Question

Cordell Inc. experienced the following events in 2018, its first year of operation:

Received $47,000 cash from the issue of common stock.
Performed services on account for $75,000.
Paid a $4,700 cash dividend to the stockholders.
Collected $53,000 of the accounts receivable.
Paid $47,000 cash for other operating expenses.
Performed services for $17,000 cash.
Recognized $1,700 of accrued utilities expense at the end of the year.

Required:
a. Identify the events that result in revenue or expense recognition and those which affect the statement of cash flows. In the Statement of Cash Flows column, use OA to designate operating activity, FA for financing activity, IA for investing activity and NA to indicate the element is not affected by the event.

Answer 1

To recognize revenue and expenses and classify cash flow activities for Cordell Inc., services performed on account and for cash lead to revenue recognition, and accrued utilities are an expense. Cash received from stock, dividends paid, money collected from receivables, and operating expenses paid are classified as operating or financing activities in the cash flow statement. An example calculation also demonstrates how accounting profit is determined for another firm.

Step-by-step explanation:

The question given relates to the identification of various accounting events that either affect the recognition of revenue and expenses or impact the statement of cash flows, and categorizing them according to the type of activity they represent in the Statement of Cash Flows.

Recognition of Revenue and Expenses

• Performed services on account for $75,000 (Revenue Recognition)
• Recognized $1,700 of accrued utilities expense at the end of the year (Expense Recognition)
• Performed services for $17,000 cash (Revenue Recognition)

Statement of Cash Flows Categories

• Received $47,000 cash from the issue of common stock (FA - Financing Activity)
• Paid a $4,700 cash dividend to the stockholders (FA - Financing Activity)
• Collected $53,000 of the accounts receivable (OA - Operating Activity)
• Paid $47,000 cash for other operating expenses (OA - Operating Activity)
• Performed services for $17,000 cash (OA - Operating Activity)
• Recognized $1,700 of accrued utilities expense at the end of the year (NA - Not affecting cash flow as it is an accrual)

Now, let's examine an accounting profit example provided in the scenario of another firm. This firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital, and $200,000 on materials. The accounting profit is calculated by subtracting the explicit costs (labor, capital, and materials) from the revenues, which in this case is $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.