Posted: April 18th, 2016

Do you believe that the cash-basis or the accrual-basis income statements are more useful to management? To investors? Why?

ended September 30, 2012.

Accounts payable
Accounts receivable
Advertising expense
Buildings
Capital stock
Cash
Concessions revenue
Cost of concessions sold
Dividends paid during the month
Furniture and fixtures
Land
Notes payable
Projection equipment
Rent expense—movies
Retained earnings
Salaries and wages expense
Ticket sales
Water, gas, and electricity

Required

1. Prepare an income statement for the month ended September 30, 2012.

MAPLE PARK THEATRES CORP.
INCOME STATEMENT
FOR THE MONTH ENDED SEPTEMBER 30, 2012

Revenues:
T
T
Total revenues

Expenses:
T
T
T
T
T
Total expenses
Net income

2. Prepare a statement of retained earnings for the month ended September 30, 2012.

MAPLE PARK THEATRES CORP.
STATEMENT OF RETAINED EARNINGS
FOR THE MONTH ENDED SEPTEMBER 30, 2012

Beginning balance, September 1, 2012
T
T
Ending balance, September 30, 2012

3. Prepare a balance sheet at September 30, 2012
Note: Classify Assets and Liabilities in the order of Liquidity

MAPLE PARK THEATRES CORP.
BALANCE SHEET
SEPTEMBER 30, 2012

Assets
T
T
T
T
T
T
Total assets

Liabilities and Stockholders’ Equity
T
T
T
T
Total liabilities and stockholders’ equity

4. You have $1,000 to invest. On the basis of the statements you prepared, would you use it to buy
stock in Maple Park? Explain. What other information would you want before making a
final decision?

T
$ 17,600
6,410
14,500
60,000
50,000
15,230
60,300
23,450
8,400
34,000
26,000
20,000
25,000
50,600
73,780
46,490
95,100
6,700

F
F
C

F
F
F
F
F
C
C

F
F
F
C

F
F
F
F
F
F
C

F
F
F
F
C
Problem 2-4: Financial Statement Ratios

The following items, in alphabetical order, are available from the records of Walker
Corporation as of December 31, 2012 and 2011:
12/31/12 12/31/11
Accounts payable 8400 5200
Accounts receivable 27830 35770
Cash 20200 19450
Cleaning supplies 450 700
Interest payable 0 1200
Inventory 24600 26200
Marketable securities 6250 5020
Note payable, due in six months 0 12000
Prepaid rent 3600 4800
Taxes payable 1450 1230
Wages payable 1200 1600

1. Calculate the following as of December 31, 2012 and 2011:
a. Working capital
b. Current ratio
2. On the basis of your answers to (1), comment on the company’s relative liquidity at the
beginning and end of the year. Explain the change in the company’s liquidity from the beginning
to the end of 2012.

STEP 1:
Current Assets FY2012 FY2011
T F F
T F F
T F F
T F F
T F F
T F F
TOTAL C C

Current Liabilities FY2012 FY2011
T F F
T F F
T F F
T F F
T F F
TOTAL C C
STEP 2:
C C
Working Capital

C C
Current Ratio

Explain the change in the company’s liquidity from the beginning to the end of 2012.
T
P3-3

Expert Consulting Services Inc. was organized on March 1, 2012, by two former college roommates. The
corporation provides computer consulting services to small businesses. The following transactions occurred
during the first month of operations:

March 2: Received contributions of $20,000 from each of the two principal owners of the new business in exchange
for shares of stock.
March 7: Signed a two-year promissory note at the bank and received cash of $15,000. Interest, along with the
$15,000, will be repaid at the end of the two years.
March 12: Purchased $700 in miscellaneous supplies on account. The company has 30 days to pay for the supplies.
March 19: Billed a client $4,000 for services rendered by Expert in helping to install a new computer system.
The client is to pay 25% of the bill upon its receipt and the remaining balance within 30 days.
March 20: Paid $1,300 bill from the local newspaper for advertising for the month of March.
March 22: Received 25% of the amount billed to the client on March 19.
March 26: Received cash of $2,800 for services provided in assisting a client in selecting software for its computer.
March 29: Purchased a computer system for $8,000 in cash.
March 30: Paid $3,300 of salaries and wages for March.
March 31: Received and paid $1,400 in gas, electric, and water bills.

