Question

Colton Enterprises experienced the following events for Year 1, the first year of operation:Acquired $37,000 cash from the issue of common stock.Paid $12,200 cash in advance for rent. The payment was for the period April 1, Year 1, to March 31, Year 2.Performed services for customers on account for $76,000.Incurred operating expenses on account of $36,000.Collected $58,500 cash from accounts receivable.Paid $23,000 cash for salary expense.Paid $28,800 cash as a partial payment on accounts payable.Adjusting EntriesMade the adjusting entry for the expired rent. (See Event 2.)Recorded $2,800 of accrued salaries at the end of Year 1.Events for Year 2Paid $2,800 cash for the salaries accrued at the end of the prior accounting period.Performed services for cash of $25,000.Purchased $3,000 of supplies on account.Paid $11,100 cash in advance for rent. The payment was for one year beginning April 1, Year 2.Performed services for customers on account for $92,000.Incurred operating expenses on account of $43,500.Collected $91,000 cash from accounts receivable.Paid $41,000 cash as a partial payment on accounts payable.Paid $31,700 cash for salary expense.Paid a $11,000 cash dividend to stockholders.Adjusting EntriesMade the adjusting entry for the expired rent. (Hint: Part of the rent was paid in Year 1.)Recorded supplies expense. A physical count showed that $550 of supplies were still on hand.d-1. Prepare an income statement for Year 1.d-2. Prepare a statement of changes in stockholders’ equity for Year 1.d-3. Prepare a balance sheet for Year 1.d-4. Prepare a statement of cash flows for Year 1. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer:

d1) Colton Enterprises

Income Statement

For the year ended December 31, Year 1

Service revenue                                       $76,000

Expenses:

• Operating expenses $36,000
• Wages expense $25,800
• Rent expense $9,150                     ($70,950)

Net income                                                 $5,050

d2) Colton Enterprises

Changes in stockholders' equity

For the year ended December 31, Year 1

Beginning balance                               $0              

Common stocks issued                 $37,000          

Net income                                       $5,050          

Subtotal                                          $42,050        

Dividends paid                                      $0          

Ending balance Dec. 31, year 1     $42,050

d3) Colton Enterprises

Balance Sheet

For the year ended December 31, Year 1

Assets:

Cash                                             $31,500

Accounts receivable                    $17,500

Prepaid rent                                  $3,050

Total assets                                 $52,050          

Liabilities:

Accounts payable                         $7,200

Wages payable                             $2,800

Total liabilities                             $10,000

Stockholders' Equity:

Common stock                           $37,000              

Retained earnings                        $5,050              

Total stockholders' equity         $42,050

Total liabilities + equity              $52,050        

d4) Colton Enterprises

Statement of cash flows

For the year ended December 31, Year 1

Cash flows from operating act.

Net income                                                                      $5,050

Adjustments to net income:

• Increase in accounts payable $7,200
• Increase in wages payable $2,800
• Increase in accounts receivable ($17,500)
• Increase in prepaid rent ($3,050)                       ($10,550)

Net cash provided by OA                                             ($5,500)

Cash flows from investing act.                                            $0

Cash flows from financing act.

Issuance of common stocks                                        $37,000

Dividends paid                                                                $0        

Net cash provided by FA                                             $37,000        

Net increase in cash                                                     $31,500              

Initial cash balance                                                          $0                  

Ending cash balance                                                    $31,500  

Explanation:

Events for yer 1:

Acquired $37,000 cash from the issue of common stock.

Dr Cash 37,000

    Cr Common stock 37,000

Paid $12,200 cash in advance for rent. The payment was for the period April 1, Year 1, to March 31, Year 2.

Dr Prepaid rent 12,200

    Cr Cash 12,200

Performed services for customers on account for $76,000.

Dr Accounts receivable 76,000

    Cr Service revenue 76,000

Incurred operating expenses on account of $36,000.

Dr Operating expense 36,000

    Cr Accounts payable 36,000

Collected $58,500 cash from accounts receivable.

Dr Cash 58,500

    Cr Accounts receivable 58,500

Paid $23,000 cash for salary expense.

Dr Wages expense 23,000

    Cr Cash 23,000

Paid $28,800 cash as a partial payment on accounts payable.

Dr Accounts payable 28,800

    Cr Cash 28,800

Made the adjusting entry for the expired rent.

Dr Rent expense 9,150

    Cr Prepaid rent 9,150

Recorded $2,800 of accrued salaries at the end of Year 1.

Dr Wages expense 2,800

    Cr Wages payable 2,800

Events for Year 2

Paid $2,800 cash for the salaries accrued at the end of the prior accounting period.

Dr Wages payable 2,800

    Cr Cash 2,800

Performed services for cash of $25,000.

Dr Cash 25,000

    Cr Service revenue 25,000

Purchased $3,000 of supplies on account.

Dr Supplies 3,000

    Cr Accounts payable 3,000

Paid $11,100 cash in advance for rent. The payment was for one year beginning April 1, Year 2.

Dr Prepaid rent 11,100

    Cr Cash 11,100

Performed services for customers on account for $92,000.

Dr Accounts receivable 92,000

    Cr Service revenue 92,000

Incurred operating expenses on account of $43,500.

Dr Operating expenses 43,500

    Cr Accounts payable 43,500

Collected $91,000 cash from accounts receivable.

Dr Cash 91,000

    Cr Accounts receivable 91,000

Paid $41,000 cash as a partial payment on accounts payable.

Dr Accounts payable 41,000

    Cr Cash 41,000

Paid $31,700 cash for salary expense.

Dr Wages expense 31,700

    Cr Cash 31,700

Paid a $11,000 cash dividend to stockholders.

Dr Dividends 11,000

    Cr Cash 11,000

Adjusting entry for expired rent

Dr Rent expense 11,375

    Cr Prepaid rent 11,375

Dr Supplies expense 2,450

    Cr Supplies 2,450