acct 201 test 1

Topics: Balance sheet, Generally Accepted Accounting Principles, Accounts receivable Pages: 37 (2707 words) Published: April 17, 2015


On October 1, Keisha King organized Real Answers, a new consulting firm; on October 3, the owner contributed $84,000 cash. On October 31, the company’s records show the following items and amounts.   

 
 
 
 
 
 
 
  Cash
$
11,360
 
Cash dividends
$
2,000  
  Accounts receivable
 
14,000
 
Consulting fees earned
 
14,000  
  Office supplies
 
3,250
 
Rent expense
 
3,550  
  Land
 
46,000
 
Salaries expense
 
7,000  
  Office equipment
 
18,000
 
Telephone expense
 
760  
  Accounts payable
 
8,500
 
Miscellaneous expenses
 
580  
  Common stock
 
84,000
 
 
 
 

  
Also assume the following:
  
a.
The owner’s initial investment consists of $38,000 cash and $46,000 in land in exchange for its common stock. b.
The company’s $18,000 equipment purchase is paid in cash.
c.
The accounts payable balance of $8,500 consists of the $3,250 office supplies purchase and $5,250 in employee salaries yet to be paid. d.
The company’s rent, telephone, and miscellaneous expenses are paid in cash. e.
No cash has been collected on the $14,000 consulting fees earned.   
Income ststement

REAL ANSWERS
Income Statement
For Month Ended October 31
Revenues
Consulting fees earned
$14,000

0

0

Total revenues
$14,000
Expenses
Rent expense
(3,550)

Salaries expense
(7,000)

Telephone expense
(760)

Miscellaneous expenses
(580)

0

0

Total expenses

(11,890)
Net income

$2,110

Statement of retained earnings

REAL ANSWERS
Statement of Retained Earnings
For Month Ended October 31
Retained earnings, October 1
$0
Add: Net income
2,110

2,110
Less: Dividends
2,000
Retained earnings, October 31
$110

Balance sheet

REAL ANSWERS
Balance Sheet
October 31
Assets
Liabilities
Cash
$11,360
Accounts payable
$8,500
Accounts receivable
14,000

0
Office supplies
3,250
Total liabilities
8,500
Land
46,000
Equity
Office equipment
18,000
Common stock
84,000

0
Retained earnings
110
Total assets
$92,610
Total liabilities and equity
$92,610

Using the above information prepare an October 31 statement of cash flows for Real Answers. (Cash outflows should be indicated by a minus sign.)  

REAL ANSWERS
Statement of Cash Flows
For the month ended October 31
Cash flows from operating activities

Cash received from customers
$0

Cash paid for rent
(3,550)

Cash paid for telephone expenses
(760)

Cash paid for miscellaneous expenses
(580)

Cash paid to employees
(1,750)

Net cash used by operating activities

$(6,640)
Cash flows from investing activities

Purchase of office equipment
(18,000)

Net cash used by investing activities

(18,000)
Cash flows from financing activities

Investments by stockholder
38,000

Dividends to stockholder
(2,000)

Net cash provided by financing activities

36,000
Net increase in cash

11,360
Cash balance, October 1

0
Cash balance, October 31

$11,360

External users or internal users

a.
Customers
E
b.
Suppliers
E
c.
Brokers
E
d.
Business press
E
e.
Managers
I
f.
District attorney
E
g.
Shareholders
E
h.
Lenders
E
i.
Controllers
I
j.
FBI and IRS
E
k.
Consumer group
E
l.
Sales staff
I
Principle of assumption

Description
Principle or Assumption
1.
Usually created by a pronouncement from an authoritative body. Specific accounting principle
2.
Financial statements reflect the assumption that the business continues operating. Going-concern assumption
3.
Derived from long-used and generally accepted accounting practices. General accounting principle
4.
Every business is accounted for separately from its owner or owners. Business entity assumption
5.
Revenue is recorded only when the earnings process is complete. Revenue recognition principle
6.
Information is based on actual costs incurred in transactions. Cost principle
7.
A company...
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