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E2-1. Prepare the Statement of Cash Flows (Indirect Method)
Net income $ 22,000
Investment by Ryan Bond $ 2,200
Depreciation expense 15,000
Decrease in accounts receivable 2,800
Decrease in prepaid expenses 1,250
Increase in accrued expenses 2,300
Decrease in accounts payable (10,450)
Withdrawal by Trent Wallin (15,000)
Cash and cash equivalents at beginning of year 12,500
Increase in inventory (14,400)

Total cost of furniture was $24,500; a long-term note for $21,300 was issued for the balance.

-term note for $21,300 was issued for the balance.

Exercise 2-2 -Classify the following transaction under the proper column
A company buys a fleet of cars and pays $30,000 cash and $100,000 in shares of common stock.
The company also pays for a set of golf carts with a $50,000 note.
Land valued at $325000 was acquired by issuing a $300,000 bond.

The company issues 10,000 share of stock to pay for legal services
Operating Investing Financing (Disclose only)

Fleet of cars_______________________________________________________________

Set of golf carts______________________________________________________________

Land ____________________________________________________________________

Stock for legal

Exercise 2-3- Analyzing accounts
Age analysis of the receivables in order to determine the amount by which to increase Allowance for Bad Debts or to create an allowance balance if none exists.
0 to 30 days $ 140,000 Experienced rate of loss 0.5%
31 to 60 days $ 125.000 Experienced rate of loss 1.25%
More than 60 days 36,000 Experienced rate of loss 10.0%

The existing balance of Allowance for Bad Debts is $ 3,000. There is a worthless account balance of $320 included in the $36,000 that is to be written off before the estimate for bad debts is calculated. Make the journal entry for the write off, calculate the bad debt expense for the year and make the journal entry and T account to show the correct allowance in the Balance Sheet.


Clegg Auto
Bank Reconciliation
September 30

Balance per bank statement $18,972.67
Add: Deposits in transit $3,251.42
Check charged incorrectly 713.18 3,964.60
Deduct: Outstanding checks (4,163.51)
Corrected bank balance $18,773.76

Balance per books $16,697.76
Add: Collection of note $50 in interest 2,150.00*
Deduct: Bank service charge $ 20.00
Transposition error* 54.00** (74.00)
Corrected book balance $18,773.76

â?¢ *The bank reported the collection of a $2,150 for a note plus $50 in interest.
â?¢ **Represents collection of a cash sale of $1628 entered in the books as $ 1682.
Make the journal entry to correct the book balance.

E2-5- On July 15,Mann Company sold $600,000 in receivables for cash of $500,000. The factor held back 10% of the cash proceeds to allow for possible customer returns or adjustments. An Allowance for Bad Debt of $80,000 had previously been established for this account.
a) Make the JE to record the sale of the A/R.
b) Make the JE when the factor tor collects the receivable and sends you a check for the amount withheld.

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Solution Summary

The solution explains some questions relating to cash flow classification, bank reconciliation and sale of receivables

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