Oregon Co. began operations on January 1, Year 1, by issuing $10,000 in common stock to the stockholders. On March 1, Year 1, Oregon received $36,000 cash in advance from a client for services and promised to perform those services for a one-year period beginning April 1, Year 1. During Year 1, services in the amount of $32,000 were provided to customers on account, and 80% of this amount was collected by year-end. During Year 1, operating expenses incurred on account were $24,000, and 60% of this amount was paid by year-end. During the year, Oregon paid $1,200 to purchase supplies. By year-end, $1,080 of the supplies had been used. Dividends to stockholders were $2,000 during the year. During Year 1, Oregon paid salaries of $28,000, and on December 31, Year 1, the company accrued
salaries of $2,800. Oregon recorded all appropriate adjusting entries at year end.Required:1) What would Oregon report for service revenue for Year 1?2) What would Oregon report for salaries expense for Year 1?3) What would Oregon report for supplies expense for Year 1?4) What would the amount be for net cash flows from operating activities for Year 1?5) What is the net income for Year 1?6) What would the balance in the retained earnings account be at December 31, Year 1?
What will be an ideal response?
1) $59,000
2) $30,800
3) $1,080
4) $18,000
5) $3,120
6) $1,120
1) Monthly revenue relating to cash received in advance = Receipt of $36,000 ÷ 12 months = $3,000 per month
Related revenue earned during Year 1 = $3,000 per month × 9 months (April through December) = $27,000
Year 1 Service revenue = Revenue earned on account of $32,000 + Revenue earned relating to cash received in advance of $27,000 = $59,000
2) Salaries expense = Salaries incurred and paid during the year of $28,000 + Accrued salaries at year-end of $2,800 = $30,800
3) Supplies expense = Supplies used during the year of $1,080
4) Net cash flows from operating activities = Cash collections on accounts receivable of $25,600 (calculated as $32,000 × 80%) + Cash received in advance of $36,000 ? Cash payment for operating expenses of $14,400 (calculated as $24,000 × 60%) ? Cash paid for supplies of $1,200 ? Salaries incurred and paid during the year of $28,000 = $18,000
5) Net income = Revenue of $59,000 (from part 1) ? Operating expenses of $24,000 ? Salaries expense of $30,800 ? Supplies expense of $1,080 = $3,120
6) Ending retained earnings = Beginning retained of $0 + Net income of $3,120 ? Dividends of $2,000 = $1,120
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