FINANCE

EXERCISE 2-27A

 

Exercise 2-27A Effect of accounting events on the income statement and statement

of cash flows

Required

Explain how each of the following events or series of events and the related adjusting entry will

affect the amount of net income and the amount of cash flow from operating activities reported

on the year-end financial statements. Identify the direction of change (increase, decrease, or NA)

and the amount of the change. Organize your answers according to the following table. The first

event is recorded as an example. If an event does not have a related adjusting entry, record only

Cash Flows from

Net Income Operating Activities

Event/ Direction of Amount of Direction of Amount of

Adjustment Change Change Change Change

a NA NA Decrease $9,000

Adj Decrease $2,250 NA NA

a. Paid $9,000 cash on October 1 to purchase a one-year insurance policy.

b. Purchased $2,000 of supplies on account. Paid $500 cash on accounts payable. The ending

balance in the Supplies account, after adjustment, was $300.

c. Provided services for $10,000 cash.

d. Collected $2,400 in advance for services to be performed in the future. The contract called for

services to start on May 1 and to continue for one year.

e. Accrued salaries amounting to $5,600.

f. Sold land that cost $3,000 for $3,000 cash.

g. Acquired $15,000 cash from the issue of common stock.

h. Earned $12,000 of revenue on account. Collected $8,000 cash from accounts receivable.

i. Paid cash operating expenses of $4,500.

e. Paid cash for rent expense.

f. Performed services for cash.

g. Performed services for clients on account.

h. Collected cash from accounts receivable.

i. Received cash for services to be performed in the future.

j. Purchased land with cash.

TABLE PROVIDED BELOW

 

   

Net Income

Cash Flow from

Operating Activities

 

Event/Adj.

Direction of Change Amount of Change Direction of Change Amount of Change
a. Event

Adj.

       
b. Event

Adj.

       
b.   Event

No adj.

       
d. Event

Adj.

       
e.  Event

No adj.

       
f.   Event

No adj.

       
f.       Event

No adj.

       
g.   Event

No adj.

       
h.   Event

No adj.

       

 

 

 

 

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