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Exercise: The Peters Company

Peters Company was in business for two years, during which it entered into the following transactions: Year 1:
1.The owners contributed $24,000 cash.
2.At the beginning of the year, rented a warehouse for two years with a prepaid rent payment of $12,000. 3.Purchased $10,000 of inventory on account.
4.Sold half the inventory for $24,000, receiving $20,000 in cash and an account receivable of $4,000. 5.Paid wages of $6,000. Accrued wages payable of $4,000.
6. Entered into a contract with Pauls’ Company to sell remaining inventory in Year 2. Received a cash advance of $6,000 from Pauls’ Company.
7. Paid dividend of $1,000.
Year 2:
1.Shipped remaining inventory to Pauls’ Company, received additional $24,000. 2.Paid the outstanding balance for the inventory purchased in Year 1. 3.Paid the outstanding wages balance.
4.Received full payment on the outstanding accounts receivable. 5.Incurred and paid wages of $12,000.
6. Paid dividend of $9,000.

2

Peters Company, Year 1

Cash
1

20

Inv = A/P

Def Rev

WPay

Cont cap

12
-6

10

- 6 Rent Exp

10

4

24 Revenue
-5

4A
5

31

- 10 Wage exp

-1

EB

4

6

7

- 5 COGS

-6

6

6
-1 Dividend
4

6

5

10

6

4

24

=
3

R/e

24

-12

4

PrePd Rent

24

2
2A
3

A/R

Total Assets = 46

Liab = 20

SE = 26

2

Balance Sheet (B/S), Year 1
Peters Company
Balance Sheet
12/31/x1
Assets
Cash
A/R
Prepaid Rent
Inventory

31
4
6
5

Liabilities
Accts Payable
Def Rev
Wages Payable
Tot Liabilities

Total Assets

46

10
6
4
20

Stockholders Equity
Cont. Capital
Retained Earn
Tot S/E

4

24
2
26

Peters Company, Year 1

Cash
1

20

Inv = A/P

Def Rev

WPay

Cont cap
24

-12

4

PrePd Rent

24

2
2A
3

A/R

12
-6

10

10

24 Revenue
-5

31

- 10 Wage exp

-1

EB

4

6

7

- 5 COGS

-6

6

Income
Statement
- 6 Rent Exp

4

4A
5

R/e

6
-1 Dividend
4

6

5

10

6

4

24

2

Dividends are NOT part of the Income Statement

Income Statement, Year 1
(Ignoring Taxes)
Peters Company
Income Statement
12/31/x1

24
-5
19

Revenue
Cost of Goods Sold
Gross Margin
Less Operating
Expenses
Rent
Wage Expense
Total Operating expenses
Net Income

6

-6
-10

-16
3

Statement of Cash flows
There is a third financial statement that firms are required to prepare – the statement of cash flows.
The statement reports the change from beginning of the
period cash and end of the period cash.
There are three types of cash flows:
operating
investing
financing

7

Peters Company, Year 1
Cash
1

SCF
24

2
2A
3

-12

4

20

A/R

PrePd Rent

Stock issue
Prepaid rent

Def Rev

WPay

Cont cap

12
-6

10

- 6 Rent Exp

10

4
Rev

24 Revenue
-5

5

-6

6

6

7

-1
31
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