Exercise 2-9A Prepaid items on financial statement

Therapy Inc. experienced the following events in 2013, its first year of operation:
1. Performed counseling services for $18,000 cash.
2. On February 1, 2013, paid $12,000 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect e amount of rent used during the year.
Required
Based on this information alone
a. Record the events under an accounting equation
b. Prepare an income statement, balance sheet, and statement of cash flows for the 2013 accounting period.
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2014?
Solution:
a. Record the events under an accounting equation
1. Performed counseling services for $18,000 cash.
Cash 18,000
Service Revenue 18,000
2. On February 1, 2013, paid $12,000 cash to rent office space for the coming year.
Prepaid Rent 12,000
Cash 12,000
3. Adjusted the accounts to reflect e amount of rent used during the year.
Rent Expense 11,000
Prepaid Rent 11,000
Asset = Owner's Equity + Liabilities
1) $18,000 (Increase) = $18,000(Increase) + No Effect
2) $12,000(Increase) = No Effect + No Effect
$12,000(Decrease)
3) $11,000(Decrease) = $11,000(Decrease) + No Effect
b. Prepare an income statement, balance sheet, and statement of cash flows for the 2013 accounting period.
Therapy Inc.
Income Statement
REVENUE
18,000
EXPENSES
11,000
7,000
CURRENT ASSET
6,000
1,000
7,000
7,000
7,000
18,000
12,000
6,000
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2014?
For the Year Ended December 31, 2013
EQUITY & LIABILITIES
Owner's Equity
TOTAL EQUITY & LIBILITIES
Cash
Service Revenue
Rent Expense
Net Income
Therapy Inc.
Balance Sheet
As at December 31, 2013
Prepaid Rent
TOTAL ASSETS
Rent is paid on Feb 01, 2013, for the coming year out of which $11,000 is recognized as an expense in the year 2013. therefore, only
1,000 is available as prepaid rent which has to be recognized as an expense in the year 2014.
Therapy Inc.
Statement of Cash Flow
For the Year Ended December 31, 2013
Cash Receipt from the customers
Net Cash Generated From Operations
Cash paid to suppliers or expenses
b. Prepare an income statement, balance sheet, and statement of cash flows for the 2013 accounting period.
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2014?
b. Prepare an income statement, balance sheet, and statement of cash flows for the 2013 accounting period.
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2014?
Rent is paid on Feb 01, 2013, for the coming year out of which $11,000 is recognized as an expense in the year 2013. therefore, only
1,000 is available as prepaid rent which has to be recognized as an expense in the year 2014.