Question

Hector Company's December 31, Year 1 balance sheet showed $900 cash, $600 supplies, $500 accounts payable, $400 common stock, and $600 retained earnings. The company experienced the following events during year 2.

(1) Purchased $1,200 of supplies on account.
(2) Earned $1,800 cash revenue.
(3) Paid $1,100 cash to reduce accounts payable created in Event 1 above.
(4) Physical count revealed $200 of supplies on hand at the end of Year 2.
Based on this information, the company would report
a-All of the answers are correct.
b-a $600 balance in the accounts payable account on the Year 2 balance sheet.
c-a $700 net cash inflow from operating activities on the Year 2 statement of cash flows.
d-a $1,600 supplies expense on the Year 2 income statement.

Answer 1

After analyzing Hector Company's financial events for Year 2, it is evident that the company has a $600 balance in accounts payable, a $700 net cash inflow from operating activities, and a $1,600 supplies expense, making 'All of the answers are correct' the accurate response.

Step-by-step explanation:

To determine the correct answer from the given options for Hector Company's activities during Year 2, we need to review each event and understand its impact on the financial statements.

The company started with $500 in accounts payable, which increased by $1,200 after purchasing supplies on account (Event 1). After paying $1,100 towards this balance (Event 3), the ending accounts payable would be $600 ($500 + $1,200 - $1,100).

Since the company earned $1,800 cash revenue (Event 2) and paid $1,100 to reduce accounts payable (Event 3), the net cash inflow from operating activities is $700 ($1,800 - $1,100), assuming no other operating cash flows occurred.

For the supplies, Hector Company started with $600 (from the Year 1 balance sheet), purchased an additional $1,200 (Event 1), and ended with $200 on hand (Event 4). Thus, the supplies expense for the year would be the starting supplies plus purchases minus ending supplies on hand ($600 + $1,200 - $200), which totals $1,600.

Given these calculations, the correct answer is 'All of the answers are correct' as option (a).