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 <u> ($70,950)</u>
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
<u> Net income $5,050</u>
Subtotal $42,050
<u> Dividends paid $0 </u>
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) <u>($10,550)</u>
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 <u> $0 </u>
Net cash provided by FA $37,000
Net increase in cash $31,500
Initial cash balance <u> $0 </u>
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