Question

Problem 3-31B Events for two complete accounting cycles

LO 3-1, 3-2, 3-3

Iowa Service Company was formed on January 1, Year 1.

Events Affecting the Year 1 Accounting Period

1. Acquired cash of $60,000 from the issue of common stock.

2. Purchased $1,200 of supplies on account.

3. Purchased land that cost $18,000 cash.

4. Paid $800 cash to settle accounts payable created in Event 2.

5. Recognized revenue on account of $42,000.

6. Paid $21,000 cash for other operating expenses.

7. Collected $38,000 cash from accounts receivable.

   Information for Year 1 Adjusting Entries

8. Recognized accrued salaries of $3,200 on December 31, Year 1.

9. Had $200 of supplies on hand at the end of the accounting period.

Events Affecting the Year 2 Accounting Period

1. Acquired an additional $20,000 cash from the issue of common stock.

2. Paid $3,200 cash to settle the salaries payable obligation.

3. Paid $3,600 cash in advance for a lease on office facilities.

4. Sold land that had cost $15,000 for $15,000 cash.

5. Received $4,800 cash in advance for services to be performed in the future.

6. Purchased $1,000 of supplies on account during the year.

7. Provided services on account of $32,000.

8. Collected $33,000 cash from accounts receivable.

9. Paid a cash dividend of $5,000 to the stockholders.

10. Paid other operating expenses of $19,500.

Information for Year 2 Adjusting Entries

1. The advance payment for rental of the office facilities (see Event 3) was made on March 1 for a one-year lease term.

2. The cash advance for services to be provided in the future was collected on October 1 (see Event 5). The one-year contract started October 1.

3. Had $300 of supplies on hand at the end of the period.

4. Recognized accrued salaries of $3,900 at the end of the accounting period.

Required

• Identify each event affecting the Year 1 and Year 2 accounting periods as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Record the effects of each event under the appropriate general ledger account headings of the accounting equation.

• Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1 and Year 2.

• The main thing I am struggling with is the cash flow statements for year 1 and year 2. The format would be just a normal cash flows statement.

Answer 1

Year 1 :

Iowa Service Company CASH FLOW STATEMENT FOR THE YEAR ENDED YEAR 1
Cash flow from operating activity
cash collection from accounts receivable	38000
cash paid to accounts payable	(800)
cash paid for other operating expense	(21000)
Net cash flow from operating activity [A]		16200
Cash flow from investing activity
Purchase of land	(18000)
Net cash flow from investing activity [B]		(18000)
Cash flow from financing activity
Issue of common stock	60000
Net cash flow from financing activity [C]		60000
Net increase /(decrease) in cash during the year [A+B+C]		58200
Beginning cash balance		0
Cash at end		58200

Year 2)

Iowa Service Company CASH FLOW STATEMENT FOR THE YEAR ENDED YEAR 1
Cash flow from operating activity
cash collection from customers (4800+33000)	37800
cash paid for other operating expense	(19500)
cash paid for salary expense	(3200)
cash paid for lease on office facilities	(3600)
Net cash flow from operating activity [A]		11500
Cash flow from investing activity
sale of land	15000
Net cash flow from investing activity [B]		15000
Cash flow from financing activity
Issue of common stock	20000
Dividend paid	(5000)
Net cash flow from financing activity [C]		15000
Net increase /(decrease) in cash during the year [A+B+C]		41500
Beginning cash balance		58200
Cash at end		99700