Question

The following transactions apply to Hooper Co. for Year 1, its first year of operations: Issued $110,000 of common stock for cash. Provided $92,000 of services on account. Collected $80,000 cash from accounts receivable. Loaned $11,000 to Mosby Co. on November 30, Year 1. The note had a one-year term to maturity and a 10 percent interest rate. Paid $40,000 of salaries expense for the year. Paid a $4,000 dividend to the stockholders. Recorded the accrued interest on December 31, Year 1 (see item 4). Estimated that 1 percent of service revenue will be uncollectible. Prepare the income statement, balance sheet, and statement of cash flows for Year 1.

Answer 1

Adjusting Entries
Account Titles	Debit $	Credit $
Interest Receivable	92
Interest Revenue		92
(11,000 x 10% x 1/12 )
Bad debt Expense	920
Allowance for uncollectible accounts		920
(92,000 x 1% )
Income statement
For the year ended December 31, Year 1		Amount $
Revenues:
Service Revenue	92,000
Interest Revenue	92
Total Revenue		92,092
Expenses:
Bad debt Expense	920
Salaries Expense	40,000
Total Expenses		40,920
Net Income		51,172
Balance Sheet
As at December 31, Year 1		Amount $
Assets
Current Assets
Accounts Receivable ( 92,000 - 80,000 )	12,000
Less: Allowance for Uncollectible accounts	920	11,080
Cash ( 110,000 + 80,000 - 11,000 - 40,000 - 4,000 )		135,000
Interest Receivable		92
Note Receivable		11,000
Total Assets		157,172
Liabilities & Stockholder's Equity
Stockholder's Equity
Common Stock	110,000
Retained earnings ( 51,172 - 4,000 )	47,172
Total Stockholder's Equity		157,172
Total Liabilities & Stockholder's Equity		157,172
Statement of Cash Flow for year 1	Amount $
Cash flow from operating activities
Net Income	51,172
Add: Bad Debt Expense	920
Less: Increase in accounts Receivable	-12,000
Less: Increase in Note receivable	-11,000
Less: Increase in Interest Receivable	-92
Net Cash flow from operating activities	29,000
Cash flow from Investing activities	-
Cash flow from Financing activities
Issue of Common Stock	110,000
Dividend paid	-4,000
Net Cash flow from Financing activities	106,000
Net Increase in cash	135,000
Add: Opening Cash Balance	-
Ending Cash balance	135,000