Assets Cash $500,000 Accounts Receivable 700,000 Inventory 300,000 Property, Pla
ID: 2517622 • Letter: A
Question
Assets
Cash $500,000
Accounts Receivable 700,000
Inventory 300,000
Property, Plant & Equipment 900,000
Accumulated Depreciation (100,000)
Total Assets $2,300,000
Liabilities & Equity
Accounts Payable $300,000
Notes Payable 1,000,000
Common Stock 500,000
Retained Earnings 500,000
Total Liabilities & Equity $2,300,000
Journal Entries for January 2013
Transaction 1: Sales Return
The buyer returns merchandise to the seller.
Journal Entry: Dr. Cr.
Sales Returns & Allowances 22,000
Accounts Receivable 22,000
Transaction 2: Sales Discounts
Description: Recorded collection within 2/10, n/30 period.
Journal Entry: Dr. Cr.
Cash 24,500
Sales Discounts 500
Accounts Receivable 25,000
Journal Entry: Dr. Cr.
Cash 155,000
Sales Revenue 155,000
Transaction 4: Cost Flow Assumption
Recorded cost of goods sold under one of the cost flow assumptions.
Journal Entry: Dr. Cr.
Cost of Goods Sold 45,000
Inventory 45,000
Transaction 5: Recording Estimated Uncollectible
Description: The credit manager estimates that $16,000 of sales will be uncollectible.
Journal Entry: Dr. Cr.
Bad Debts Expense 16,000
Allowance for Doubtful Accounts 16,000
Transaction 6: Write-off of an uncollectible account
Description: The credit manager authorizes a write-off of a $5,500 balance owed by a customer.
Journal Entry: Dr. Cr.
Allowance for Doubtful Accounts 5,500
Accounts Receivable 5,500
Transaction 7: Depreciation Expense
Recorded depreciation expense under one of the depreciation methods.
Journal Entry: Dr. Cr.
Depreciation Expense 12,000
Accumulated Depreciation 12,000
Transaction 8: Investment by Stockholders
Description: Invested $55,000 cash in the business in exchange for common stock.
Journal Entry: Dr. Cr.
Cash 55,000
Common Stock 55,000
Transaction 9: Dividends
Description: The corporation pays a dividend of $4,700 in cash to the stockholders.
Journal Entry: Dr. Cr.
Dividends 4,700
Cash 4,700
Transaction 10: Purchase of Equipment
Description: Purchases computer equipment for $7,800 cash.
Journal Entry: Dr. Cr.
Equipment 7,800
Cash 7,800
Transaction 11: Purchase of Supplies on Credit
Description: Purchases $4,800 of inventory on credit.
Journal Entry: Dr. Cr.
Inventory 4,800
Accounts Payable 4,800
Explanation / Answer
First thing to keep in mind is that we are only looking for operating activites
Cash paid for equipment and dividend will not be considered
Cash received against debtors - 24,500
Cash for sales - 155,000
Cash for exchange of stock - 55000
Total cash received = 24,500+155,000+55,000 = 234,500
Change in Accounts Receivable = opening 700,000 - 22000 - 25000 - 5500 = 647500
Decrease in AR = 52500 will be added to operating cash flow from operating activites
Change in Accounts payable 4800 is to be added
Change in inventory = 300,000 opening balance + 22,000 sales return - 45,000 adjusted to COGS - 55,000 investment + 4800 purchases = 226,800 net change 73,200 to be added as inventory has been reduced
Net cash flow from operating activites
Increase in Accounts Payable - 4800
Decrease in Inventory = 73200
Decrease in Accounts Receivable = 52500
Net cash from operating activites = 130500
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