1. Entities mentioned: Chris Hann and Classic Auto Sales
Problem 1-29 Accounting entities
The following business scenarios are independent from one another:
1. Chris Hann purchased an automobile from Classic Auto Sales for $10,000.
2. Sal Pearl loaned $15,000 to the business in which he is a stockholder.
3. First State Bank paid interest to Strong Co. on a certificate of deposit that Strong Co. has invested at First State Bank.
4. Cindy’s Restaurant paid the current utility bill of $135 to Midwest Utilities.
5. Sun Corp. borrowed $50,000 from City National Bank and used the funds to purchase land from Carriage Realty.
6. Sue Wang purchased $10,000 of common stock of International Sales Corporation from the corporation.
7. Chris Gordon loaned $6,000 cash to his daughter.
8. Motor Service Co. earned $20,000 in cash revenue.
9. Poy Imports paid $4,000 for salaries to each of its four employees.
10. Borg Inc. paid a cash dividend of $4,000 to its sole shareholder, Mark Borg.
Required
A. For each scenario, create a list of all of the entities that are mentioned in the description.
B. Describe what happens to the cash account of each entity that you identified in requirement a.
Exercise 2-5 Missing information related to accruals
Panoramic 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, Panoramic recognized $40,000 of revenue on account. Panoramic’s 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 salaries 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.
Exercise 2-11 Prepaid items on financial statements
Therapy Inc. experienced the following events in 2014, its first year of operation:
1. Performed counseling services for $18,000 cash.
2. On February 1, 2014, paid $12,000 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 under an accounting equation.
C. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2015?
Exercise 2-13 Unearned items on financial statements
Interior Design Consultants (IDC) experienced the following events in 2014, its first year of operation:
1. On October 1, 2014, IDC collected $24,000 for consulting services it agreed to provide during the coming year.
2. Adjusted the accounts to reflect the amount of consulting service revenue recognized in 2014.
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Required
Based on this information alone
A. Record the events under an accounting equation.
C. Ignoring all other future events, what is the amount of service revenue that would be recognized in 2015?
Exercise 2-17 Prepaid vs. unearned, the entity concept
On October 1, 2014, Caldonia Company paid East Alabama Rentals $4,800 for a 12-month lease on warehouse space.
Required
A. Record the deferral and the related December 31, 2014, adjustment for Caldonia Company in the accounting equation.
B. Record the deferral and the related December 31, 2014, adjustment for East Alabama Rentals in the accounting equation.
Exercise 2-19 Revenue and expense recognition
Required
A. Describe a revenue recognition event that results in an increase in assets.
B. Describe a revenue recognition event that results in a decrease in liabilities.
C. Describe an expense recognition event that results in an increase in liabilities.
D. Describe an expense recognition event that results in a decrease in assets.