
Concept explainers
a)
Organize the transactions in accounts under an
a)

Explanation of Solution
Organize the transactions in accounts under an accounting equation:
Table (1)
Working Note 1: Calculate the bad debt expense:
b)
Prepare the income statement, statement of changes in stockholders’ equity,
b)

Explanation of Solution
Income statement:
It is one of the financial statements, which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period.
Prepare the income statement for 2014.
Incorporation F | ||
Income statement | ||
For the year ended December 31, 2014 | ||
Particulars | Amount | Amount |
Service Revenue | $102,000 | |
Operating Expenses: | ||
Salaries Expense | $24,000 | |
Uncollectible Accounts Expense | $750 | |
Total Operating Expenses | ($24,750) | |
Net Income | $77,250 |
Table (2)
Statement of stockholder's equity: This statement reports the beginning stockholder's equity and all the changes which led to ending stockholder's equity. Additional capital, net income from income statement is added to and dividends are deducted from beginning stockholder's equity to arrive at the end result, closing balance of stockholder's equity.
Prepare the statement of changes in the
Incorporation F | ||
Statement of changes in the Stockholders Equity | ||
For the year ended December 31, 2014 | ||
Particulars | Amount | Amount |
Beginning | $0 | |
Add: Net Income | $77,250 | |
Ending Retained Earnings | $77,250 | |
Total Stockholders’ Equity | $77,250 |
Table (3)
Balance Sheet: Balance Sheet summarizes 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 as on December 31, 2014:
Incorporation F | ||
Balance sheet | ||
As on December 31, 2014 | ||
Assets | ||
Cash | $63,000 | |
Accounts Receivable | $15,000 | |
Less: Allowance for Doubtful Accounts | ($750) | $14,250 |
Total Assets | $77,250 | |
Liabilities | $0 | |
Stockholders’ Equity | ||
Common Stock | $0 | |
Retained Earnings | $77,250 | |
Total Stockholders’ Equity | $77,250 | |
Total Liabilities and Stockholders’ Equity | $77,250 |
Table (4)
Statement of cash flows:
It is one of the financial statements which reports the source and application of cash between two balance sheet dates. It shows how the cash is sourced and used for the company’s operating, investing, and financing activities.
Prepare the statement of cash flows for 2014:
Incorporation F | ||
Statement of cash flows | ||
For the year ended December 31, 2014 | ||
Particulars | Amount | Amount |
Cash Flows From Operating Activities: | ||
Cash collection from Customers | $87,000 | |
Cash paid for Expenses | ($24,000) | |
Net Cash Flow from Operating Activities | $63,000 | |
Cash Flows From Investing Activities | $0 | |
Cash Flows From Financing Activities | $0 | |
Net Change in Cash | $63,000 | |
Add: Beginning Cash Balance | $0 | |
Ending Cash Balance | $63,000 |
Table (5)
c)
Calculate the net realizable value of the accounts receivable at December 31, 2014.
c)

Explanation of Solution
Cash realizable value (net realizable value): Cash realizable value is the net amount of receivables which a business expects to collect from its debtors. Accounts receivable less allowance for doubtful accounts is represented as cash realizable value.
Calculate the net realizable value of the accounts receivable at December 31, 2014.
Particulars | Amount ($) |
Accounts receivable balance at December 31, 2014 | $15,000 |
Less: Allowance for Doubtful Accounts, December 31, 2014 | ($750) |
Net realizable value of the accounts receivable at December 31, 2014 | $14,250 |
Table (6)
Therefore, the net realizable value of the accounts receivable at December 31, 2014 is $14,250.
d. (a)
Organize the transactions in accounts under an accounting equation.
d. (a)

Explanation of Solution
Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a business and claims on the resources by the creditors, and the owners.
Organize the transactions in accounts under an accounting equation:
Table (7)
Working Note 2: Calculate the bad debt expense
Bad debts are estimated 5% of the ending accounts receivables balance. Ending accounts receivable for the year 2015 are $19,380.
d (b)
Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for 2015.
d (b)

Explanation of Solution
Income statement: It is one of the financial statements, which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period.
Prepare the income statement for 2014:
Incorporation F | ||
Income statement | ||
For the year ended December 31, 2015 | ||
Particulars | Amount ($) | Amount ($) |
Service Revenue | $110,000 | |
Operating Expenses: | ||
Salaries Expense | $35,000 | |
Uncollectible Accounts Expense | $839 | |
Total Operating Expenses | ($35,839) | |
Net Income | $74,161 |
Table (8)
Statement of stockholder's equity: This statement reports the beginning stockholder's equity and all the changes which led to ending stockholder's equity. Additional capital, net income from income statement is added to and dividends are deducted from beginning stockholder's equity to arrive at the end result, closing balance of stockholder's equity.
Prepare the statement of changes in the stockholders equity for 2014.
Incorporation F | ||
Statement of changes in the Stockholders Equity | ||
For the year ended December 31, 2015 | ||
Particulars | Amount | Amount |
Beginning Retained Earnings | $77,250 | |
Add: Net Income | $74,161 | |
Ending Retained Earnings | $151,411 | |
Total Stockholders’ Equity | $151,411 |
Table (9)
Balance Sheet: Balance Sheet summarizes 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 as on December 31, 2015:
Incorporation F | ||
Balance sheet | ||
As on December 31, 2015 | ||
Particulars | Amount | Amount |
Assets | ||
Cash | $133,000 | |
Accounts Receivable | $19,380 | |
Less: Allowance for Doubtful Accounts | ($969) | $18,411 |
Total Assets | $151,411 | |
Liabilities | $0 | |
Stockholders’ Equity | ||
Retained Earnings | $151,411 | |
Total Stockholders’ Equity | $151,411 | |
Total Liabilities and Stockholders’ Equity | $151,411 |
Table (10)
Statement of cash flows:
It is one of the financial statements which reports the source and application of cash between two balance sheet dates. It shows how the cash is sourced and used for the company’s operating, investing, and financing activities.
Prepare the statement of cash flows for 2015:
Incorporation F | ||
Statement of Cash Flows | ||
For the year ended December 31, 2015 | ||
Particulars | Amount | Amount |
Cash Flows From Operating Activities: | ||
Cash collcetion from Customers | $105,000 | |
Cash paid for Expenses | ($35,000) | |
Net Cash Flow from Operating Activities | $70,000 | |
Cash Flows From Investing Activities | $0 | |
Cash Flows From Financing Activities | ||
Issue of Common Stock | $0 | |
Net Change in Cash | $70,000 | |
Add: Beginning Cash Balance | $63,000 | |
Ending Cash Balance | $133,000 |
Table (11)
d (c)
Calculate the net realizable value of the accounts receivable at December 31, 2015.
d (c)

