entry, Inc. was started on January 1, Year 1. Year 1 Transactions Acquired $20,000 cash by issuing common stock. Earned $62,000 of revenue on account. On October 1, Year 1, borrowed $12,000 cash from the local bank. Incurred $3,700 of operating expenses on account. Collected $5,000 cash from accounts receivable. Paid $2,900 cash to pay off a portion of the accounts payable. On December 31, Year 1, Sentry recognized accrued interest expense. The note had a one-year term and an 8 percent annual interest rate. Year 2 Transactions Collected cash for the remaining balance in accounts receivable. Paid cash to settle the remaining balance of accounts payable. On September 30, Year 2, recognized accrued interest expense. On September 30, Year 2, paid cash to settle the balance of the interest payable account. On September 30, Year 2, paid cash to settle the notes payable. Required a. Record the events for Year 1 and Year 2 in an accounting equation. At the end of Year 1, total the columns to determine the Year 1 account balances. The Year 1 ending balances become the Year 2 beginning balances. At the end of Year 2, total the columns to determine the account balances for Year 2. b. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for Year 1 and Year 2 c. If the company were liquidated at the end of Year 2, how much cash would be distributed to creditors? How much cash would be distributed to investors?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Sentry, Inc. was started on January 1, Year 1.

Year 1 Transactions

Acquired $20,000 cash by issuing common stock.
Earned $62,000 of revenue on account.
On October 1, Year 1, borrowed $12,000 cash from the local bank.
Incurred $3,700 of operating expenses on account.
Collected $5,000 cash from accounts receivable.
Paid $2,900 cash to pay off a portion of the accounts payable.
On December 31, Year 1, Sentry recognized accrued interest expense. The note had a one-year term and an 8 percent annual interest rate.

Year 2 Transactions

Collected cash for the remaining balance in accounts receivable.
Paid cash to settle the remaining balance of accounts payable.
On September 30, Year 2, recognized accrued interest expense.
On September 30, Year 2, paid cash to settle the balance of the interest payable account.
On September 30, Year 2, paid cash to settle the notes payable.

Required
a. Record the events for Year 1 and Year 2 in an accounting equation. At the end of Year 1, total the columns to determine the Year 1 account balances. The Year 1 ending balances become the Year 2 beginning balances. At the end of Year 2, total the columns to determine the account balances for Year 2.
b. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for Year 1 and Year 2
c. If the company were liquidated at the end of Year 2, how much cash would be distributed to creditors? How much cash would be distributed to investors?

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