The following transactions apply to Hooper Co. for 2018, its first year of operations:
1. Issued $60,000 of common stock for cash.
2. Provided $90,000 of services on account.
3. Collected $78,000 cash from accounts receivable.
4. Loaned $20,000 to Mosby Co. on November 30, 2018. The note had a one-year term to maturity and a 6 percent interest rate.
5. Paid $26,000 of salaries expense for the year.
6. Paid a $2,000 dividend to the stockholders.
7. Recorded the accrued interest on December 31, 2018 (see item 4).
8. Estimated that 1 percent of service revenue will be uncollectible.
Required
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a. Show the effects of these transactions in a horizontal statements model like the one shown as follows.
b. Prepare the income statement, balance sheet, and statement of cash flows for 2018.
SOLUTION
a.
| Hooper Co. Horizontal Statements Model |
|---|
| | | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | | Income Statement | Income Statement | Income Statement | Income Statement | Income Statement | Income Statement | Income Statement | Income Statement | | | Statement of | |
| Event | Event | Assets | Assets | Assets | Assets | Assets | = | = | Equity | Equity | Equity | | Rev. | | | Exp. | = | = | Net Inc. | Net Inc. | | | Cash Flows | |
| | Cash | Cash | Accts. Rec. | Allow | Notes Rec. | Int. Rec. | Int. Rec. | = | = | Com. Stock | Ret. Earn. | | | | | | | | | | | | | |
| 1. | 60,000 | 60,000 | NA | NA | NA | NA | NA | | | 60,000 | NA | | NA | | NA | NA | NA | | | NA | NA | | 60,000FA | |
| 2. | NA | NA | 90,000 | NA | NA | NA | NA | | | NA | 90,000 | | 90,000 | | NA | NA | NA | | | 90,000 | 90,000 | | NA | |
| 3. | 78,000 | 78,000 | (78,000) | NA | NA | NA | NA | | | NA | NA | | NA | | NA | NA | NA | | | NA | NA | | 78,000 OA | |
| 4. | (20,000) | (20,000) | NA | NA | 20,000 | NA | NA | | | NA | NA | | NA | | NA | NA | NA | | | NA | NA | | (20,000) IA | |
| 5. | (26,000) | (26,000) | NA | NA | NA | NA | NA | | | NA | (26,000) | | NA | | 26,000 | 26,000 | 26,000 | | | (26,000) | (26,000) | | (26,000) OA | |
| 6. | (2,000) | (2,000) | NA | NA | NA | NA | NA | | | NA | (2,000) | | NA | | NA | NA | NA | | | NA | NA | | (2,000) FA | |
| 7.1 | NA | NA | NA | NA | NA | 100 | 100 | | | NA | 100 | | 100 | | NA | NA | NA | | | 100 | 100 | | NA | |
| 8.2 | NA | NA | NA | (900) | NA | NA | NA | | | NA | (900) | | NA | | 900 | 900 | 900 | | | (900) | (900) | | NA | |
| Tot. | 90,000 | 90,000 | 12,000 | (900) | 20,000 | 100 | 100 | = | = | 60,000 | 61,200 | | 90,100 | | 26,90 | 26,90 | 26,90 | = | = | 63,200 | 63,200 | | 90,000 NC | |
1$20,000 x 6% = $1,200; $1,200 x 1/12 = $100
2$90,000 X 1% = $900
b.
| Hooper Co. Income Statement For the Year Ended 2018 |
|---|
| Service Revenue | | $90,000 | |
| Operating Expenses | | | |
| Salaries Expense | $26,000 | | |
| Uncoll. Accounts Expense | 900 | | |
| Total Operating Expenses | | (26,900) | |
| Net Operating Income | | 63,100 | |
| Non-Operating Items | | | |
| Interest Revenue | | 100 | |
| Net Income | | $63,200 | |
| Hooper Co. Balance Sheet As of the End of the Year 2018 |
|---|
| Assets | | | |
| Cash | | $ 90,000 | |
| Accounts Receivable | $12,000 | | |
| Less Allowance for Doubtful Accounts | (900) | 11,100 | |
| Notes Receivable | | 20,000 | |
| Interest Receivable | | 100 | |
| Total Assets | | $121,200 | |
| Liabilities | | $ -0- | |
| Stockholders’ Equity | | | |
| Common Stock | $60,000 | | |
| Retained Earnings | 61,200 | | |
| Total Stockholders’ Equity | | 121,200 | |
| Total Liabilities and Stockholders’ Equity | | $121,200 | |
| Hooper Co. Statement of Cash Flows For the Year Ended |
|---|
| Cash Flows From Operating Activities: | | | |
| Inflow from Customers | $78,000 | | |
| Outflow for Expenses | (26,000) | | |
| Net Cash Flow from Operating Activities | | $52,000 | |
| Cash Flows From Investing Activities: | | | |
| Outflow for Note Receivable | | (20,000) | |
| Cash Flows From Financing Activities: | | | |
| Inflow from Stock Issued | $60,000 | | |
| Outflow for Dividends | (2,000) | | |
| Net Cash Flow from Financing Activities | | 58,000 | |
| Net Change in Cash | | 90,000 | |
| Plus: Beginning Cash Balance | | -0- | |
| Ending Cash Balance | | $90,000 | |