Question

Alabama Service Company was formed on January 1, Year 1.

Events Affecting the Year 1 Accounting Period:

1. Acquired cash of $60,000 from the issue of common stock.
2. Purchased $1,200 supplies on account and used all supplies immediately.
3. Purchased 2 tracts of land with cash. One costs $15,000. The other cost $3,000.
4. Paid $800 cash for the supplies purchased on account.
5. Recognized revenue on account of $42,000.
6. Paid $21,000 cash for other operating expenses.
7. Collected $38,000 cash from accounts receivable.
8. Recognized accrued salaries of $3,200

1) What is the balance in the Accounts Payable account at the end of Year 1?

2) In which account does the $3,200 of accrued salaries appear after closing Year 1?

3) Net Income for Year 1 is $16,600. Net Cash Flows from Operating Activities for Year 1 is $16,200. Why?

Answer 1

1) Account payable account balance = 2100-800 = 1300

2) Accrued salaries would be paid in next year so it is current liabilities

3) Because net income includes all revenue and expense either in Cash or not but net cash flow from operating activities includes cash received and paid with in general course of business either for the period or not