureMart for$1200. InsureMart will send you a bill for the policy. YOURAccounting Corporation capitalizes all insurance policies on thedate of purchase and records the necessary expense at year-end asan adjusting entry.
9/10 Your firstclient, Red Fische, came in today needing assistance with filingthe appropriate paperwork to start his new seafood restaurant. Youissued invoice #1 to Red Fische and he paid you an initial $2,000Engagement Fee. Red Fische also agreed to contract with you toprovide accounting services for $2,500 per month.
9/12 You issue check#101 to YOUR Accounting Corp to establish a $500 Petty Cash Fund.You will use this account to make small cash purchases.
9/12 You reimburseyourself for the filing fees associated with forming yourcorporation.
9/14 You paid KEM Supply by issuingcheck #102
9/15 You hire anadministrative assistant, Mandi Handi, she will be paid a monthlysalary of $1500. You have decided that all pay periods will end onthe last day of the month and that checks will be issued on the5th of each month.
NOTE: Assume the following rates when preparing the payroll:federal income tax 15%, state income tax 5%, and FICA 7.65%.
YOUR Accounting Corp. has state and federal unemployment insurancerates of 1% (FUTA) and 2% (SUTA) on the first $7,700 of wages peremployee. The employer FICA rate is 7.65%.
9/16 Marketing Mediadelivered your business cards and stationary. Check #103 was issuedto pay for the supplies.
9/20 You visited anew client, Anita Cooke, to set up a Quickbooks accounting systemfor her new business, Cooking For You. You gave Anita and invoice#2 for the Engagement Fee and she paid you by issuing a check inthe amount of $2,000. Anita also agreed to a monthly fee of $1,500for you to handle her ongoing accounting needs.
9/22 You purchased$50 of fuel for your new SUV from Get ân Go. You charged this toyour Get ân Go account.
9/30 Mandi sentpro-rated invoices, #3 & #4 , to Red Fische and Cooking For Youfor Monthly Accounting Services. The payment terms are 1/10, net30.
9/30 You accruedinterest on the Pig E. Bank note. Accrue interest based on thenumber of days in the month.
9/30 You computedand accrued the payroll for September.
9/30 You receivedmonthly bills for the following:
Max Power Company - $100, terms n/30
WaterWorks #1 - $20, terms n/30.
CHART OF ACCOUNTS:
Cash | 105 | ||
Petty Cash | 107 | ||
Accounts Receivable | 110 | ||
Supplies on Hand | 130 | ||
Prepaid Insurance | 140 | ||
Computer Equipment | 220 | ||
AccoumulatedDepreciation - Computer Equipment | 221 | ||
Cell Phone | 230 | ||
AccoumulatedDepreciation - Cell Phone | 231 | ||
Vehicles | 240 | ||
AccumulatedDepreciation - Vehicles | 241 | ||
Accounts Payable | 310 | ||
Customer Deposits (UnearnedRevenue) | 320 | ||
SUTA Payable | 330 | ||
FICA Payable | 332 | ||
FUTA Payable | 334 | ||
Federal Income TaxPayable | 336 | ||
State Income Tax Payable | 338 | ||
Current Maturities ofLong-Term Debt | 375 | ||
Notes Payable (long-term) | 410 | ||
Interest Payable | 420 | ||
Salaries Payable | 425 | ||
Common Stock ($2 parvalue) | 520 | ||
Additional Paid-in Capital onCommon Stock | 521 | ||
Retained Earnings | 550 | ||
Dividends | 560 | ||
Engagement Fees | 605 | ||
Monthly Accounting ServicesRevenue | 610 | ||
Hourly Accounting ServicesRevenue | 620 | ||
Tax Services Revenue | 612 | ||
Sales Discounts | 614 | ||
Advertising & PromotionExpense | 725 | ||
Depreciation Expense | 727 | ||
Rent Expense | 730 | ||
Insurance Expense | 735 | ||
Supplies Expense | 740 | ||
