Financial Accounting: An Integrated Statements Approach, 2nd Edition

Instructions

1. Prepare an income statement for the year ending July 31, 2007.


2. Prepare a retained earnings statement for the year ending July 31, 2007.


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


4. Prepare a statement of cash flows for the year ending July 31, 2007.

After its second year of operations, the following amounts were taken from the accounting

records of Rainbow Consulting Services, Inc., as of July 31, 2008. Rainbow Consulting Services

began its operations on August 1, 2006 (see Problem 2-3B).

Capital stock $ 40,000

Cash?

Dividends 40,000

Fees earned 578,000

Interest expense 12,000

Land 342,000

Miscellaneous expense 16,000

Notes payable 100,000

Rent expense 80,000

Salaries expense 180,000

Taxes expense 40,000

Utilities expense 90,000

Instructions

1. Prepare an income statement for the year ending July 31, 2008.


2. Prepare a retained earnings statement for the year ending July 31, 2008.
   (Note:The retained earnings at August 1, 2007, was $230,000.)


3. Prepare a balance sheet as of July 31, 2008.


4. Prepare a statement of cash flows for the year ending July 31, 2008.
   (Hint:You should compare the asset and liability amounts of July 31, 2008, with those of
   July 31, 2007, to determine cash used in investing and financing activities. See Problem
   2-3B for the July 31, 2007, balance sheet amounts.)

The financial statements at the end of Flagstone Consulting, Inc.’s first month of operation are

shown below. By analyzing the interrelationships between the financial statements, fill in the

proper amounts for (a) through (t).

88 Chapter 2 Basic Accounting Concepts

Alternate Problem

2-4B

Financial statements

Goals4, 5

1. Net income, $160,000

Alternate Problem

2-5B

Missing amounts from

financial statements

Goals3, 5

a. $55,500

Flagstone Consulting, Inc.

Income Statement

For the Month Ended June 30, 2007

Fees earned $ (a)

Operating expenses:

Wages expense $13,500

Rent expense 8,400

Utilities expense 5,700

Interest expense 600

Miscellaneous expense 1,800

Total operating expenses 30,000

Net income $ (b)