Question

*Do not use journal entries format*

Demonstration Problem 2-2: Accruals and Deferrals Part A Smith Company experienced the following accounting events during 2018: 1. Smith Company was started on January 1 when it issued common stock for $2,000 cash. 2. During the year, the company recognized $1,500 of consulting revenue on account. 3. The company collected $1,200 cash from accounts receivable. 4. Smith accrued salary expense during the year of $900. 5. Paid $700 of the salaries payable liability 6. Paid dividends of $100 to the stockholders. 7. Paid $360 cash for an insurance policy that covered the company for one year beginning March 1, 2018. 8. On November 1, 2018, Smith collected $2,880 cash in advance for consulting services to be provided under a one-year contract. 9. Recognized insurance expense (Policy in event 7) for ten months. 10. Recognized income earned under the one-year contract at December 31, 2018. Part B Smith Company experienced the following accounting events during 2019 1. Smith Company issued additional common stock for $3,000 cash. 2. During the period, Smith recognized $2,700 of consulting revenue eamed on account. 3. Smith collected $2,800 cash from accounts receivable. 4. Smith accrued salary expense of $1,500. 5. The company paid $1,350 of the salaries payable liability. 6. Smith paid dividends of $300 to the stockholders. 7. Paid $420 cash to renew the insurance policy for another one-year term. 8. Smith adjusted the books to reflect the insurance expense that had been incurred in 2019 (described in event 7 of 2018). 9. Smith adjusted the books to reflect the revenue earned in 2019 under the one-year consulting contract that began in 2018 (event 8 in 2018). Required I. 2. Record the events using the horizontal financial statements model. For 2018 and 2019, prepare an income statement, a statement of retained earnings, a balance sheet, and a statement of cash flows.

Answer 1

	2018	2019
income statement
Consulting revenue	1980	5100
total revenue	1980	5100
salary expense	-900	-1500
insurance expense	-300	-410
net income	780	3190
stockholders equity
beginning common stock	0	2000
add:common stock issued	2000	3000
ending common stock	2000	5000
beginning retained earnings	0	680
add:net income	780	3190
less:dividends	-100	-300
ending retianed earnings	680	3570
total stockholders equity	2680	8570
Balance sheet
cash	4920	8650
accounts receivale	300	200
prepaid insurance	60	70
total assets	5280	8920
salaries payable	200	350
unearned revenue	2400	0
total liabilties	2600	350
common stock	2000	5000
retained earnings	680	3570
total stockholders equity	2680	8570
total liabilties & equity	5280	8920
cash flows
cash flow form operating activites
cash receipts from consulting revenue	4080	2800
cash payments for salaries	-700	-1350
cash paments for insurance	-360	-420
net cash flow operating activities	3020	1030
cash flow form investing activities	0	0
cash flow from financing activities
common stock issue	2000	3000
dividends paid	-100	-300
net cash inflow form financing activities	1900	2700
change in cash	4920	3730
opening cash balance	0	4920
ending cash balance	4920	8650