Critical Thinking Case CP3-7 Will Annie Sarah Jeff

Question 1

Accrual Accounting Principles

T-Accounts

Estela Company Income Statement For the year ended December 31,2009 Revenues Service Fees Revenue 87000 Expenses Operating Expenses 61000 Supplies Expenses 2500 Loss from Theft 500 Total Expenses 64000 Net Income 23000

Question 3 - Service Fee Revenue is 87000 is because this is the amount that Julio earned during 2009. Operating Expenses is 61000 is because this is the incurred expense. Supplies Expenses is 2500 is because you subtract the supplies that was purchased for used on service jobs that was already paid which was 3200 with the determined amount of supplies on hand that is unused at the end of 2009 which is 700 and you will get 2500. The 500 is the cash amount that was stolen from the company which makes it an expense so we have to add that into expense. After you did all that calculation, you subtract the total revenue and the total expenses to get the net income to be 23000.

Estela company Balance Sheet December 31, 2009 ASSETS Current Assets Cash 29300 Accounts Receivable 52000 Supplies 700 Total Current Assets 82000 Assets Building 21000 Land 20000 Tools & Equipment 18000 Total Assets 141000 LIABILIIES Accounts Payable 39000 Unearned revenue 20000 Total Liabilities 59000 STOCKHOLDERS’ EQUITY Contributed Capital 59000 Retained Earnings 23000 Total Stockholder’s Equity 82000 Total Liabilities and Stockholders’ Equity 141000

Cash Flow Statement Operating Activities Cash received 55,000 Cash paid (22,000+3200) (25,200) Cash Stolen (500) Cash flows provided by operations 29,300 Cash flows from investing Activities Purchased Equipment (1000) Total cash used in investing activity (1000) Cash flows used in investing activities (2000) Cash Flows from financing activities Share issuance 1000 Total cash provided by financing activity 1000 Cash flows provided by financing activities 2000 Increase in cash 29,300 Beginning cash balance 0 Ending Cash Balance 29,300 _____

Question number 4 -Expenses -> Could know more -Non-current assets -> Need to know We can know their long- term investments -Short-term investments would show more assets

Question number 5 Dear Mr. Julio Estela, Based on the revised statements and the information that is unknown, we choose not to grant you a loan at this time. Your current liabilities are at $59,000 and your total net income for the year was only $23,000. Even if we knew your long and short term investments, you still owe other parties too much money to possibly be able to pay them and us at the same time. Thank you