Question

Bill Sanders started a part-time consulting practice, Sanders Consulting Associates (SCA), on January 1, Year 1. SCA experienced the following transactions during Year 1. It is now year-end and assume that these transactions are the only transactions the company has. Adjusting entries must be made at year-end.

January 1                   Acquired $3,000 cash from issuing common stock.

January 15                 Purchased $1,100 of supplies on account.

February 20               Recognized $12,800 of consulting revenue for services provided on account.

March 1                     Paid $3,600 cash for an insurance policy that covered the company for one year on this date.

April 20                      Collected $9,200 of the receivables due from customers.

May 1                         Paid cash salaries of $5,000 for Year 1.

May 25                       Recognized $5,750 of accrued operating expenses (not related to supplies or insurance)

that were charged to accounts payable.

June 10                      Paid suppliers $4,900 of the amount owed on the accounts payable.

July 15                        Paid cash for advertising, $1,800.

August 15                  Purchased land for $10,000 cash.

August 30                  Performed $8,000 of consulting services for cash.

September 5             Paid dividends of $1,200 to the stockholders.

October 1                  Borrowed $10,000 cash by issuing a one-year, 6% note to National Bank. Principal and

interest are due at maturity.

November 1              Sanders collected $7,980 cash in advance for services to be provided under a one-year

contract beginning on this date, Year 1.

December 31            It was determined there were $320 of supplies on hand.

1. (3 points) What is the amount of net income SCA will show on its Year 1 Income Statement?
2. (3 points) What amount of liabilities will SCA show on its Balance Sheet as of 12/31, Year 1?
3. (3 points) What is the net amount of cash from operating activities that SCA will report on its Year 1 Statement of Cash Flows?

Answer 1

Income Statement
Revenues
Consulting Revenue	$             22,130
Total Revenues		$            22,130
Expenses
Salaries Expense	$                5,000
Operating Expense	$                5,750
Advertising Expense	$                1,800
Supplies Expense	$                   780
Insurance Expense	$                3,000
Interest Expense	$                   150
Total Expenses		$            16,480
Net Income		$               5,650

Liabilities
Accounts Payable	$                1,950
Unearned Revenue	$                6,650
Interest Payable	$                   150
Note Payable	$             10,000
Total Liabilities	$             18,750

Cash flow from Operating Activities
Cash Collected from customers		$       25,180.00
Cash paid for insurance		$        -3,600.00
Cash paid for Salaries		$        -5,000.00
Cash paid to Suppliers		$        -4,900.00
Cash paid for advertisement		$        -1,800.00
Cash from operating activities			$             9,880.00