EXERCISE 3–2A Identifying Deferral and Accrual Events Required Identify each of the following events as an accrual, a deferral, or neither. a. Paid cash in advance for a one-year insurance policy. b. Recognized interest income from a certificate of deposit before the cash was received. c. Collected accounts receivable. d. Paid cash for current salaries expense. e. Purchased supplies to be used in the future on account. f. Provided services on account. g. Provided services and collected cash. h. Purchased a delivery van that has a four-year useful life. i. Recognized accrued salaries at the end of the accounting period. j. Paid a cash dividend to the stockholders.

a.accrual

b.accrual

c.deferral

d.deferral

e.accrual

f.neither

g.deferral

h.deferral

i.accrual

j.neither

PROBLEM 1–30B Interrelationships among Financial Statements Best Electronics started the accounting period with $10,000 of assets, $2,200 of liabilities, and $4,550 of retained earnings. During the period, the Retained Earnings account increased by $3,565. The bookkeeper reported that Best paid cash expenses of $5,010 and paid a $625 cash dividend to stockholders, but she could not find a record of the amount of cash that Best received for performing services. Best also paid $1,000 cash to reduce the liability owed to a bank, and the business acquired $2,000 of additional cash from the issue of common stock. Required a. Prepare an income statement, statement of changes in stockholders’ equity, year-end balance sheet, and statement of cash flows for the accounting period. (Hint: Determine the beginning balance in the common stock account before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements.)

Best Electronics
Accounting Equation
Stockholders’ Equity
Common / Retained
Event / Assets / = / Liabilities / + / Stock / + / Earnings
Beginning Balances / 10,000 / = / 2,200 / + / 3,2501 / + / 4,550
1. Paid Expense / (5,010) / (5,010)
3. Paid Dividend / (625) / (625)
4. Paid Liability / (1,000) / (1,000)
5. Issued Stock / 2,000 / 2,000
6. Revenue* / 9,200 / 9,2002
Ending Balance / 14,565 / = / 1,200 / + / 5,250 / + / 8,115

1Assets  Liabilities  Retained Earnings = Common Stock:

$10,000 $2,200  $4,550 = $3,250

2Increase in Retained Earnings: $3,565

Add: Expenses 5,010

Add: Dividends 625

Revenue $9,200

Best Electronics
Income Statement
For the Year Ended December 31, 20--
Revenue / $9,200
Expense / (5,010)
Net Income / $4,190
Best Electronics
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 20--
Beginning Common Stock / $3,250
Plus: Common Stock Issued / 2,000
Ending Common Stock / $ 5,250
Beginning Retained Earnings / 4,550
Plus: Net Income / 4,190
Less: Dividends / (625)
Ending Retained Earnings / 8,115
Total Stockholders’ Equity / $13,365
Best Electronics
Balance Sheet
As of December 31, 20--
Assets / $14,565
Liabilities / $ 1,200
Stockholders’ Equity
Common Stock / $ 5,250
Retained Earnings / 8,115
Total Stockholders’ Equity / 13,365
Total Liabilities and Stockholders’ Equity / $14,565
Best Electronics
Statement of Cash Flows
For the Year Ended December 31, 20--
Cash Flows From Operating Activities:
Cash Receipt from Revenue / $9,200
Cash Payment for Expense / (5,010)
Net Cash Flow from Operating Activities / $ 4,190
Cash Flows From Investing Activities / -0-
Cash Flows From Financing Activities:
Cash Receipts from Stock Issue / 2,000
Cash Payment to Creditors / (1,000)
Cash Dividend Paid to Stockholders / (625)
Net Cash Flow from Financing Activities / 375
Net Increase in Cash / 4,565
Plus: Beginning Cash Balance* / 10,000
Ending Cash Balance / $14,565

*Assumes all assets are cash.