accounitng exe

Alpaca Corporation had revenues of $200,000 in its first year of operations. The company has not collected on $20,000 of its sales and still owes $25,000 on $70,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $15,000 in salaries. Owners invested $20,000 in the business and $20,000 was borrowed on a five-year note. The company paid $2,000 in interest that was the amount owed for the year, and paid $6,000 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40% and they paid their taxes within the fiscal year.

Compute net income for the first year for Alpaca Corporation. Solution:

Prepare a direct method cash flow statement for end of the first year for Alpaca Corporation. Solution:

Direct Method Cash Flow Statement:

Cash inflow from sales 180,000 (200,000 Revenue – 20,000 AR) Cash outflow for purchases 45,000 (70,000 Purchases – 25,000 AP) Cash outflows for salaries 15,000 Cash outflows for interest 2,000 Cash outflows for insurance 6,000 (full amount was paid for 2 year contract) Cash outflows for taxes 44,000 Operating cash flows 68,000

Investing cash flows 0

Cash inflow from owner 20,000
Cash inflow from note 20,000 Financing cash flows 40,000

Beginning cash balance 0 Ending cash balance 108,000

Revenue should not be recognized until:

A.
The earnings process is complete and collection is reasonably assured.

B.
Contracts have been signed and payment has been received.

C.
Work has been performed and customer has been billed.

D.
Collection has been made and warrantees have expired.

The recognition of which of the following expenses exemplifies the application of the matching principle?

A.
President's salary.

B.
Research and development.

C.
Cost of goods sold.

D.
Advertising.

The adjusted trial balance for China Tea Company at December 31, 2013,