Cordell Inc. experienced the following events in Year 1, its first year of operation: Received $59,000 cash from the issue of common stock. Performed services on account for $81,000. Paid a $5,900 cash dividend to the stockholders. Collected $65,000 of the accounts receivable. Paid $59,000 cash for other operating expenses. Performed services for $19,000 cash. Recognized $2,900 of accrued utilities expense at the end of the year.
Required
a. & c. Identify the events that result in revenue or expense recognition and those which affect the statement of cash flows. In the Statement of Cash Flows column, use OA to designate operating activity, FA for financing activity, IA for investing activity and NA to indicate the element is not affected by the event.
b. Based on your response to Requirement a, determine the amount of net income reported on the 2018 income statement.
d. Based on your response to Requirement c, determine the amount of cash flow from operating activities reported on the 2018 statement of cash flows.
e. What is the before- and after-closing balance in the service revenue account?
f. What is the balance of the retained earnings account that appears on the 2018 balance sheet?

Question

07-10-2020
Business

contestada

Cordell Inc. experienced the following events in Year 1, its first year of operation: Received $59,000 cash from the issue of common stock. Performed services on account for $81,000. Paid a $5,900 cash dividend to the stockholders. Collected $65,000 of the accounts receivable. Paid $59,000 cash for other operating expenses. Performed services for $19,000 cash. Recognized $2,900 of accrued utilities expense at the end of the year.
Required
a. & c. Identify the events that result in revenue or expense recognition and those which affect the statement of cash flows. In the Statement of Cash Flows column, use OA to designate operating activity, FA for financing activity, IA for investing activity and NA to indicate the element is not affected by the event.
b. Based on your response to Requirement a, determine the amount of net income reported on the 2018 income statement.
d. Based on your response to Requirement c, determine the amount of cash flow from operating activities reported on the 2018 statement of cash flows.
e. What is the before- and after-closing balance in the service revenue account?
f. What is the balance of the retained earnings account that appears on the 2018 balance sheet?

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Answer:

a & c. See part a & c of the attached excel file for the table. In the attached excel file, Total revenue = $100,000; and Total expenses = $61,900.

b. The amount of net income reported on the 2018 income statement is $38,100.

d. The amount of cash flow from operating activities reported on the 2018 statement of cash flows is $25,000.

e. Before closing balance in service revenue account = $100,000; and After closing balance = $0.

f. The balance of the retained earnings account that appears on the 2018 balance sheet is $32,200.

Explanation:

a. & c. Identify the events that result in revenue or expense recognition and those which affect the statement of cash flows. In the Statement of Cash Flows column, use OA to designate operating activity, FA for financing activity, IA for investing activity and NA to indicate the element is not affected by the event.

Note: See part a & c of the attached excel file for the table.

From the attached excel file, we have:

Total revenue = $100,000

Total expenses = $61,900

b. Based on your response to Requirement a, determine the amount of net income reported on the 2018 income statement.

Based on part a & c above, we can determine this as follows:

Net income = Total revenue - Total expenses = $100,000 - $61,900 = $38,100

Therefore, the amount of net income reported on the 2018 income statement is $38,100.

d. Based on your response to Requirement c, determine the amount of cash flow from operating activities reported on the 2018 statement of cash flows.

Note: See part d of the attached excel file for the amount of cash flow from operating activities.

From the attached excel file, we have:

Cash flow from operating activity = $25,000

Therefore, the amount of cash flow from operating activities reported on the 2018 statement of cash flows is $25,000.

e. What is the before- and after-closing balance in the service revenue account?

Before closing balance in service revenue account = Services performed on account + Services performed for cash = $81,000 + $19,000 = $100,000

After closing balance = $0

The "after closing balance" is equal to zero because, at the end of a particular period, the balance of the service revenue account turns to $0 when the firm has to close the balance of the service revenue account in the retained earnings.

f. What is the balance of the retained earnings account that appears on the 2018 balance sheet?

Retained earnings = Net income - Cash dividend paid to the stockholders = $38,100 - $5,900 = $32,200

Therefore, the balance of the retained earnings account that appears on the 2018 balance sheet is $32,200.