Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
Question
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Chapter 12, Problem 5E

1.

To determine

To show: The journal entries to record the transactions.

1.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entries.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Date Account title / Explanation Post ref.  Debit Credit
Amount Amount
       
  Cash   $200  
  Accounts receivable   $100  
  Sales revenue   $300
  ( To record the sales revenue)    

Table (1)

  • Cash is an asset account and it has increased the value of assets by $200. Hence, it is debited.
  • Account receivable is an asset account and it has increased the value of assets by $100. Hence, it is debited.
  • Sales revenue is a component of stock holders’ equity and it increases the stock holders’ equity by $300. Hence, it is credited.
Date Account title / Explanation Post ref.  Debit Credit
Amount Amount
  Cost of goods sold   $125  
  Inventory     $125
  ( To record the value of inventories transferred to production)      

Table (2)

  • Cost of goods sold is an expense account and a component of stockholders’ equityand it decreases the stock holders’ equity by $125. Hence, it is debited.
  • Inventory is an asset account and it decreases the value of assets by $125. Hence, it is credited.
Date Account title / Explanation Post ref.  Debit Credit
Amount Amount
  Salaries and wagesexpense   $30  
  Cash     $30
  ( To record the salary and wage expense being paid )      

Table (3)

  • Salary and wage expense is a component of stockholders’ equityand it decreases the stock holders’ equity by $30. Hence, it is debited.
  • Cash is an asset account and it decreases the value of assets by $30. Hence, it is credited.
Date Account title / Explanation Post ref.  Debit Credit
Amount Amount
  Cash   $40  
  Salaries and wagespayable     $40
  ( To record the salaries and wages expense payable  )      

Table (4)

  • Cash is an asset account and it increases the value of assets by $40. Hence, it is debited.
  • Salary and wage payable is a liabilityand, which will be paid in future. Hence, it is credited by $40.

2.

To determine

the amount that should be reported as net cash flow from operating activities.

2.

Expert Solution
Check Mark

Answer to Problem 5E

There has been a $170 increase in cash that must be reported as net cash flow from operating activities.

Explanation of Solution

Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.

Determine the amount of total operating cash inflows and total operating cash outflows.

Total operating cash inflows =$200(Sales revenue earned)Total operating cash outflows=$30(Salary and wage expense paid) (1)

Determine the amount net cash flow from operating activities.

Net cash flow from operating activities}=(Total operating cash inflows(1))(Total operating cash outflows (1))$200$30=$170

3.

To determine

The amount that should be reported as net income.

3.

Expert Solution
Check Mark

Answer to Problem 5E

Thereported amount of net income is $105.

Explanation of Solution

Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.

Determine the amount of total revenues and total expense.

Total revenues=$300(Service revenue)Total expenses=(Cost of goods sold)+(Salary and wage expense)=$125+$70=$195 (2)

Determine the amount of net income.

Net income=Total revenuesTotal expenses(2)=$300$195=$105

4.

To determine

To show: how the indirect method would convert net income to net cash flow from operating activities.

4.

Expert Solution
Check Mark

Explanation of Solution

Statement of cash flows

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.

Company
Statement of Cash Flows – Indirect Method
For the year ended December 31,
Particulars Amount
Cash flow from operating activities:  
Net Income $105
Add: Increase in salary and wage payable $40
Add: Decrease in inventory $125
Less: Increase in accounts receivable ($100)
Net cash flow from operating activities $170

Table (4)

5.

To determine

To explain: the general rule about converting net income to operating cash flows is revealed in requirement 4.

5.

Expert Solution
Check Mark

Explanation of Solution

Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.

Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.

As per requirement 4, the general rule states that add the items, when there is a decrease in current assets (inventories) and an increase in current liabilities (salary and wage payable) and subtract increase in current assets (accounts receivables)from net income to convert it into cash flows from operating activities.

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Students have asked these similar questions
Suppose your company sells services of $180 in exchange for $110 cash and $70 on account.Required:1. Show the journal entry to record this transaction.2. Identify the amount that should be reported as net cash flow from operating activities.3. Identify the amount that would be included in net income.4. Show how the indirect method would convert net income (requirement 3) to net cash flowfrom operating activities (requirement 2).5. What general rule about converting net income to operating cash flows is revealed by youranswer to requirement 4?
Suppose your company sells services of $180 in exchange for $110 cash and $70 on account. Required: 1. Prepare the journal entry to record this transaction. 2. Identify the amount that should be reported as net cash flow from operating activities. 3. Identify the amount that would be included in net income. 4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).
Suppose your company sells services of $270 in exchange for $155 cash and $115 on account.  Required: Prepare the journal entry to record this transaction. Identify the amount that should be reported as net cash flow from operating activities. Identify the amount that would be included in net income. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).   I have no clue how to work this problem

Chapter 12 Solutions

Fundamentals Of Financial Accounting

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