Meals & Entertainment | 745 | ||
Taxes & Licenses | 767 | ||
Telephone Expense | 770 | ||
Utilities Expense | 775 | ||
Fuel Expense | 780 | ||
Interest Expense | 820 | ||
Payroll Tax Expense | 825 | ||
Salaries Expense | 830 | ||
Income Summary | 900 |
Could you please help me in the following questions. Could youplease take a screenshot of the final cash flow statement etc.Cheers
Regards
Adam
Statement of Cash Flows
You are provided the following financial information for TomHill Form Works, a company specialising in the production ofmoon-sized Imperial battle stations:
Tom HillForm Works
COMPARATIVE BALANCE SHEETS
AS AT 30th JUNE
2015 | 2014 | |||
$'000's | $â000's | |||
Current Assets | ||||
Cash on Hand | 35 | 12 | ||
Cash at Bank | 209 | 98 | ||
Accounts Receivable (net) | 58 | 54 | ||
Inventory | 310 | 330 | ||
Prepaid Expenses | 35 | 647 | 33 | 527 |
Non-Current Assets | ||||
Planet destroying Laser | 840 | 760 | ||
less Acc. Depreciation | 440 | 400 | 408 | 352 |
Buildings | 80 | 180 | ||
Total Assets | 1 127 | 1 059 | ||
Current Liabilities | ||||
Bank Overdraft | 20 | - | ||
Accounts Payable | 64 | 80 | ||
Accrued Stormtroopers wages | 63 | 89 | ||
Loan | 12 | 159 | - | 169 |
Non-Current Liabilities | ||||
Loan | 18 | - | ||
Total Liabilities | 177 | 169 | ||
Net Assets | 950 | 890 | ||
Equity | ||||
T.Hill, Capital | 950 | 890 | ||
Tom Hill Form Works
INCOME STATEMENT
FOR THE YEAR ENDED 30th JUNE2015
$'000's | |||||
Net Sales | 1 990 | ||||
COS | 1 300 | ||||
Less: Discount received | 5 | 1 295 | |||
Gross Profit: | 695 | ||||
Other Revenue: | |||||
Gain on sale of building | 60 | ||||
Interest received | 8 | ||||
763 | |||||
Expenses: | |||||
Selling & Admin Expense | 517 | ||||
Doubtful Debts Expense | 9 | ||||
Interest Expense | 12 | 538 | |||
Profit | 225 | ||||
Additional Information:
Selling & Admin Expense includes depreciation expense of$32,000.
The owner T.Hill, contributed $20,000 during the year
A new planet destroying laser was purchased by extending theloan, and paying the balance in cash
A building which had originally cost $100,000 was sold for$160,000 cash, making the business a gain of $60,000
REQUIRED:
Answer this question on the pro formaprovided
a. Using the template provided below, prepare a statement ofcash flows. Show all calculations on the proforma.
b. The owner of Tom Hill Form Works canât understand why the cash flowfrom operations is so different to the profit figure. As he has atendency to react quite badly to negativenews, carefully explain to Mr Hill at least two ofthe factors that may be causing thisdifference.
c. Explain what information is provided by a Statement of Cash Flowthat is not provided by the other General Purpose Financial Reportsyou have been introduced to in this unit (Income Statement,Statement of Changes in Equity & BalanceSheet)?
Tom Hill Form Works
Cash Flow Statement
FOR THE YEAR ENDED 30thJUNE 2015
$â000 | $â000 | ||
Cash Flows from Operating Activities | |||
Receipts from customers | |||
Payments to suppliers & employees | |||
Cash generated by operations | |||
Interest received | |||
Interest paid | |||
Cash Flows from Investing Activities | |||
Proceeds from sale of buildings | |||
Payment for Laser | |||
Cash Flows from Financing Activities | |||
Contribution by owner | |||
Drawings | |||
Net increase / decrease in cash held | |||
Cash at the beginning of the year | |||
Cash at the end of the year |
ALL WORKINGS MUST BE PRESENTED BELOW OR THE CASHFLOWSTATEMENT WILL RECEIVE NO MARKS