Question

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 the effects of the event. (Not all cells require entry. Do not round intermediate calculations and round your final answers to nearest whole dollar amount.)

1. Paid $3,000 cash on October 1 to purchase a one-year insurance policy.
2. Purchased $1,100 of supplies on account. Paid $850 cash on accounts payable. The ending balance in the Supplies account, after adjustment, was $350.
3. Provided services for $7,700 cash.
4. Collected $9,500 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.
5. Accrued salaries amounting to $3,800.
6. Sold land that cost $18,400 for $18,400 cash.
7. Acquired $51,500 cash from the issue of common stock.
8. Earned $12,100 of revenue on account. Collected $10,890 cash from accounts receivable.
9. Paid cash operating expenses of $1,450.
   

Answer 1

		Net income	Net income	Operating cash flows activities	Operating cash flows activities
		Effect	Amount	Effect	Amount	Hint
A	Cash paid for insurance policy	NA	NA	Decrease	3,000	Amount paid for prepaid insurance is operating cash outflows.
	Insurance expense (Oct to Dec = 3) (3000*3/12)	Decrease	750	NA	NA	Net income would be decreased due to insurance expense
B	Cash paid for supplies	NA	NA	Decrease	850	Amount paid for supplies is operating cash outflows.
	Supplies expense (1100-350)	Decrease	750	NA	NA	Net income would be decreased due to supplies expense
C	Provided services for cash	Increase	7,700	Increase	7,700	Cash receipts from client is operating cash inflows.
	Adjustment entry	NA	NA	NA	NA	No effect
D	Collected advance for services to be performed in the future	NA	NA	Increase	9,500	Cash receipts from client is operating cash inflows.
	Revenue earned (May to Dec = 8 months) (9500*8/12)	Increase	6,333	NA	NA	Net income would be increased due to service revenue
E	Cash payment for salaries not done, but will be paid in future.	NA	NA	NA	NA	No effect
	Accrued salaries	Decrease	3,800	NA	NA	Net income would be decreased due to salaries expense
F	Sale of land	NA	NA	NA	NA	Cash receipt from land of 18,400 is considered as an investing activity. There is not loss or gain from sale of land (18400-18400)
	Adjustment entry	NA	NA	NA	NA	No effect
G	Issue of common stock	NA	NA	NA	NA	Cash receipts by issuing the common stock is considered as a financial activity.
	Adjustment entry	NA	NA	NA	NA	No effect
H	Earned $12,100 of revenue on account and collected $10,890 cash from accounts receivable.	Increase	9,500	Increase	9,500	Net income would be increased due to earned revenue of $12,100. Cash receipts from client $10,890 is operating cash inflows.
	Adjustment entry	NA	NA	NA	NA	No effect
I	Paid cash operating expenses	Decrease	1,450	Decrease	1,450	Net income and operating cash flows would be decreased due to operating expenses.
	Adjustment entry	NA	NA	NA	NA	No effect