Required

1. Prepare a table to summarize the preceding transactions as they affect the accounting equation.
Identify each transaction with the date.

EXPERT CONSULTING SERVICES INC.
TRANSACTIONS FOR THE MONTH OF MARCH 2012

Assets = Liabilities +
Accounts Accounts Notes
Cash Receivable Computer Supplies Payable Payable
Date
F
3/2
F F
3/7
Bal. C C
3/12 F F
C C
Bal. C C
3/19 F
C C
Bal. C C C
3/20 F
C
Bal. C C C C
3/22 F F
C
Bal. C C C C
3/26 F
C
Bal. C C C C
3/29 F F
C
Bal. C C C C C
3/30 F
C
Bal. C C C C C
3/31 F
Bal. C C C C C C

TOTAL ASSETS: C TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY:

2. Prepare an income statement for the month ended March 31, 2012.

EXPERT CONSULTING SERVICES INC.
INCOME STATEMENT
FOR THE MONTH ENDED MARCH 31, 2012

Revenues:
T F
T F C
Expenses:
T F
T F
T F C
Net income C

3. Prepare a classified balance sheet at March 31, 2012.
Note: Classify Assets and Liabilities in the order of Liquidity

EXPERT CONSULTING SERVICES INC.
BALANCE SHEET
MARCH 31, 2012

Assets
Current assets:
T F
T F
T F
Total current assets C
Property, plant, and equipment:
T F
Total assets C

Liabilities and Stockholders’ Equity
Current liabilities:
T F
Long-term debt:
T F
Total liabilities C
Capital stock F
Retained earnings F
Total stockholders’ equity C
Total liabilities and stockholders’ equity C

4. From reading the balance sheet you prepared in (3), what events would you expect to take place in April?
Explain your answer.

T
roommates. The
transactions occurred

business in exchange

rest, along with the

to pay for the supplies.
puter system.

ware for its computer.

g equation.

Stockholders’ Equity
Capital Retained
Stock Earnings
F

C

C
F
C C
F
C C

C C
F
C C

C C
F
C C
F
C C

C
take place in April?
PROBLEM 3-5: IDENTIFICATION OF EVENTS WITH SOURCE DOCUMENTS

Many events are linked to a source document. Following is a list of events that occurred in an entity.
a. Paid a one-year insurance policy
b. Paid employee payroll
c. Provided services to a customer on account
d. Identified supplies in the storeroom destroyed by fire
e. Received payment of bills from customers
f. Purchased land for future expansion
g. Calculated Taxes Due
h. Entered into a car lease agreement and paid the tax, title, and license.

For each item, indicate if the event should be recorded. Identify one or more source documents generated from the event;
which source document would be used to record the event when it produces more than one source document; and identify the
information that is most useful in recoding the event in the accounts.

Record (Y/N) Documents Required
aT T

bT T

cT T

dT T

eT T

fT T

gT T

hT T
s generated from the event;
urce document; and identify the
EXERCISE 4-26: REVENUE RECOGNITION, CASH AND ACCRUAL BASIS

Hathaway Health Club sold three-year memberships at a reduced rate during its
opening promotion. It sold 1,000 three-year nonrefundable memberships for
$366 each. The club expects to sell 100 additional three-year memberships for
$900 each over each of the next two years. Membership fees are paid when
Year 1 Year 2 Year 3
Sales 366000 90000 90000
Equipment* 100000 0 0
Salaries and wages 50000 50000 50000
Advertising 5000 5000 5000
Rent and utilities 36000 36000 36000
Net income (loss) 175000 -1000 -1000
as purchased at the beginning of Year 1 for $100,000 and is expected to last for three years and then be worth $1,000.
Required:
1. Convert the income statements for each of the three years to the accrual basis.
2. Describe how the revenue recognition principle applies. Do you believe that
the cash-basis or the accrual-basis income statements are more useful to
management? To investors? Why?

Expert paper writers are just a few clicks away

Place an order in 3 easy steps. Takes less than 5 mins.

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00
Live Chat+1-631-333-0101EmailWhatsApp