
a.
Identify the amount of revenue that is reported on the 2018 income statement.
a.

Answer to Problem 7E
The amount of revenue recognized is $62,000 (Amount earned by providing services to the customers) is reported on the income statement.
Explanation of Solution
Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.
Record the effect of the events in the accounting equation:
Incorporation Z | |||||||||
Effects of events on the general ledger accounts for 2014 | |||||||||
Assets | = | Liabilities | + | ||||||
Event | Cash | + | = | Accounts payable | + | Common stock | + | ||
1 | NA | + | $62,000 | = | NA | + | NA | + | $62,000 |
2 | $51,000 | + | ($51,000) | = | NA | + | NA | + | NA |
3 | NA | + | NA | = | $39,000 | + | NA | + | ($39,000) |
4 | ($31,000) | + | NA | = | NA | + | NA | + | NA |
5 | $40,000 | + | NA | = | NA | + | $40,000 | + | NA |
6 | ($21,000) | + | NA | = | ($31,000) | + | NA | + | NA |
Totals | $39,000 | + | $11,000 | = | $8,000 | + | $40,000 | + | $23,000 |
Table (1)
b.
Identify the amount of cash flow from revenue will be reported on the statement of
b.

Explanation of Solution
Cash Flow Statement: Cash Flow Statement is a fundamental financial statement that renders valuable information regarding the cash inflows or the cash receipts of a business and the cash outflows or cash payments for a specific period of time.
The amount of cash flows from revenue that is reported on the statement of cash flows is $51,000 (Amount collected from accounts receivable).
c.
Calculate the amount of net income for the period.
c.

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.
Prepare the income statement to calculate the amount of net income:
Incorporation Z | |
Income statement | |
For the year ended 2014 | |
Particulars | Amount |
Revenue | $62,000 |
Less: Expenses | |
Operating expenses | $39,000 |
Net income | $23,000 |
Table (2)
The amount of net income for the period is $23,000.
d.
Identify the amount of cash flow from operating activities for the period.
d.

Explanation of Solution
Cash Flow Statement:
Cash Flow Statement is a fundamental financial statement that renders valuable information regarding the cash inflows or the cash receipts of a business and the cash outflows or cash payments for a specific period of time.
Cash flows from operating activities refer to the cash received or cash paid in day-to-day operating activities of a company.
Prepare the statement of cash flow to calculate the cash flow from operating activities:
Incorporation Z | ||
Cash flow statement (Partial) | ||
For the year ended 2014 | ||
Particulars | Amount | Amount |
Cash flow from operating activities | ||
Cash from revenue | $51,000 | |
Cash paid for expenses | ($31,000) | |
Net cash flow from operating activities | $20,000 |
Table (3)
The net cash flow from operating activities for the period is $20,000.
e.
Explain the reason for difference in the net income from cash flow from operating activities.
e.

Explanation of Solution
There is a difference of $11,000
f.
Identify the amount of net cash flow from investing activities.
f.

Explanation of Solution
Investing activities: Investing activities refer to the activities carried out by a company for acquisition of long term assets. The examples for investing activities are purchase of equipment, long term investment, sale of land, and others. Investing cash flows causes changes in non-current assets.
Thus, the amount of
g.
Identify the amount of net cash flow from financing activities.
g.

Explanation of Solution
Financing activities: Financing activities refer to the activities carried out by a company to mobilize funds to carry out the business activities. The examples for financing activities are purchase of bonds, issuance of common shares, and others. Financing cash flows have an impact on non-current liabilities and stockholders’ equity.
Thus, the amount of
h.
Identify the amount of total assets, total liabilities, and total stockholders’ equity will be reported on the year-end balance sheet.
h.

Explanation of Solution
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the balance sheet to determine the amount of total assets, total liabilities, and total stockholders’ equity:
Incorporation Z | ||
Balance sheet | ||
As on 2014 | ||
Particulars | Amount | Amount |
Assets | ||
Cash | $39,000 | |
Accounts receivable | $11,000 | |
Land | $21,000 | |
Total assets | $71,000 | |
Liabilities | ||
Accounts payable | $8,000 | |
Total liabilities | $8,000 | |
Stockholders' equity | ||
Retained earnings | $40,000 | |
Common stock | $23,000 | |
Total stockholders' equity | $63,000 | |
Total liabilities and stockholders' equity | $71,000 |
Table (4)
The amount of total assets, liabilities, and equity that would be reported on the year-end balance sheet is $71,000, $8,000, and $63,000 respectively.
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Chapter 2 Solutions
SURVEY OF ACCOUNTING-ACCESS
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