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Accounting Background ONLY ACC 201 Principles of Financial Accounting

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7 ? 26 Accounting for short term debt and sales tax -- two accounting cycles.;The following transactions apply to Artesia Co. for 2012, its first year of operations.;1 Received $40,000 cash from the issue of a short term note with a 5 percent interest rate and a one year maturity. The note was issued on April 1, 2012.;2 Received $120,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.;3 Paid $72,000 cash for other operating expenses during the year.;4 Paid the sales tax due on $100,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until 2013.;5 Recognized the accrued interest at December 31, 2012;The following transactions apply to Artesia Co. for 2013.;1 Paid the balance of the sales tax due for 2012.;2 Received $145,000 cash plus applicable sales tax from performing services. The services are;subject to a sales tax rate of 6 percent.;3 Repaid the principal of the note and applicable interest on April 1, 2013.;4 Paid $85,000 of other operating expense s during the year.;5 Paid the sales tax due on $120,000 of the service revenue. The sales tax on the balance of the revenue is not due until 2014.;Required;a. Organize the transaction data in accounts under an accounting equation.;b. Prepare an income statement, a statement of changes in stockholders? equity, a balance;Sheet and a statement of cash flow for 2012 and 2013.;7 ? 27 Effect of accrued interest on financial statements.;Norman Co. borrowed $15,000 from the local bank on April 1, 2012, when the company was started. The note had an 8 % annual interest rate and a one year term to maturity. Norman Co. recognized $42, 000of revenue on account in 2012 and $56, 000 of revenue on account in 2013. Cash collection from accounts receivable were $38,000 in 2012 and $58,000 in 2013. Norman Co paid $26,000 of salaries expense in 2012 and $32,000 of salaries expense in 2013. Norman Co. paid the loan and interest at the maturity date.;Required;a. Organize the information in accounts under an accounting equation.;b. What amount of net cash flow from operating activities would be reported on the 2012 cash;flow statements?;c. What amount of interest expense would be reported on the 2012 income statement?;d. What amount of total liabilities would be reported on the December 31, 2012, balance sheet?;e. What amount of retained earnings would be reported on the December 31, 2012, balance sheet?;f. What amount of cash flow from financing activities would be reported on the 2012 statement of cash;flows.;g. What amount of interest expense would be reported on the 2013 income statement?;h. What amount of cash flows from operating activities would be reported on the 2013 cash flow;statement?;i. What amount of assets would be reported on the December 31, 2013, balance sheet?;7 ? 28 Current liabilities;The following selected transactions were taken from the books of Caledonia Company for 2012.;1. On March 1, 2012, borrowed $50,000 cash from the local bank. The note had a 6 percent interest rate and was due on September 1, 2012.;2. Cash sales for the year amounted to $225,000 plus sales tax at the rate of 7 percent.;3. Caledonia provides a 90 day warranty on the merchandise sold. The warranty expense is estimated to be 2 percent of sales.;4. Paid the sales tax to the state sales tax agency on $190,000 of the sales.;5. Paid the note due on September 1 and the related interest.;6. On October 1, 2012, borrowed $40,000 cash from the local bank. The note had a 7 percent;Interest rate and a one year term to maturity.;7. Paid $3,600 in warranty repairs;8. A customer has filed a lawsuit against Caledonia for $100,000 for breach of contract. The;Company attorney does not believe the suit has merit.;Required;a. Answer the following questions.;(1)What amount of cash did Caledonia pay for interest during the year?;(2)What amount of interest expense is reported on Caledonia?s income statement for the year?;(3) What is the amount of warranty expense for the year?;b. Prepare the current liabilities section of the balance sheet at December 31, 2012.;c. Show the effect of these transactions on the financial statements using a horizontal;statements model like the one shown here. Use a + to indicate increase, a ? for decrease, and;NA for not affected. In the Cash Flow column, indicate whether the item is an operating;Activity (OA), investing activity (IA), or financing activity (FA). The first transaction is recorded;as an example.;Assets;=;Liabilities;+;Equity;Rev;-;Exp;=;Net Inc.;Cash Flow;+;+;NA;NA;NA;NA;+ FA

 

Paper#80033 | Written in 18-Jul-2015

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