Question

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Lexington Company engaged in the following transactions during Year 1, its first year in operation:


Lexington Company engaged in the following transactions during Year 1, its first year in operation: (Assume all transactions are cash transactions)Acquired $6,000 cash from issuing common stock.Borrowed $4,400 from a bank.Earned $6,200 of revenues.Incurred $4,800 in expenses.Paid dividends of $800.
Lexington Company engaged in the following transactions during Year 2: (Assume all transactions are cash transactions)Acquired an additional $1,000 cash from the issue of common stock.Repaid $2,600 of its debt to the bank.Earned revenues, $9,000.Incurred expenses of $5,500.Paid dividends of $1,280.

25.1)      What was the net cash flow from financing activities reported on Lexington's statement of cash flows for Year 2?

A)    $1,000 outflow.  
   B)    $2,880 outflow.
   C)    $1,000 inflow.
   D)    $2,880 inflow.
  

25.2)      What is the amount of total assets that will be reported on Lexington's balance sheet at the end of Year 1?

   A)    $12,000  
   B)    $11,000
   C)    $1,600
   D)    $7,600
  

 

 

 

 

25.3)      What was the amount of retained earnings that will be reported on Lexington's balance sheet at the end of Year 1?

   A)    $6,200    
   B)    $1,400
   C)    $600
   D)    $5,400
  

25.4)      What was the amount of liabilities on Lexington's balance sheet at the end of Year 2?

   A)    $480.      
   B)    $1,800.
   C)    $1,000.
   D)    ($2,600).
  

Solutions

Expert Solution

25.1) Option B :- 2,880 outflow

Computation

Issue of shares (a) = 1,000

Repayment of bank debt  (b) = (2,600)

Payment of dividend (c) = (1,280)

Net inflow/ (outflow) from financing activity (a+b+c) = (2,880)

*amount in () shown is negative amount

25.2) Option B :- 11,000

Cash Account
Particulars Amount Particulars Amount
To Comman Stock        6,000 By Expense        4,800
To Bank debt        4,400 By dividend           800
To Revenue        6,200
By balance      11,000
     16,600      16,600

*in the absense of other asset data cash balance will be the total asset

25.3) Option C :- 600

Opening Retained Earnings = 0

Add ; Net Income for the period (6,200-4,800) =1,400

Less: Dividend = 800

Closing rataind earnings (1,400-800) = 600

25.4) Option B :- 1,800

Opening out side liability (bank loan) = 4,400

Payment made during year 2 = 2,600

Closing balance (4,400-2,600) = 1,800

ekkarill92 answered 3 years ago
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