Chapter 4, Problem 5PB

1.

To determine

Record the given transactions.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Record the given transactions.

Date	Account Title	Debit	Credit
June 2	Cash	$19,000
	Notes payable		$19,000
	(To record the cash borrowed from bank)
June 3	Rent expense	$1,200
	Cash		$1,200
	(To record the payment of rent)
June 7	Cash	$5,200
	Account Receivable	$3,500
	Service revenue		8,700
	(To record the services provided to customers)
June 11	Equipment	$8,400
	Cash		$8,400
	(To record the purchase of equipment)
June 17	Cash	$6,500
	Salaries Expense		$6,500
	(To record the payment of salaries)
June 22	Dividends	$1,550
	Cash		$1,550
	(To record the dividends issued)
June 25	Cash	$2,100
	Deferred Revenue		$2,100
	(To record the service revenue collected in advance)
June 28	Utilities Expense	$3,300
	Cash		$3,300
	(To record the utilities expenses)
June 30	Salaries Expense	$6,500
	Salaries payable		$6,500
	(To record the salaries payable)

Table (1)

2.

To determine

Identify the transactions involving cash.

Answer to Problem 5PB

All the transactions are cash transactions except the Salaries payable on June 30^th.

Explanation of Solution

The transactions in which the cash is involved either as receipt or payment are alone recorded as cash transactions. The transactions in which no cash is involved include the salaries which are outstanding for the employees.

3.

To determine

Post the given cash transactions to Cash T-Account and compute the closing cash balance.

Answer to Problem 5PB

Following table explains the T-Account for Cash:

Cash Account
Date	Particulars	Amount	Date	Particulars	Amount
June 01	Opening cash balance	$14,700	June 03	Rent Expenses	$1,200
June 02	Notes payable	$19,000	June 11	Equipment	$8,400
June 07	Service revenue	$5,200	June 17	Salaries Expenses	$6,500
June 25	Deferred Revenue	$2,100	June 22	Dividends	$1,550
			June 28	Utilities Expenses	$3,300
		$20,050

Explanation of Solution

T-account: T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’. The components of the T-account are as follows:

a)      The title of the account

b)      The left or debit side

c)      The right or credit side

4.

To determine

Prepare the statement of cash flows for the month of June for H Bound.

Answer to Problem 5PB

The following explains the statement of cash flows for the month of June for H Bound:

H Bound
Statement of Cash Flows
For the month ended June 30
Particulars	Amount ($)	Amount ($)
Cash flows from Operating Activities
Cash inflows:
From Customers	$7,300
Cash outflows:
Rent Expenses	($1,200)
Utilities Expenses	($3,300)
Salaries expense	($6,500)
Net cash flow from Operating Activities		($3,700)
Cash flows from Investing Activities
Purchase of equipment	($8,400)
Net cash flow from Investing Activities		($8,400)
Cash flows from Financing Activities
Borrowed from bank	$19,000
Payment of dividends	($1,550)
Net cash flow from Financing Activities		$17,450
Net increase in cash		$5,350
Cash at the beginning of the month		$14,700
Cash at the end of the month		$20,050

Table (2)

Explanation of Solution

Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.

5.

To determine

Verify the net cash flows reported in the statement of cash flows equal the change in the cash balance for the month.

Answer to Problem 5PB

The net cash flows reported in the statement of cash flows for the month is $5,350.

Explanation of Solution

Calculate the net cash flows reported in the statement of cash flows equal the change in the cash balance for the month of June.

$\begin{array}{c}\text{Net cash flow for the month = Closing Cash Balance }-\text{ Opening Cash Balance }\\ =\$20,050-\$14,700\\ =\$5,350\end{array}$