B6001– Accounting 1 – Financial Accounting
Problem Set #4
Instructions
All homework assignments are type B1 assignments. You may discuss the assigned questions with your classmates, but you must write up the answers yourself. Submitting answers that are not your own, which includes copying someone else’s answer file, is an honor code violation.
Answers to homework assignments must be submitted to Canvas electronically in pdf-format. You may create your original write-up using any word-processing and/or spreadsheet software of your choice, or writing by hand, but you must convert your write-up to a pdf-file before uploading.
Check your answer file for spelling and formatting. Have pity on the graders, unreadable submissions are not graded.
Label the steps in your calculations clearly and show enough detail so that an informed and competent reader can understand your derivations and arguments.
Question 1: GIJoe
Question 2: Sheffer
Question 3: A Cruel World
Question 1: GIJoe
The GIJoe Company started its operations in 2019. Two years later, the balance sheet for December 31, 2020, showed the following account balances (there were no other accounts listed):
Wages payable 6, Loan made to the ABC company 50, Paid in capital 500, Accounts payable 50, PP&E 200, Inventory 59, Cash 400, Advances from customers 40, Accumulated depreciation 30, Accounts receivables 93, Retained earnings (?).
During 2021 the following transactions occurred:
1. Depreciation expense was $20.
2. Insurance expenses were $25, all paid in cash.
3. Rent for 18 months, starting January 1, 2021, in the amount of $36, was paid in cash.
4. Sales, all on credit, were $753.
5. Collections from customers were $777.
6. In addition to the transactions described in items 4 and 5 above, there was a sale to the customer who paid $40 in advance (see December 31, 2020 balances). The selling price was $100, and the customer will pay the balance in 2022.
7. GIJoe purchased $555 worth of inventory, on account.
8. Payments on accounts payable were $444.
9. The total Cost Of Goods Sold during the year was $565.
10. The employees of GIJoe earned $48 as wages. Cash payments to employees were $50.
11. The ABC company paid GIJoe $5 as interest on its loan, and paid back $15 of the principle.
12. A dividend of $48 was declared and paid during 2021.
13. On the last day of the year, Mrs. GIJoe, one of the owners of the GIJoe Company, purchased a lottery ticket and won $77,784 in cash. She bought the lottery ticket with money from her personal account.
Required:
a. What was the balance of the Retained Earnings account on December 31, 2020?
b. Record the entries for all the transactions that occurred during 2021. You can use journal entries or the accounting equation to record the transactions.
c. Prepare an Income Statement for the year ended December 31, 2021.
d. Prepare a Balance Sheet for December 31, 2021.
e. Prepare a Statement of Cash Flows for the year ended December 31, 2021.
Question 2: Sheffer
The Sheffer Company’s statement of cash flows for 2021 showed the following calculation of the cash flow from operating activities:
Collections from customers $ 2,245
Payments to suppliers (1,375)
Payments to employees ( 688)
Payments to the IRS (for income tax) ( 72)
Cash flow from operating activities $ 110
The company’s balance sheet at the beginning and end of 2021 showed the following:
Beginning End
of year of year
Accounts payable $ 92 $ 103
Accounts receivable 218 262
Accumulated depreciation 93 122
Income tax payable 142 180
Merchandise inventory 141 189
Plant and equipment (at cost) 338 371
Wages payable 36 37
A note to the financial statements showed that the company bought plant and equipment during the year for $33. Assume that all sales and inventory purchases during the year were made on credit.
Required:
a. Prepare an income statement for the Sheffer Company for 2021.
b. Did the Sheffer Company use the direct or the indirect method in preparing its statement of cash flows?
Question 3: A Cruel World
You are given two consecutive balance sheets, an income statement, and a few facts for A Cruel World, Inc.
Balance Sheets (years 0 and 1)
Year 0 Year 1
Cash 3,000 3,000
Accounts Receivables 2,000 4,000
Inventory 3,000 4,000
Property, Plant and Equipment (net) 12,000 11,000
Total Assets 20,000 22,000
Accounts Payable 7,000 5,000
Bonds Payable 5,000 6,000
Total Liabilities 12,000 11,000
Common Stock 3,000 4,000
Retained Earnings 5,000 7,000
Total Shareholders' Equity 8,000 11,000
Total Liabilities and Equity 20,000 22,000
Income Statement (year 1)
Sales 20,000
Costs of Goods Sold (8,000)
Wage Expense (4,000)
Depreciation Expense (2,000)
Interest Expense (1,000)
Net Income Before Tax 5,000
Tax Expense (2,000)
Net Income 3,000
Facts
All property, plant and equipment that is retired or sold is fully depreciated.
Purchases of property, plant and equipment were made in cash.
Required:
a. Construct the Statement of Cash Flows for A Cruel World in year 1 using the direct method.
b. Construct the supporting schedule to the Statement of Cash Flows which reconciles net income to cash flow from operations for A Cruel World in year 1. (That is, calculate cash flow from operations using the indirect method.)