ACCT 2301 Chapter 1 Problem Shells & More

True or False: Accounting is the language of business

True

True or False: Accounting is a measurement/communication process.

True

True or False: Accounting is a mathematics course.

False.

While accounting does use mathematics, it is primarily a language, measurement, and communication course.

What is sole proprietorship?

A business owned by a single person.

What is a partnership?

A business owned by two or more people.

What is a corporation?

An entity legally separate from its owners.

What are assets?

Assets are the resources of a company

What are liabilities?

Amounts owed by a company. Often times, liabilities will end in the word "Payable"

What is stockholders' equity?

Owners' claims to resources

What are dividends?

Distributions to stockholders

What are revenues?

Sales of products or services

What are expenses?

Costs of selling products or services

On what financial statement would the following accounts be found?

Rent Expense - Cost of Rent

Interest Revenue - Interest earned on savings account

Dividends - Cash payments to stockholders

Land - Land used for operations

Accounts Payable - Amounts owed to suppliers

Rent Expense is found on the Income Statement

Interest Revenue is found on the Income Statement

Dividends are found on the statement of Stockholders' Equity

Land is found on the Balance Sheet

Accounts Payable are found on the Balance Sheet

Assets, Liabilities, and Stockholders' Equity can be found on the Balance Sheet.

Revenues and Expenses can be found on the Income Statement.

Dividends can be found on the Statement of Stockholders' Equity.

What is the purpose of the Income Statement?

This statement is used to measure the profitability of the company.

What is the purpose of the Statement of Stockholders' Equity?

This statement shows the change in the owners' claims to its resources.

What is the purpose of the Balance Sheet?

This statement shows that the company's resources equal creditors' and owners' claims to those resources.

What is the purpose of the Statement of Cash Flows?

This statement shows the change in cash as a result of operating, investing, and financing activities.

On which financial statement would you find the change in retained earnings due to net income and dividends?

This would be found on the Statement of Stockholders' Equity.

On which financial statement would you find the amount of cash received from borrowing money from a local bank?

This would be found on the Statement of Cash Flows.

On which financial statement would you find revenue from sales to customers during the year?

This would be found on the Income Statement.

On which financial statement would you find the total amounts owed to workers at the end of the year?

This would be found on the Balance Sheet.

What role does the Financial Accounting Standards Board (FASB) play in the quality of financial reporting?

FASB is the independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States.

What role does the International Accounting Standards Board play in the quality of financial reporting?

IASB is the body that is attempting to develop a single set of high-quality, understandable global accounting standards

What roles does the Securities and Exchange Commission play in the quality of financial reporting?

SEC is the group that has been given power by congress to enforce the proper application of financial reporting rules for companies whose securities are publicly traded.

What role do Auditors play in the quality of financial reporting?

Auditors are independent intermediaries that help to ensure that management appropriately applies financial reporting rules in preparing the company's financial statements.

What business activity would borrowing money from a bank be?

Financing.

When thinking of financing, remember stock and debt. Borrowing from a bank would be establish a debt, therefore the activity is financing.

What business activity would providing services to customers be?

Operating.

What business activity would issuing common stock to investors be?

Financing.

What business activity would purchasing land be?

Investing.

What business activity would paying rent for the current period be?

Operating.

What business activity would paying dividends to stockholders be?

Financing.

What business activity would purchasing a building be?

Investing.

For the following transaction and related account, indicate and classify the statement and whether it is an asset, liability, stockholders' equity, revenue, or expense. Then classify it as financing, investing, or operating.

Falcon purchases common stock of Wildcat - Investment

Balance Sheet, Asset, Investment

For the following transaction and related account, indicate and classify the statement and whether it is an asset, liability, stockholders' equity, revenue, or expense. Then classify it as financing, investing, or operating.

Falcon borrows from Wildcat by signing a note - Notes Payable

Liability, Balance Sheet, Financing

For the following transaction and related account, indicate and classify the statement and whether it is an asset, liability, stockholders' equity, revenue, or expense. Then classify it as financing, investing, or operating.

Falcon provides services to Wildcat - Service Revenue

Revenue, Income Statement, Operating

For the following transaction and related account, indicate and classify the statement and whether it is an asset, liability, stockholders' equity, revenue, or expense. Then classify it as financing, investing, or operating.

Falcon pays interest to Wildcat on borrowing - Interest Expense

Expense, Income Statement, Operating

Eagle Corp. operates Magnetic Resonance Imaging (MRI) clinics throughout the Northeast. At the end of the current period, the company reports the following amounts: Assets = $50,000; Liabilities = $27,000; Dividends = $3,000; Revenues = $14,000; Expenses = $9,000.

Calculate the net income.

Net Income = Revenues - Expenses

$14,000 - $9,000 = $5,000

Eagle Corp. operates Magnetic Resonance Imaging (MRI) clinics throughout the Northeast. At the end of the current period, the company reports the following amounts: Assets = $50,000; Liabilities = $27,000; Dividends = $3,000; Revenues = $14,000; Expenses = $9,000.

Calculate the stockholders' equity at the end of the period.

Assets = Liabilities + Stockholders' Equity

$50,000 = $27,000 + Stockholders' Equity

Stockholders' Equity = $23,000

Below are the account balances for Cowboy Law Firm at the End of December

Cash: $5,400

Salaries Expense: 2,200

Accounts Payable: 3,400

Retained Earnings: 3,900

Utilities Expense: 1,200

Supplies: 13,800

Service Revenue: 9,300

Common Stock: 6,000

Use only the appropriate accounts to prepare an income statement.

Service Revenue: $9,300

Salaries Expense: $2,200

Utilities Expense: 1,200

Total Expense: (3,400)

Net Income = $5,900

Note: The Net Income is the final total, meaning it should be DOUBLE underlined.

Note: The first in a column and final total are the only amounts that needs a $ sign.

Wolfpack Construction has the following account balances at the end of the year.

Equipment: $26,000

Accounts Payable: 3,000

Salaries Expense: 33,000

Common Stock: 11,000

Land: 18,000

Notes Payable: 20,000

Service Revenue: 39,000

Cash: 6,000

Retained Earnings: ?

Use only the appropriate accounts to prepare a balance sheet.

ASSETS

Cash: $6000

Equipment: 26000

Land: 18000

LIABILITIES

Accounts Payable: $3000

Notes Payable: 20000

Total Liabilities: 23000

STOCKHOLDERS' EQUITY

Common Stock: $11000

Retained Earnings: ?

Total Stockholders' Equity: ?

Total Assets = Total Liability & Stockholders' Equity

$50,000 = $23,000 + $11,0000 + Retained Earnings

Retained Earnings = $16,000

Total Stockholders Equity = $27,000

How are assets ordered?

In order of liquidity.

What is a current asset?

Assets that are expected to be converted to cash or used up in one year or operating cycle (whichever is longer).