ACC201 week 4 assignment

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Problem 7-26

The following transactions apply to Artesia Co. for 2012, its first
year of operations.

1. Received $40,000 cash from the issue of a short-term note with a
5 percent interest rate and a one-year maturity. The note was issued on April
1, 2012.

2. Received $120,000 cash plus applicable sales tax from performing
services. The services are subject to a sales tax rate of 6 percent.

3. Paid $72,000 cash for other operating expenses during the year.

4. Paid the sales tax due on $100,000 of the service revenue for the
year. Sales tax on the balance of the revenue is not due until 2013.

5. Recognized the accrued interest at December 31, 2012.

The following transactions apply to Artesia Co. for 2013.

1. Paid the balance of the sales tax due for 2012.

2. Received $145,000 cash plus applicable sales tax from performing
services. The services are subject to a sales tax rate of 6 percent.

3. Repaid the principal of the note and applicable interest on April
1, 2013.

4. Paid $85,000 of other operating expenses during the year.

5. Paid the sales tax due on $120,000 of the service revenue. The
sales tax on the balance of the revenue is not due until 2014.

Required

a. Organize the transaction data in accounts under an accounting
equation.

b. Prepare an income statement, a statement of changes in
stockholders’ equity, a balance sheet, and a statement of cash flow for 2012
and 2013.

Problem

Norman Co. borrowed $15,000 from the local bank on April 1, 2012,
when the company was started. The note had an 8 percent annual interest rate
and a one-year term to maturity. Norman Co. recognized $42,000 of revenue on
account in 2012 and $56,000 of revenue on account in 2013. Cash collections
from accounts receivable were $38,000 in 2012 and $58,000 in 2013.

Norman Co. paid $26,000 of salaries expense in 2012 and $32,000 of
salaries expense in 2013. Norman Co. paid the loan and interest at the maturity
date.

Required

a. Organize the information in accounts under an accounting equation.

b. What amount of net cash flow from operating activities would be
reported on the 2012 cash flow statement?

c. What amount of interest expense would be reported on the 2012
income statement?

d. What amount of total liabilities would be reported on the December
31, 2012, balance sheet?

e. What amount of retained earnings would be reported on the
December 31, 2012, balance sheet?

f. What amount of cash flow from financing activities would be
reported on the 2012 statement of cash flows?

g. What amount of interest expense would be reported on the 2013
income statement?

h. What amount of cash flows from operating activities would be
reported on the 2013 cash flow statement?

i. What amount of assets would be reported on the December 31, 2013,
balance sheet?

Problem

The following selected transactions were taken from the books of
Caledonia Company for 2012.

1. On March 1, 2012, borrowed $50,000 cash from the local bank. The
note had a 6 percent interest rate and was due on September 1, 2012.

2. Cash sales for the year amounted to $225,000 plus sales tax at
the rate of 7 percent.

3. Caledonia provides a 90-day
warranty on the merchandise sold. The warranty expense is estimated to be 2
percent of sales.

4. Paid the sales tax to the state sales tax agency on $190,000 of
the sales.

5. Paid the note due on September 1 and the related interest.

6. On October 1, 2012, borrowed $40,000 cash from the local bank.
The note had a 7 percent interest rate and a one-year term to maturity.

7. Paid $3,600 in warranty repairs.

8. A customer has fi led a lawsuit against Caledonia
for $100,000 for breach of contract. The company attorney does not believe the
suit has merit.

Required

a. Answer the following questions:

(1) What amount of cash did Caledonia
pay for interest during the year?

(2) What amount of interest expense is reported on Caledonia’s
income statement for the year?

(3) What is the amount of warranty expense for the year?

b. Prepare the current liabilities section of the balance sheet at
December 31, 2012.

c. Show the effect of these transactions on the financial statements
using a horizontal statements model like the one shown here. Use a + to
indicate increase, a – for decrease, and NA for not affected. In the Cash Flow
column, indicate whether the item is an operating activity (OA), investing
activity (IA), or financing activity (FA). The first transaction is recorded as
an example.

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