Effect of deferrals on financial statements: three separate single-cycle examples

a. On February 1, 2012, Heider, Inc., was formed when it received $80,000 cash from the issue of common stock. On May 1, 2012, the company paid $60,000 cash in advance to rent office space for the coming year. The office space was used as a place to consult with clients. The consulting activity generated $120,000 of cash revenue during 2012. Based on this information alone, record the events and related adjusting entry in the general ledger accounts under the accounting equation. Determine the amount of net income and cash flows from operating activities for 2012.
b. On January 1, 2012, the accounting firm of Bonds & Associates was formed. On August 1, 2012, the company received a retainer fee (was paid in advance) of $30,000 for services to be performed monthly during the next 12 months. Assuming that this was the only transaction completed in 2012, prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for 2012.
c. Edge Company had $2,200 of supplies on hand on January 1, 2012. Edge purchased $7,200 of supplies on account during 2012. A physical count of supplies revealed that $900 of supplies was on hand as of December 31, 2012. Determine the amount of supplies expense that should be recognized in the December 31, 2012 adjusting entry. Use a financial statements model to show how the adjusting entry would affect the balance sheet, income statement, and statement of cash flows.

  • CreatedMay 19, 2012
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