Question

Hart, Attorney at Law, experienced the following transactions in Year 1, the first year of operations: Accepted $36,000 on April 1, Year 1, as a retainer for services to be performed evenly over the next 12 months. Performed legal services for cash of $54,000. Purchased $2,800 of office supplies on account. Paid $2,400 of the amount due on accounts payable. Paid a cash dividend to the stockholders of $5,000. Paid cash for operating expenses of $31,000. Determined that at the end of the accounting period $200 of office supplies remained on hand. On December 31, Year 1, recognized the revenue that had been earned for services performed in accordance with Transaction 1. Required: 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 the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. The first event has been recorded as an example. (Do not round intermediate calculations. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells in the "Statement of Cash Flows" column may require an input - leave cells blank if there is no corresponding input needed.)Event # Cash Supples Accts. Pay Unearn. Rev. Ret. Earn. Rev Exp Net Inc. Cash Flow 1 $36,000 NA NA $36,000 NA $36,000 NA NA $36,000 OA2

Answer 1

Answer:

I prepared the horizontal statement on an excel spreadsheet because there was not enough room here.

Explanation:

a) Accepted $36,000 on April 1, Year 1, as a retainer for services to be performed evenly over the next 12 months.

Dr Cash 36,000

    Cr Unearned revenue 36,000

b) Performed legal services for cash of $54,000.

Dr Cash 54,000

    Cr Fees earned 54,000

c) Purchased $2,800 of office supplies on account.

Dr Supplies 2,800

    Cr Accounts payable 2,800

d) Paid $2,400 of the amount due on accounts payable.

Dr Accounts payable 2,400

    Cr Cash 2,400

e) Paid a cash dividend to the stockholders of $5,000.

Dr Dividend 5,000

    Cr Cash 5,000

f) Paid cash for operating expenses of $31,000.

Dr Operating expenses 31,000

    Cr Cash 31,000

g) Determined that at the end of the accounting period $200 of office supplies remained on hand.

Dr Supplies expense 2,600

    Cr Supplies 2,600

h) On December 31, Year 1, recognized the revenue that had been earned for services performed in accordance with Transaction 1.

Dr Unearned revenue 36,000

    Cr Fees earned 36,000

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