Financial Accounting: An Integrated Statements Approach, 2nd Edition

Data for Wizard Health Care for January are provided in Problems 3-1A, 3-2A, and 3-3A.

Instructions

1. Prepare a statement of cash flows for January.


2. Reconcile the net cash flows from operating activities with the net income for January.
   (Hint:See the appendix to this chapter and use adjusted balances in computing increases
   and decreases in accounts.)

At the end of July, the first month of operations, the following selected data were taken from

the financial statements of Kay Lopez, Attorney-at-Law, P.C.

Net income for July $124,350

Total assets at July 31 500,000

Total liabilities at July 31 125,000

Total stockholders’ equity at July 31 375,000

In preparing the financial statements, adjustments for the following data were overlooked:

a. Unbilled fees earned at July 31, $9,600.

b. Depreciation of equipment for July, $3,500.

c. Accrued wages at July 31, $1,450.

d. Supplies used during July, $1,100.

Instructions

Determine the correct amount of net income for July and the total assets, liabilities, and stock-

holders’ equity at July 31. In addition to indicating the corrected amounts, indicate the effect of

each omitted adjustment by setting up and completing a columnar table similar to the follow-

ing. Adjustment (a) is presented as an example.

Total

Net Total Total Stockholders’

Income Assets Liabilities Equity

Reported amounts $124,350 $500,000 $125,000 $375,000

Corrections:

Adjustment (a) 9,600 9,600 0 9,600

Adjustment (b)

Adjustment (c)

Adjustment (d)

Corrected amounts

Adjustment data for Nocturnal Laundry, Inc., for the year ended August 31, 2007, are as follows:

a. Wages accrued but not paid at August 31, $3,200.

b. Depreciation of equipment during the year, $15,000.

c. Laundry supplies on hand at August 31, $2,500.

d. Insurance premiums expired, $3,000.

Instructions

1. Using the integrated financial statement framework shown at the top of the following page,
   record each adjustment to the appropriate accounts identifying each adjustment by its let-
   ter. After all adjustments are recorded, determine the balances.


2. Prepare an income statement and retained earnings statement for the year ended August
   31, 2007. The retained earnings balance as of September 1, 2006, was $30,300.

138 Chapter 3 Accrual Accounting Concepts

Problem 3-4A

Statement of cash flows

Goal 4

Net cash flows from

operating activities, ($1,000)

GENERAL LEDGER

Problem 3-5A

Adjustments and errors

Goal 3

Corrected net income,

$127,900

Problem 3-6A

Adjustment process and

financial statements

Goals3, 4

2. Net income, $123,700

GENERAL LEDGER