Explanation of Solution
Cash realizable value (net realizable value): Cash realizable value is the net amount of receivables which a business expects to collect from its debtors. Accounts receivable less allowance for doubtful accounts is represented as cash realizable value.
Calculate the net realizable value of the accounts receivable at December 31, 2015.
Particulars | Amount |
Accounts receivable balance at December 31, 2015 | $19,380 |
Less: Allowance for Doubtful Accounts, December 31, 2015 | ($969) |
Net realizable value of the accounts receivable at December 31, 2015 | $18,411 |
Table (12)
Therefore, the net realizable value of the accounts receivable at December 31, 2015 is $18,411.
Want to see more full solutions like this?
Chapter 5 Solutions
SURVEY OF ACCOUNTING-ACCESS
- A trial balance will balance even if A. a journal entry to record the purchase of equipment for cash of $52100 is not posted. B. a $13100 cash dividend is debited to dividends for $13100 and credited to cash for $1310. C. a $510 collection on accounts receivable is credited to accounts receivable for $510 without a corresponding debit. D. a purchase of supplies for $595 on account is debited to supplies for $595 and credited to accounts payable for $559.arrow_forwardEquipment costing $15200 is purchased by paying $3800 cash and signing a note payable for the remainder. The journal entry to record this transaction should include a credit to Notes Payable. credit to Notes Receivable. credit to Equipment. debit to Cash.arrow_forwardAt December 1, 2025, a company's Accounts Receivable balance was $20160. During December, the company had credit sales of $54000 and collected accounts receivable of $43200. At December 31, 2025, the Accounts Receivable balance is A. $30960 debit. B. $30960 credit. C. $74160 debit. D. $20160 debit.arrow_forward
- Whispering Winds Corp.'s trial balance at the end of its first month of operations reported the following accounts and amounts with normal balances: Cash $14720 Prepaid insurance 460 Accounts receivable 2300 Accounts payable 1840 Notes payable 2760 Common stock 4600 Dividends 460 Revenues 20240 Expenses 11500 Total credits on Whispering Winds Corp's trial balance are A. $28980. B. $30360. C. $29900. D. $29440arrow_forwardSwifty Corporation's trial balance reported the following normal balances at the end of its first year: Cash $14440 Prepaid insurance 530 Accounts receivable 2660 Accounts payable 2130 Notes payable 3190 Common stock 4100 Dividends 530 Revenues 22040 Expenses 13300 What amount did Swifty Corporation's trial balance show as total credits? A. $31460 B. $32520 C. $30930 D. $31990arrow_forwardMonty Inc., a major retailer of high-end office furniture, operates several stores and is a publicly traded company. The company is currently preparing its statement of cash flows. The comparative statement of financial position and income statement for Monty as at May 31, 2020, are as The following is additional information about transactions during the year ended May 31, 2020 for Monty Inc., which follows IFRS. Plant assets costing $69,000 were purchased by paying $47,000 in cash and issuing 5,000 common shares. In order to supplement its cash, Monty issued 4,000 additional common shares. Cash dividends of $35,000 were declered and paid at the end of the fiscal year. create direct method cash flow statement, show your workarrow_forward
- Following is additional information about transactiona during the year ended May 31, 2020 for Monty Inc., which follows IFRS. Plant assets costing $69,000 were purchased by paying $47,000 in cash and issuing 5,000 common shares. In order to supplement iRs cash, Monty Issued 4,000 additional common shares. Cash dividends of $35,000 were declared and paid at the end of the fiscal year. PRepare a direct Method Cash FLow using the format.arrow_forwardmake a trail balancearrow_forwardOn July 31, 2025, the general ledger of Cullumber Legal Services Inc. showed the following balances: Cash $4,960, Accounts Receivable $1,860, Supplies $620, Equipment $6,200, Accounts Payable $5,080, Common Stock $4,340, and Retained Earnings $4,220. During August, the following transactions occurred. Aug. 3 5 Collected $1,490 of accounts receivable due from customers. Received $1,610 cash for issuing common stock to new investors. 6 Paid $3,350 cash on accounts payable. 7 Performed legal services of $8,060, of which $3,720 was collected in cash and the remainder was due on account. 2 2 2 2 2 12 Purchased additional equipment for $1,490, paying $500 in cash and the balance on account. 14 Paid salaries $4,340, rent $1,120, and advertising expenses $340 for the month of August. 18 20 24 26 27 Collected the balance for the services performed on August 7. Paid cash dividend of $620 to stockholders. Billed a client $1,240 for legal services performed. Received $2,480 from Laurentian Bank;…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





