Question

Problem 2-35 Effect of events on financial statements LO 2-1, 2-2, 2-3, 2-4, 2-5, 2-6 Davis Company had the following balances in its accounting records as of December 31, 2013: Assets Liabilities and Equity Cash $ 46,000 Accounts Payable $ 22,000 Accounts Receivable 50,000 Common Stock 85,000 Land 30,000 Retained Earnings 19,000 Totals $ 126,000 $ 126,000 The following accounting events apply to Davis for 2014: Jan. 1 Acquired an additional $46,000 cash from the issue of common stock. April 1 Paid $5,700 cash in advance for a one-year lease for office space. June 1 Paid a $2,300 cash dividend to the stockholders. July 1 Purchased additional land that cost $30,000 cash. Aug. 1 Made a cash payment on accounts payable of $11,000. Sept. 1 Received $8,200 cash in advance as a retainer for services to be performed monthly during the next eight months. Sept. 30 Sold land for $19,000 cash that had originally cost $19,000. Oct. 1 Purchased $1,100 of supplies on account. a. Earned $68,000 of service revenue on account during the year. b. Received $57,000 cash collections from accounts receivable. c. Incurred $14,000 other operating expenses on account during the year. d. Recognized accrued salaries expense of $5,500. e. Had $130 of supplies on hand at the end of the period. f. The land purchased on July 1 had a market value of $30,000. g. Recognized $115 of accrued interest revenue. h. Recognized the earning of cash received in advance for the lease for office space. i. Recognized the cash received in advance for services to be performed monthly. Required Based on the preceding information for Davis Company answer the following questions. All questions pertain to the 2014 financial statements. (Hint: Record the events in general ledger accounts under an accounting equation before answering the questions.) (Do not round intermediate calculations. Enter any decreases to account balances with a minus sign.)

Answer 1

DAVIS COMPANY

JOURNAL ENTRIES FOR THE YEAR 2014

Jan 1

Cash A/c Dr 46000

To Common Stock 46000

(Common Stock Issued)

Apr 1

Lease A/c Dr 4275

Lease Advance A/c Dr 1425

To cash 5700

(Lease & Advance Recorded)

June 1

Dividend A/c Dr 2300

To Cash A/c 2300

(Dividend Paid)

July 1

Land A/c Dr 30000

To Cash A/c Dr 30000

(Land Purchased)

Aug 1

A/c Payables Dr 11000

To Cash 11000

(Payment Made)

Sep 1

Cash A/c Dr 8200

To Retainer Services 4100

To Retainer Ser. Payable 4100

(Advance & Revenue recorded)

Sep 30

Cash A/c Dr 19000

To Land 19000

(land Sold)

Oct 1

Supplies A/c Dr 1100

To A/c Payable 1100

(Supply Purchased)

Dec 31

A/c Receivable 68000

To Service Revenue 68000

(Revenue recorded)

Dec 31

Cash A/c Dr 57000

To A/c Receivable 57000

(Cash Received)

Dec 31

Operating Exps. 14000

To Cash 14000

(Expences Incurred)

Dec 31

Accured Salaries 5500

To Salaries Payable 5500

Dec 31

P& l A/c Dr 970

To Supplies A/c 970

Dec 31

Interest Receibavle A/c Dr 115

To Interest A/c 115

(Interest Charged)

DAVIS COMPANY

INCOME STATEMENT

31-12-2014

INCOME

Service Revenue 68000

Retainer Service Revenue 4100

Accrued Interest 115

Total Income 72215

Expences

Lease Exps. 4275

Dividends Paid 2300

Supplies Exps. 970

Operating Expences 14000

Accrued Salaries 5500

Total Expences 27045

Income for the Year 45170

BALANCE SHEET

31-12-2014

ASSETS

Cash 113200

Land 41000

Supplies 130

A/c Receibavle 61000

Advance Lease 1425

Interest Receivable 115

Total Assets 216870

Liabilities

Common Stocks 131000

A/c Payable 12100

Retainer Service Payable 4100

Salary Payable 5500

Retained Earnings 64170

Total Liabilities 216870

Notes & Workings

1. All amounts stated above are in USD ($)

2. Retainde earnings = 19000+45170 = 64170

3. Land = 30000+30000-19000 = 41000

4. A/c Rec = 50000+68000-57000 = 61000

5. A/c Payble = 22000-11000+1100 =12100

6. Common Stock = 85000+46000 = 131000

7. cash = 46000+46000-5700-2300-30000-11000+8200+19000+57000-14000 = 113200

So above is the solution to the problem