Question

Simmons Corp

Balance Sheet

As of December 31, 2019 and June 30, 2020

Assets	2019	2020		Liabilities	2019	2020
Cash	$700			Accounts payable	$550
Accounts receivable	50			Salaries payable	50
Total current assets	750			Interest payable	0
Equipment	500			Total current liabs	600
Acc. depreciation	(100)			Notes payable	100
				Equity
				Common stock	100
				Retained earnings	350
Total assets	$1,150			Total liabs and eq	$1,150

During 2020 to date (June 30, 2020), Simmons had the following transactions:

1. Provided services to customers on account for $1,000.
2. Paid cash for salaries of employees for $400 (includes amounts owed as of December 31, 2019).
3. Paid cash for utility bills of $100
4. Collected $30 cash from customers on account.
5. Paid $40 cash to suppliers on account.

Additional information:

1. The Note Payable bears interest at 6% per year, but no interest is due until the due date of the note, which is 2024.
2. The equipment, purchased in 2019, is being depreciated using the straight-line method with an estimated service life of 5 years and no estimated residual value.

1. Provide any adjusting entries needed to account for interest on the note payable and depreciation on the equipment through June 30, 2020.
2. Prepare an income statement for Simmons Corp for the period January 1 – June 30, 2020.
3. Enter the balances of balance sheet accounts as of June 30, 2020 in the balance sheet above. Don’t forget the closing entry needed to make the balance sheet balance!
4. In Simmons Corp.’s cash flow statement for the period January 1 – June 30, 2020, what would be the reported amounts of each of the following? (You do NOT have to prepare a cash flow statement)
5. Cash flows from operating activities:
6. Cash flows from investing activities
7. Cash flows from financing activities:
8. Based on the financial statements (income statement and balance sheet) that you prepared, and based on the cash flow information you determined in part (4), comment on the performance of the company, both from a profit and a cash flow perspective. Also comment on the company’s financial position (its ability to pay bills, e.g.).

Answer 1