Ace Company presents the following adjusted account balances on 12.31.2013. No dividends were paid during the year.

Accounts ayable 10 Accounts !eceivable "0 Cash #0 Common $toc% #0 !ent &'pense 30 !etained &arnings 30 $alary &'pense #0 !evenues 200 $upplies (0 $upplies &'pense )0 *nearned !evenues 10 repare an income statement+ statement of changes in retained earnings+ and balance sheet. repare an income statement+ statement of changes in retained earnings+ and balance sheet. (Points : 20) Answer Income Statement Revenues 200 Operating Expenses Rent expense 30 Salary expenses 40 Supplies expenses 0 !otal operating expenses "40 #et Income $0 Statement o% &'anges in Retaine( Earnings )eginning Retaine( earnings 30 #et income $0 En(ing retaine( earnings *0 )alance S'eet +ssets &as' 40 +ccounts receiva,le -0 Supplies $0 !otal +ssets "-0 .ia,ilities +ccounts Paya,le "0 /nearne( revenues "0 Stoc0'ol(ers e1uity &ommon stoc0 40 Retaine( earnings *0 !otal .ia,ilities an( Stoc0'ol(ers E1uity "-0

2 Ace wor%s as an accountant at a business and prepared a balance sheet for the business for the year ended 12.31.2013. ,he proprietor of the business re-uested Ace change the classification of an e'penditure from an e'pense to an asset. ,he e'penditure was a payment to a vendor who supplied an asset consumed by the business during the year. .hy would the owner ma%e the re-uest/ .hat should Ace do/ Answer!'e o,2ective o% t'e most ,usinessess is to earn a pro%it3 Pro%it can ,e increase( eit'er ,y increasing revenues or ,y (ecreasing expenses3 !'e o4ner 4oul( as0 to classi%y an expen(iture as an asset to re(uce expences an( t'ere%ore increase pro%its35o4ever +ce s'oul(n6t 'elp t'e o4ner to ma0e t'is reclassi%ication 7 ,ecause t'is is accounting %rau(3 8orl(&om %rau( involve( reporting various expense items as i% t'ey 4ere assets3 !'is is a violation o% t'e matc'ing concept an( results in overcitating income an( assets3 3 0n 12.01.2013+ Ace Company paid 112+000 for a si' month insurance policy. Ace2s fiscal year ends on 12.31.2013. repare a journal entry to record the transaction+ and the adjusting entry re-uired at year end. Answer 99999999999999999999999&as' : Prepai( Insurance ; .ia,ilities : Retaine( Earnings )uy Insurance +(2ustment )alances 9"27000 9"27000 :"27000 927000 :"07000 927000 927000

4 Ace Company sells merchandise costing 1#0+000+ 304 destination point+ on 12.22.2013. ,he merchandise was shipped on 12.22.2013+ and received by the buyer on 1.0#.2013. .hat amount of sales revenue should be recogni5ed in 2013/ 201#/ .hy/ Answer /n(er accrual accounting7 revenue is recogni<e( 4'en it is earne(3 !'us revenues earne( 4'en services 'ave ,een provi(e(3 In t'is 1uestion merc'an(ise is s'ippe( un(er =O) (estination point3 It means t'at seller is responsi,le %rom s'ippment an( %inal (elivery o% t'e merc'an(ise to t'e ,uyer3 !'ere%ore t'e seller earns revenue on "304320"43 !o conclu(e t'ere is no sales revenue in year 20"3 an( t'ere is 407000 sales revenue in year 20"43

Ace Company2s 1.1.2013 cash balance was 110+000. 6uring 2013+ Ace borrowed 13+000+ paid 1"0+000 for long term assets+ received 137+000 from the sale of investments+ sold merchandise for 1#0+000+ and paid 120+000 for merchandise sold and 1#+000 for other business e'penses. repare a statement of cash flows for the year. Answer &as' %lo4s %rom operating activities: &as' collections %rom customers 407000 &as' payments %or suppliers 9207000 &as' payments %or ,usiness expences 947000 !otal cas' %lo4s %rom operations "$7000 &as' %lo4s %rom investing activities: .ong term asset ac1uisition 9-07000 Sale o% investments 3*7000 !otal cas' %lo4s %rom investing activities 9""7000 &as' %lo4s %rom %inancing activities: )orro4ing 37000 !otal cas' %lo4s %rom %inancing activities 37000 #et increase in cas' >7000 )eginning cas' ,alance "07000 En(ing cas' ,alance ">7000