1.
To show: The
1.
Explanation of Solution
Prepare journal entries.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Cash | $325 | |||
Service revenue | $325 | |||
( To record the cash earned by providing service) |
Table (1)
- Cash is an asset account and it has increased the value of assets by $325. Hence, it is debited.
- Service revenue is a component of stock holders’ equity and it increases the stock holders’ equity by $325. Hence, it is credited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Salaries and wagesexpense | $85 | |||
Cash | $85 | |||
( To record the salaries and wages expense payable ) |
Table (2)
- Salary and wage expense is a component of stockholders’ equityand it decreases the stock holders’ equity by $85. Hence, it is debited.
- Cash is an asset account and it decreases the value of assets by $85. Hence, it is debited.
Date | Account title / Explanation | Post ref. | Debit | Credit |
Amount | Amount | |||
Salaries and wagespayable | $15 | |||
Cash | $15 | |||
( To record the salaries and wages expense payable) |
Table (3)
- Salary and wage payable is a liabilitythat was payable at the end of previous month, which is currently being paid. Hence, it is debited by $85.
- Cash is an asset account and it decreases the value of assets by $15. Hence, it is debited.
2.
the amount that should be reported as net cash flow from operating activities.
2.
Answer to Problem 3E
There has been a $225 increase in cash that must be reported as net cash flow from operating activities.
Explanation of Solution
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Determine the amount of total operating
Determine the amount net cash flow from operating activities.
3.
The amount that should be reported as net income.
3.
Answer to Problem 3E
The reported amount of net income is $240.
Explanation of Solution
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
Determine the amount of net income.
4.
To show: how the indirect method would convert net income to net cash flow from operating activities.
4.
Explanation of Solution
Statement of cash flows
Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Company | |
Statement of Cash Flows – Indirect Method | |
For the year ended December 31, | |
Particulars | Amount |
Cash flow from operating activities: | |
Net Income | $240 |
Less: Decrease in salaries and wages payable | ($15) |
Net cash flow from operating activities | $225 |
Table (4)
5.
To explain: the general rule about converting net income to operating cash flows is revealed in requirement 4.
5.
Explanation of Solution
Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.
Net income: Net income is the excess amount of revenue which arises after deducting all the expenses of a company. In simple terms, it is the difference between total revenue and total expenses of the company.
As per requirement 4, the general rule states that subtract the items, when there is a decrease in liabilities (salary and wage payable)from net income to convert itinto cash flows from operating activities.
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Chapter 12 Solutions
Fundamentals Of Financial Accounting
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