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    Accounting Principles: normal balances, statement of cash flows

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    Instructions: Place a "D" (Debit) or "C" (Credit) in the space provided to indicate whether the account has a normal debit balance (D) or normal credit balance (C).
    1. Retained Earnings 6. Common Stock
    2. Equipment 7. Unearned Service Revenue
    3. Depreciation Expense 8. Accumulated Depreciation
    4. Dividends 9. Accounts Payable
    5. Service Revenue 10. Prepaid Rent


    Each of the events below may have an effect on the statement of cash flows. Designate how the event should be reported within the statement of cash flows using the codes provided below. Codes may be used more than once, or not at all.

    A. Investing activity; cash inflow
    B. Investing activity; cash outflow
    C. Financing activity; cash inflow
    D. Financing activity; cash outflow
    E. Operating activity; cash inflow
    F. Operating activity; cash outflow
    G. Noncash investing and financing activity


    _____ 1. Issued checks for the weekly payroll

    _____ 2. Paid an account payable

    _____ 3. Issued bonds payable for cash

    _____ 4. Declared and paid a cash dividend

    _____ 5. Paid cash for a new car for a traveling salesperson

    _____ 6. Paid interest due on a long-term liability,

    _____ 7. Paid cash for 40% interest in another company

    _____ 8. Received dividends from a stock investment.

    _____ 9. Converted bonds payable into common stock

    _____ 10. Sold a long-term stock investment for cash at book value

    Part III - Long Problem

    Swish Watch Corporation manufactures, sells and services expensive, ugly watches. The company has been in business for three years. At the end of the most recent year, 2006, the accounting records reported total assets of $2,255,000 and total liabilities of $1,780,000. During the current year, 2007, the following summarized events occurred:
    a. Issued additional shares of stock for $109,000 cash.
    b. Borrowed $186,000 cash from the bank and signed a 10-year note.
    c. A stockholder sold $5,000 of his capital stock in Swish Watch Corporation to another investor.
    d. Built an addition on the factory for $200,000 and paid cash to the construction company.
    e. Purchased equipment for the new addition for $44,000, paying $12,000 in cash and signing a six month note for the balance.
    f. Returned a $4,000 piece of equipment, from (d), because it proved to be defective; received a cash refund.
    g. At the end of 2006, lent $2,000 cash to the company president, Thor Gunnarson, who signed a note with terms requiring repayment of the loan in one year.

    1. Create a spreadsheet similar to the below and complete it, using plus for increases and minus for decreases for each account. The first transaction is used as an example.

    Assets = Liabilities + Stockholders' Equity

    Notes Receivable
    Building Notes Payable
    Contributed Capital
    Retained Earnings

    (a) +109,000 = +109,000

    2. Did you include event "c" in the spreadsheet? Why?
    3. Based on beginning balances plus the completed spreadsheet, provide the following amounts. Show your work.
    a. Total assets at the end of the year.
    b. Total liabilities at the end of the year.
    c. Total stockholder's equity at the end of the year.
    d. As of December 31, 2007 has the financing for Swish Watch Corporation's investment in assets primarily come from liabilities or stockholder's equity?


    Present the solutions, with appropriate supporting calculations, for each of the following independent problems.

    A. Given the following information, compute 2010 net income for Manon Company.
    Stockholders' equity?January 1, 2010 $150,000
    Stockholders' equity?December 31, 2010 175,000
    Stockholder investments during 2010 15,000
    Dividends paid during 2010 30,000

    B. Given the following information, determine the three missing amounts.

    Stockholders' Equity
    Beginning of the Year End of the Year Changes During the Year
    Total Assets $60,000 Total Assets $85,000 Investments $10,000
    Total Liabilities ??? Total Liabilities 40,000 Dividends 25,000
    Total Stockholders'Equity 35,000 TotalStockholders'Equity ??? Revenues 70,000
    Expenses ???
    Total Change $15,000

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    Solution Summary

    Normal balances for the statement of cash flows are examined.