Question

XP2-14A (Transaction analysis and financial statement preparation) Singh Company started business on January 1, 2020. The following transactions occurred in 2020, 1. On January 1, the company issued 10.000 common shares for $250,000. 2. On January 2, the company borrowed S50,000 from the bank. 3. On January 3, the company purchased land and a building for a total of $200.000 cash. The land was recently appraised at a fair market value of $60,000. (Note: Because the building will be depreciated in the future and the land will not, these two assets should be recorded in separate accounts.) 4. Inventory costing $130,000 was purchased on account. 5. Sales to customers totalled $205,000. Of these, $175,000 were sales on account. 6. The cost of the inventory that was sold to customers in transaction 5 was $120,000. 7. Payments to suppliers on account totalled $115,000. 8. Collections from customers on account totalled S155,000. 9. Payments to employees for wages were $55,000. In addition, there was $2,000 of unpaid wages at year end. 10. The interest on the bank loan was recognized for the year. The interest rate on the loan was 6%. 11. The building was estimated to have a useful life of 30 years and a residual value of $20.000. The company uses the straight-line method of depreciation 12. The company declared dividends of $7,000 on December 15, 2020, to be paid on January 15, 2021. Required a. Analyze the effects of each transaction on the basic accounting equation, using a template like the one below: ASSETS LIABILITIES Wages Interest Dividends Payable Payable Payable Loan Payable S/H EQUITY Common Shares R/E Rev/Exp/ DD Date/Ref. Cash A/R Inv. Building Land A/P b. Prepare a statement of income, a statement of changes in equity, a statement of financial position (unclassified), and a statement of cash flows for 2020.

please ignore the second question. I posted it by mistake.

Answer 1

Solution:

	Assets					=	Liabilities					+	Shareholders' Equity
Date/Ref.	Cash	Accounts Receivable	Invent.	Building	Land		Accounts Payable	Wages Payable	Interest Payable	Dividend Payable	Loan Payable		Common Stock	Retained Earnings
														Revenue	Expense	Dividend
1	250,000					=						+	250,000
Balance	250,000					=						+	250,000
2	50,000					=					50,000	+
Balance	300,000					=					50,000	+	250,000
3	-200,000			140,000	60,000	=						+
Balance	100,000			140,000	60,000	=					50,000	+	250,000
4			1,30,000			=	130,000					+
Balance	100,000		130,000	140,000	60,000	=	130,000				50,000	+	250,000
5	30,000	175,000	-120,000			=						+		85,000
Balance	130,000	175,000	10,000	140,000	60,000	=	130,000				50,000	+	250,000	85,000
7	-115,000					=	-115,000					+
Balance	15,000	175,000	10,000	140,000	60,000	=	15,000				50,000	+	250,000	85,000
8	155,000	-155,000				=						+
Balance	170,000	20,000	10,000	140,000	60,000	=	15,000				50,000	+	250,000	85,000
9	-55,000					=		2,000				+			-57,000
Balance	115,000	20,000	10,000	140,000	60,000	=	15,000	2,000			50,000	+	250,000	85,000	-57,000
10						=			3,000			+			-3,000
Balance	115,000	20,000	10,000	140,000	60,000	=	15,000	2,000	3,000		50,000	+	250,000	85,000	-60,000
11				-4,000		=						+			-4,000
Balance	115,000	20,000	10,000	136,000	60,000	=	15,000	2,000	3,000		50,000	+	250,000	85,000	-64,000
12						=				7,000		+				-7,000
Balance	115,000	20,000	10,000	136,000	60,000	=	15,000	2,000	3,000	7,000	50,000	+	250,000	85,000	-64,000	-7,000

Income Statement 205,000 205,000 REVENUES Service Revenue EXPENSES Cost of Goods Sold Wages Expense Depreciation Expense Interest Expense 120,000 57,000 4,000 3,000 184,000 NET INCOME 21,000 BALANCE SHEET ASSETS Current Assets Cash Accounts Receivable Inventory Fixed Assets Land Building 115,000 20,000 10,000 60,000 136,000 341,000 LIABILITY AND OWNER'S EQUITY Current Liabilities Accounts Payable Wages Payable Interest Payable Dividend Payable Non-Current Liabilities Loans Payable Owner's Equity Common Stock Retained Earnings 15,000 2,000 3,000 7,000 50,000 250,000 14,000 341,000

CASH FLOW STATEMENT Particulars A. Cash flow from Operating Activities: Net Profit during the year Add: Dividend Paid Depreciation on Building Add: Increase in CL & Decrease in CA Accounts Payable Interest Payable Wages Payable Decrease in CL & Increase in CA Increase in Accounts Receivable Increase in Inventory 21,000 7,000 4,000 32,000 15,000 3,000 2,000 52,000 (20,000) (10,000) 22,000 B. Cash flow from Investing Activities: Purchase of Land Purchase of Building 60,000 140,000 (200,000) C. Cash flow from Financing Activities: Issue of Common stock Borrowed fund 250,000 50,000 300,000 Net increase in cash Add: Opening balance of Cash 115,000 Closing Balance of Cash 115,000 Statement of Changes in Shareholders' Equity For the year ended 31 December, 2020 Particulars Common Stock Retained Earnings Total Balance as at 1/1/2020 Issue of new shares 250,000 250,000 Net Income 21,000 21,000 Dividends (7,000) (7,000) Balance as at 31/12/2020 250,000 14,000 264,000