Question

Question No. (11) (5 minutes): Nano Company is a service company. Nano has the following balances at the start of January 2016: • Share Capital $ 20,000 • Retained Earnings $ 10,000 • Accounts Receivable $ 6,000 • Accounts Payable $ 4,000 • Cash $ 8,000 The following transactions took place during 2016: 15 February Collected $ 5,980 cash from the Accounts Receivable. 20 August: Paid $ 3,980 cash to the accounts payable. 31 December: Collected $ 9,000 cash in advance for services to be performed over the 3 years 2017, 2018 and 2019. 31 December: Paid $ 19,000 cash in advance for an insurance policy for 2 years 2017 and 2018. Required: 1- Calculate the balance of Accounts Receivable at 31 December 2016. 2- Calculate the balance of Accounts Payable at 31 December 2016. 3- Calculate the Net Income for the year ended 31 December 2016. 4- Calculate the balance of Cash at 31 December 2016.

Answer 1

Answer(1) Calculation of the balance of Accounts Receivable at 31 December 2016 Beginning balance of Accounts Receivable $6,000 Less: Amount collected during (5,980) Accounts Receivable Balance, at 31 December 2016 $20 the year Answer(2) Calculation of the balance of Accounts Payable at 31 December 2016 Beginning balance of Accounts Payable $4,000 Less: Amount Paid during the year (3,980) Accounts Payable Balance, at 31 December 2016 $20

$19,000 Answer(3) Change in Assets Increase in Prepaid Insurance Decrease in Accounts Receivable Decrease in Cash (5,980) (8,000) $5,020 Change in Liabilities Increase in Unearned Revenue Decrease in Accounts Payable $9,000 (3,980) $5,020 Net Income = Change in Assets - Change in Liabilities $5,020 - $5,020 $0 Answer(4) Calculation of Cash at 31 December 2016 Beginning balance $8,000 Add: Collection from customers 5,980 Unearned Revenue 9,000 $22,980 Less: Prepaid Insurance (19,000) Amount paid during the year (3,980) Cash at the end of Year $0