Reference no: EM132613123

Exercise 1: Supplies and the financial statements model

Question: Pizza Express Inc began the Year 2 accounting period with $2,500 cash, $1,400 of common stock, and $1,100 of retained earnings. Pizza Express was affected by the following accounting events during Year 2:

1. Purchased S3,600 of supplies on account.
2. Earned and collected $12,300 of cash revenue.
3. Paid $2,700 cash on accounts payable.
4. Adjusted the records to reflect the use of supplies. A physical count indicated that $250 of supplies was still on hand on December 31, Year 2.

Required
a. Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Statement of Cash Flows column, use OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. Use NA to indicate accounts not affected by the event.

Exercise 2: Prepaid items on financial statements

Life Inc. experienced the following events in Year 1, its first year of operation:
1. Performed counseling services for $36,000 cash.
2. On February 1. Year 1, paid $18,000 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect the amount of rent used during the year. Required

Based on this information alone:
a. Record the events in general ledger accounts under an accounting equation.
b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1st period?
c. Ignoring all other future events, what is the amount of rent expense that would belel Year 2?

Exercise 3: Prepaid w. unearned: the entity concept

On October 1, Year I, Josh Smith, attorney, accepted a $10,800 cash advance from his client, James Company, for services to be performed over the next six months.

Required
a. Record the deferral and the related December 31. Year 1, adjustment for Josh Smith in an accounting equation.
b. Record the deferral and the related December 31. Year 1, adjustment for James Company in an accounting equation.

Exercise 4: Adjusting the accounts

Norwell Inc. experienced the following accounting events during its Year 1 accounting Period:
1. Recognized revenue on account.
2. Issued common stock.
3. Paid cash to purchase supplies.
4. Collected a cash advance for services that will be provided during the coming Year.
5. Paid a cash dividend to the stockholders.
6. Paid cash for an insurance policy that provides coverage during the next year.
7. Collected cash from accounts receivable.
8. Paid cash for operating expenses.