379 Accounts Receivable 78 Acc 202 Cuny Lehman Co

Transactions Using Accrual Accounting

Alex Vera organized Succulent Express at the beginning of February 20Y4. During February, Succulent Express entered into the following transactions:

1. Terry Mason invested $30,000 in Succulent Express in exchange for common stock.
2. Paid $5,400 on February 1 for an insurance premium on a one-year policy.
3. Purchased supplies on account, $1,800.
4. Received fees of $57,000 during February.
5. Paid expenses as follows: wages, $21,600; rent, $6,400; utilities, $2,800; and miscellaneous, $3,200.
6. Paid dividends of $8,000.

Record the preceding transactions using the integrated financial statement framework. After each transaction, enter a balance for each item. If an amount box does not require an entry, leave it blank. Enter account decreases and net cash outflows as negative amounts using the minus sign.

		Financial Statement Effects
	Balance Sheet Assets = Liabilities + Stockholders’ Equity Cash + Supplies + Prepaid Insurance = Accounts Payable + Common Stock + Retained Earnings a. Investment b. Paid insurance Balances c. Purchased supplies Balances d. Fees earned Balances e. Paid expenses Balances f. Paid dividends Balances Statement of Cash Flows Income Statement a. Financing $ d. Fees earned $ b. Operating e. Wages expense d. Operating e. Rent expense e. Operating e. Utilities expense f. Financing e. Miscellaneous expense Increase in cash $

Alex Vera organized Succulent Express at the beginning of February 20Y4. During February, Succulent Express entered into the following transactions:

1. Terry Mason invested $30,000 in Succulent Express in exchange for common stock.
2. Paid $5,400 on February 1 for an insurance premium on a one-year policy.
3. Purchased supplies on account, $1,800.
4. Received fees of $57,000 during February.
5. Paid expenses as follows: wages, $21,600; rent, $6,400; utilities, $2,800; and miscellaneous, $3,200.
6. Paid dividends of $8,000.

The transactions above have already been recorded in the integrated financial statement framework below.

Record the adjusting entries at the end of February to record the insurance expense and supplies expense. There was $300 of supplies on hand as of February 28. Identify the adjusting entry for insurance as (a1) and supplies as (a2). Use the integrated financial statement framework below. After each transaction, enter a balance for each item. If an amount box does not require an entry, leave it blank. Enter account decreases as negative amounts using the minus sign.

		Financial Statement Effects
	Balance Sheet Assets = Liabilities + Stockholders’ Equity Cash + Supplies + Prepaid Insurance = Accounts Payable + Common Stock + Retained Earnings a. Investment 30,000 30,000 b. Paid insurance (5,400) 5,400 Balances 24,600 5,400 30,000 c. Purchased supplies 1,800 1,800 Balances 24,600 1,800 5,400 1,800 30,000 d. Fees earned 57,000 57,000 Balances 81,600 1,800 5,400 1,800 30,000 57,000 e. Paid expenses (34,000) (34,000) Balances 47,600 1,800 5,400 1,800 30,000 23,000 f. Paid dividends (8,000) (8,000) Balances 39,600 1,800 5,400 1,800 30,000 15,000 a1. Insurance expense Balances a2. Supplies expense Balances, February 28 Statement of Cash Flows Income Statement a. Financing $30,000 d. Fees earned $57,000 b. Operating (5,400) e. Wages expense (21,600) d. Operating 57,000 e. Rent expense (6,400) e. Operating (34,000) e. Utilities expense (2,800) f. Financing (8,000) e. Miscellaneous expense (3,200) Increase in cash $39,600 a1. Insurance expense a2. Supplies expense Net income $

Margie Van Epps established Health Services, P.C., a professional corporation, in March of the current year. Health Services offers healthy living advice to its clients. The effect of each transaction on the balance sheet and the balances after each transaction for March are as follows. Each increase or decrease in retained earnings, except transaction (h), affects net income.

		Financial Statement Effects
	Balance Sheet Assets = Liabilities + Stockholders’ Equity Cash + Supplies + Prepaid Insurance = Accounts Payable + Common Stock + Retained Earnings a. 35,000 35,000 b. 1,800 1,800 Balances 35,000 1,800 1,800 35,000 c. (800) (800) Balances 34,200 1,800 1,000 35,000 d. 31,300 31,300 Balances 65,500 1,800 1,000 35,000 31,300 e. (25,000) (25,000) Balances 40,500 1,800 1,000 35,000 6,300 f. (1,250) (1,250) Balances 40,500 550 1,000 35,000 5,050 g. 8,900 8,900 Balances 40,500 8,900 550 1,000 35,000 13,950 h. (6,000) (6,000) Balances 34,500 8,900 550 1,000 35,000 7,950 Statement of Cash Flows Income Statement a. Financing $35,000 d. Fees earned $31,300 c. Operating (800) e. Expenses (25,000) d. Operating 31,300 f. Expenses (1,250) e. Operating (25,000) g. Fees earned 8,900 h. Financing (6,000) $13,950 Increase in cash $34,500

a. Identify each transaction.

a. Issued common stock in exchange for cash

b. Purchased supplies, on account

c. Paid cash to creditors for amounts owed

d. Earned fees from cash customers

e. Paid expenses

f. Adjustment for cost of supplies used

g. Earned fees on account

h. Paid dividends

b. What is the amount of the net income for March?
$

Adjustment for Supplies

Answer each of the following independent questions concerning supplies and the adjustment for supplies for each entity’s first year of operations.

a. The balance in the supplies account, before adjustment at the end of the year, is $7,000. What is the amount of the adjustment if the amount of supplies on hand at the end of the year is $2,200?
$

b. The year-end supplies account balance is $1,300 while the supplies expense account year-end balance is $3,900. What was the amount of supplies purchased during the year?
$

The Gap Inc. (GPS) operates specialty retail stores under such brand names as GAP, Old Navy, and Banana Republic. The following asset and liability data (in millions) were adapted from recent financial statements.

		Year 2		Year 1
Current assets:
Cash		$1,783		$1,783
Accounts receivable		282		335
Inventory		1,997		1,830
Prepaid and other current assets		506		367
Total current assets		$4,568		$4,315
Total current liabilities		$2,461		$2,453

1. Compute quick assets for Years 2 and 1.

	Quick Assets
Year 2	$million
Year 1	$million

2. Compute the quick ratio for Years 2 and 1. Round your answers to two decimal places.

	Quick Ratio
Year 2
Year 1

3. The Gap’s quick assets have declined by $53 from Year 1 to Year 2. Its quick ratio declined by during Year 2. Overall, The Gap’s liquidity position has declined from Year 1 to Year 2.

American Eagle Outfitters Inc. (AEO) operates specialty retail stores, selling clothing such as denim, sweaters, t-shirts, and fleece outerwear that targets 15-to-25-year-old men and women. The following asset and liability data (in millions) were adapted from recent financial statements.

		Year 2		Year 1
Current assets:
Cash		$414		$379
Accounts receivable		78		87
Inventory		398		358
Prepaid and other current assets		78		78
Total current assets		$968		$902
Total current liabilities		$485		$494

1. Compute quick assets for Years 2 and 1.

	Quick Assets
Year 2	$million
Year 1	$million

2. Compute the quick ratio for Years 2 and 1. Round your answers to two decimal places.

	Quick Ratio
Year 2
Year 1

3. American Eagle Outfitters’ quick assets increased by $ million during Year 2. Its quick ratio increased by during Year 2. Overall, American Eagle Outfitters’ liquidity position has improved from Year 1 to Year 2.