Graphic Design Inc. had a beginning balance of $2,000 in

Graphic Design Inc. had a beginning balance of $2,000 in its Accounts Receivable account. The ending balance of Accounts Receivable was $2,400. During the period, Graphic Design recognized $40,000 of revenue on account. The Salaries Payable account has a beginning balance of $1,300 and an ending balance of $900. During the period, the company recognized $35,000 of accrued salary expense.

Required

a. Based on the information provided, determine the amount of net income.

b. Based on the information provided, determine the amount of net cash flow from operating activities.

c. Explain why the amounts computed in Requirements a and b are different.

The following business scenarios are independent from one another:1. Bob

The following business scenarios are independent from one another:

1. Bob Wilder starts a business by transferring $10,000 from his personal checking account into a checking account for his business, Wilder Co.

2. A business that Sam Pace owns earns $4,600 of cash revenue from customers.

3. Jim Sneed borrows $30,000 from the National Bank and uses the money to purchase a car from Iuka Ford.

4. OZ Company pays its five employees $2,500 each to cover their salaries.

5. Gil Roberts loans his son Jim $5,000 cash.

6. Gane, Inc. paid $100,000 cash to purchase land from Atlanta Land Co.

7. Rob Moore and Gil Thomas form the MT partnership by contributing $20,000 each from their personal bank accounts to a partnership bank account.

8. Stephen Woo pays cash to purchase $5,000 of common stock that is issued by Izzard, Inc.

9. Natural Stone pays a $5,000 cash dividend to each of its seven shareholders.

10. Billows, Inc. borrowed $5,000,000 from the National Bank.

Required

a. For each scenario, create a list of all of the entities mentioned in the description.

b. Describe what happens to the cash account of each entity that you identified in Requirement a.

As of December 31, Year 1, Moss Company had total

As of December 31, Year 1, Moss Company had total cash of $195,000, notes payable of $90,500, and common stock of $84,500. During Year 2, Moss earned $42,000 of cash revenue, paid $24,000 for cash expenses, and paid a $3,000 cash dividend to the stockholders.

Required

a. Determine the amount of retained earnings as of December 31, Year 1.

b. Create an accounting equation and record the beginning account balances under the appropriate elements.

c. Record the revenue, expense, and dividend events under the appropriate elements of the accounting equation created in Requirement b.

d. Prove the equality of the accounting equation as of December 31, Year 2.

e. Identify the beginning and ending balances in the Cash and Common Stock accounts. Explain why the beginning and ending balances in the Cash account are different but the beginning and ending balances in the Common Stock account remain the same.

Assume that Clayton Company acquires $1,200 cash from creditors and

Assume that Clayton Company acquires $1,200 cash from creditors and $1,700 cash from investors.

Required

a. Explain the primary differences between investors and creditors.

b. If Clayton has net income of $800 and then liquidates, what amount of cash will the creditors receive? What amount of cash will the investors receive?

c. If Clayton has a net loss of $800 cash and then liquidates, what amount of cash will the creditors receive? What amount of cash will the investors receive?

d. If Clayton has a net loss of $1,900 cash and then liquidates, what amount of cash will the creditors receive? What amount of cash will the investors receive?

The following events apply to Kate Enterprises:1. Collected $16,200 cash

The following events apply to Kate Enterprises:

1. Collected $16,200 cash for services to be performed in the future.

2. Acquired $50,000 cash from the issue of common stock.

3. Paid salaries to employees: $3,500 cash.

4. Paid cash to rent office space for the next 12 months: $12,000.

5. Paid cash of $17,500 for other operating expenses.

6. Paid on accounts payable: $1,752.

7. Paid cash for utilities expense: $804.

8. Recognized $45,000 of service revenue on account.

9. Paid a $2,500 cash dividend to the stockholders.

10. Purchased $3,200 of supplies on account.

11. Received $12,500 cash for services rendered.

12. Recognized $5,200 of accrued salaries expense.

13. Recognized $3,000 of rent expense. Cash had been paid in a prior transaction (see Event 4).

14. Recognized $5,000 of revenue for services performed. Cash had been previously collected (see Event 1).

Required

Identify each event as an asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also identify the account to be debited and the account to be credited when the transaction is recorded. The first event is recorded as an example.

Alonzo Saunders owns a small training services company that is

Alonzo Saunders owns a small training services company that is experiencing growing pains. The company has grown rapidly by offering liberal credit terms to its customers. Although his competitors require payment for services within 30 days, Saunders permits his customers to delay payment for up to 90 days. Saunders’ customers thereby have time to fully evaluate the training that employees receive before they must pay for that training. Saunders guarantees satisfaction. If a customer is unhappy, the customer does not have to pay. Saunders works with reputable companies, provides top-quality training, and rarely encounters dissatisfied customers.

The long collection period, however, has created a cash flow problem. Saunders has a $100,000 accounts receivable balance but needs cash to pay current bills. He has recently negotiated a loan agreement with National Bank of Brighton County that should solve his cash flow problems. The loan agreement requires that Saunders pledge the accounts receivable as collateral for the loan. The bank agreed to loan Saunders 70 percent of the receivables balance, thereby giving him access to $70,000 cash. Saunders is satisfied with this arrangement because he estimates he needs approximately $60,000.

On the day Saunders was to execute the loan agreement, he heard a rumor that his biggest customer was experiencing financial problems and might declare bankruptcy. The customer owed Saunders $45,000. Saunders promptly called the customer’s chief accountant and learned “off the record” that the rumor was true. The accountant told Saunders that the company’s net worth was negative and most of its assets were pledged as collateral for bank loans. In his opinion, Saunders was unlikely to collect the balance due. Saunders’ immediate concern was the impact the circumstances would have on his loan agreement with the bank.

Saunders uses the direct write-off method to recognize uncollectible accounts expense. Removing the $45,000 receivable from the collateral pool would leave only $55,000 of receivables, reducing the available credit to $38,500 ($55,000 × 0.70). Even worse, recognizing the uncollectible accounts expense would so adversely affect his income statement that the bank might further reduce the available credit by reducing the percentage of receivables allowed under the loan agreement. Saunders will have to attest to the quality of the receivables at the date of the loan but reasons that, because the information he obtained about the possible bankruptcy was “off the record,” he is under no obligation to recognize the uncollectible accounts expense until the receivable is officially uncollectible.

Required

a. How are income and assets affected by the decision not to act on the bankruptcy information?

b. Review the AICPA’s Articles of Professional Conduct (see Chapter 2) and comment on any of the standards that would be violated by the actions Saunders is contemplating.

c. Identify the elements of unethical and criminal conduct recognized in the fraud triangle (see Chapter 2), and explain how they apply to this case.

A. In parallel columns, list the accounts that would be

a. In parallel columns, list the accounts that would be debited and credited for each of the following unrelated transactions:

(1) Provided services for cash.

(2) Recognized accrued salaries at the end of the period.

(3) Provided services on account.

(4) Paid cash for operating expenses.

(5) Acquired cash from the issue of common stock.

(6) Purchased supplies on account.

(7) Purchased land for cash.

(8) Paid a cash dividend to the stockholders.

b. Use a horizontal statements model to show how each event affects the balance sheet, income sheet, and statement of cash flows. Indicate whether the event increases (+), decreases (−), or does not affect (NA) each element of the financial statements. Also, in the Statement of Cash Flows column, use the letters OA to designate operating activity, IA for investing activity, and FA for financing activity. The first event is recorded as an example.