Chapter 7, Problem 26P

a.

To determine

Record the given events in the accounting equation.

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below.

$\text{Assets = Liabilities + Stockholders' Equity}$

Record the given events in accounting equation.

Table (1)

Working note 1: Calculate the amount of Accrued interest:

$\begin{array}{c}\text{Accrued interest}=\text{Notes payable}\times \text{Interest rate}\times \frac{\text{Number of months}}{\text{Months in a year}}\\ =\$36,000\times 6\%\times \frac{6}{12}\left(\text{July to December}\right)\\ =\$1,080\end{array}$

b.

To determine

Calculate the amount of net cash flow from operating activities that would be reported on 2018 Statement of cash flows.

Explanation of Solution

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

Calculate the cash flow from operating activities.

Enterprise M
Statement of cash flow
Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Cash collected from revenue	$61,300
Cash paid for operating expenses	($39,000)
Net cash flow from operating activities		$22,300

Table (2)

Thus, the amount of net cash flow from operating activities that would be reported on 2018 Statement of cash flows is $22,300.

c.

To determine

Calculate the amount of interest expense that would be reported on 2018 income statement.

Explanation of Solution

Interest expense refers to the cost of debt which is incurred during a particular accounting period. The interest amount is a fixed interest rate payable on the principal amount of debt.

Calculate the amount of interest expense.

$\begin{array}{c}\text{Interest expense}=\text{Notes payable}\times \text{Interest rate}\times \frac{\text{Number of months}}{\text{Months in a year}}\\ =\$36,000\times 6\%\times \frac{6}{12}\left(\text{July to December}\right)\\ =\$1,080\end{array}$

Hence, the amount of interest expense that would be reported on 2018 income statement is $1,080.

d.

To determine

Calculate the amount of total liabilities that would be reported on December 31, 2018 balance sheet.

Explanation of Solution

Total liabilities are the sum of financial obligations and debt owed by business.

Calculate the total liabilities.

Particulars	Amount ($)	Amount ($)
Notes payable	36,000
Interest payable	1,080
Total liabilities		37,080

Table (3)

Thus, the amount of total liabilities that would be reported on December 31, 2018 balance sheet is $37,080.

e.

To determine

Calculate the amount of retained earnings that would be reported on December 31, 2018 balance sheet.

Explanation of Solution

Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

Calculate the amount of retained earnings.

$\begin{array}{c}\text{Retained earnings}\text{=}\text{Revenue}\text{recognized}-\text{Opearting}\text{expense}-\text{Interest}\text{expense}\\ =\$72,500-\$39,000-\$1,080\\ =\$32,420\end{array}$

Hence, the amount of retained earnings that would be reported on December 31, 2018 balance sheet is $32,420.

f.

To determine

Calculate the amount net cash flow from financing activities that would be reported on 2018 statement of cash flows.

Explanation of Solution

Cash flow from financing activities: This section of cash flows statement provides information about the cash inflow and outflow as a result of issuance and financing of debt, issue of new stock and payment of dividends.

Calculate the amount net cash flow from financing activities.

Enterprise M
Statement of cash flow
Particulars	Amount ($)	Amount ($)
Cash flow from financing activities
Issued common stock	$10,000
Loan borrowed	$36,000
Net cash flow from operating activities		$46,000

Table (4)

Thus, the amount of cash flow from financing activities that would be reported on 2018 statement of cash flow is $46,000.

g.

To determine

Calculate the amount of interest expense that would be reported on 2019 income statement.

Explanation of Solution

Interest expense refers to the cost of debt which is incurred during a particular accounting period. The interest amount is a fixed interest rate payable on the principal amount of debt.

Calculate the amount of interest expense.

$\begin{array}{c}\text{Interest expense}=\text{Notes payable}\times \text{Interest rate}\times \frac{\text{Number of months}}{\text{Months in a year}}\\ =\$36,000\times 6\%\times \frac{6}{12}\left(\text{January to June}\right)\\ =\$1,080\end{array}$

Hence, the amount of interest expense that would be reported on 2019 income statement is $1,080.

h.

To determine

Calculate the amount of net cash flow from operating activities that would be reported on the 2019 Statement of cash flows.

Explanation of Solution

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

Calculate the cash flow from operating activities.

Enterprise M
Statement of cash flow
Particulars	Amount ($)	Amount ($)
Cash flow from operating activities
Cash collected from accounts receivable	$71,500
Cash paid for operating expenses	($45,000)
Cash paid for interest	($2,160)
Net cash flow from operating activities		$24,340

Table (5)

Thus, the cash flow operating activities that would be reported on 2019 statement of cash flows is $24,340.

i.

To determine

Calculate the amount of total assets that would be reported on 2019 balance sheet.

Explanation of Solution

Calculate the total assets.

Particulars	Amount ($)	Amount ($)
Cash	56,640
Accounts receivable	24,900
Total assets		81,540

Table (6)

Thus, the amount of total assets that would be reported on 2019 balance sheet is $81,540.