Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 2 Basic Accounting Concepts 81

e. Made cash sales.

f. Received cash from the issuance of long-term debt.

g. Paid research and development expenses for the current year.

h. Paid employee pension expenses for the current year.

i. Paid taxes.

j. Purchased machinery and equipment for cash.

k. Paid officer salaries.

l. Paid selling expenses.

Based upon the financial transactions for Lucent Technologies, Inc., shown in Exercise 2-21, in-

dicate whether the transaction would be reported in the cash flows from operating, investing,

or financing sections of the statement of cash flows.

Exercise 2-22

Statement of cash flows

Goals3, 5

Problem 2-1A

Transactions and financial
statements

Goals1, 2, 3

3. Net income, $4,820

GENERAL LEDGER

Problem 2-2A

Transactions and financial
statements

Goals1, 2, 3

1. Net income, $7,350

ACCOUNTING APPLICATION PROBLEMS

Debbie Woodall established an insurance agency on July 1, 2007, and completed the following

transactions during July:

a. Opened a business bank account in the name of Woodall Insurance, Inc., with a deposit of

$18,000 in exchange for capital stock.

b. Borrowed $10,000 by issuing a note payable.

c. Received cash from fees earned, $9,500.

d. Paid rent on office and equipment for the month, $2,000.

e. Paid automobile expense for month, $1,000, and miscellaneous expense, $400.

f. Paid office salaries, $1,200.

g. Paid interest on the note payable, $80.

h. Purchased land as a future building site, $19,500.

i. Paid dividends, $2,500.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the
   integrated financial statement framework.


2. Briefly explain why the stockholders’ investments and revenues increased stockholders’
   equity, while dividends and expenses decreased stockholders’ equity.


3. Prepare an income statement and retained earnings statement for July.


4. Prepare a balance sheet as of July 31, 2007.


5. Prepare a statement of cash flows for July.

Chris Darby established Top-Gun Computer Services on January 1, 2007. The effect of each

transaction and the balances after each transaction for January are shown in the integrated fi-

nancial statement framework at the top of the following page.

Instructions

1. Prepare an income statement for the month ended January 31, 2007.


2. Prepare a retained earnings statement for the month ended January 31, 2007.


3. Prepare a balance sheet as of January 31, 2007.


4. Prepare a statement of cash flows for the month ended January 31, 2007.