129. List the five steps in the process by which accounting provides information to users.
130. What is the major difference between the objective of financial accounting and the objective of managerial
accounting?
131. Give the major disadvantage of disregarding the cost concept and constantly revaluing assets based on
appraisals and opinions.
132. On May 7, Carpet Barn Company offered to pay $83,000 for land that had a selling price of $105,000. On
May 15, Carpet Barn accepted a counteroffer of $95,000. On June 5, the land was assessed at a value of
$115,000 for property tax purposes. On December 10, Carpet Barn Company was offered $135,000 for the
land by another company. At what value should the land be recorded in Carpet Barn Company’s records?
133. Donner Company is selling a piece of land adjacent to their business. An appraisal reported the market
value of the land to be $120,000. The Focus Company initially offered to buy the land for $107,000. The
companies settled on a purchase price of $115,000. On the same day, another piece of land on the same block
sold for $122,000. Under the cost concept, what is the amount that will be used to record this transaction in the
accounting records?
134. Explain the meaning of the business entity concept.
135. Darnell Company purchased $88,000 of computer equipment from Joseph Company. Darnell Company
paid for the equipment using cash that had been obtained from the initial investment by Donnie Darnell.
Which entity or entities (Darnell Company, Joseph Company, Donnie Darnell) should record the transaction
involving the computer equipment on their accounting records?
136. Explain the meaning of:
(a) the objectivity concept and
(b) the unit of measure concept
137. Doug Miller is the owner and operator of Miller’s Arcade. At the end of its accounting period, December
31, 2010, Miller’s Arcade has assets of $450,000 and liabilities of $125,000. Using the accounting equation,
determine the following amounts:
a)
Owner’s Equity as of December 31, 2010.
b)
Owner’s Equity as of December 31, 2011, assuming that assets increased by $65,000 and liabilities increased by $35,000 during
2011.
a)
138. Determine the missing amount “X” for each of the following:
Assets
Liabilities
Owner’s Equity
a. $78,500
$37,600
X
b. X
$53,280
$145,000
c. $49,500
X
$34,000
139. Krammer Company has liabilities equal to one fourth of the total assets. Krammer’s owner’s equity
is $45,000. Using the accounting equation, what is the amount of liabilities for Krammer?
140. Daniels Company is owned and operated by Thomas Daniels. The following selected transactions were
completed by Daniels Company during May:
1.
Received cash from owner as additional investment $55,000.
2.
Paid creditors on account $7,000.
3.
Billed customers for services on account, $2,565.
4.
Received cash from customers on accounts $8,450.
5.
Paid cash to owner for personal use, $2,500.
6.
Received the utility bill $160, to be paid next month.
Indicate the effect of each transaction on the accounting
equation:
1)
By Account type – (A)assets, (L)liabilities, (O)owner’s (E)equity, (R)revenue, and (E)expense
2)
Name of Account for the entry
3)
The amount by of the transaction.
4)
Indicate the direction of change in the account that is affected.
Note: Each transaction has two entries.
Entry
Entry
Acct Type
(1)
Name of Acct
(2)
Amount
(3)
Increase or
Decrease
(4)
Acct Type
(1)
Name of Acct
(2)
Amount
(3)
Increase or
Decrease
(4)
1
2
3
4
5
6
Entry
Entry
1
A
Cash
55,000
Incr
Capital
55,000
Incr
2
A
Cash
7,000
Decr
L
Acct Pay
7,000
Decr
3
A
Acct Rec
2,565
Incr
R
Fees Earned
2,565
Incr
4
A
Cash
8,450
Incr
A
Acct Rec
8,450
Decr
5
A
Cash
2,500
Decr
Drawing
2,500
Incr
6
L
Acct Pay
160
Incr
E
Util Exp
160
Incr
141. Use the accounting equation to answer each of the independent questions below:
a. At the beginning of the year Norton Company assets were $75,000 and its owner’s equity was
$38,000. During the year, assets increased by $18,000 and liabilities increased by $4,000. What was the
owner’s equity at the end of the year?
b. At the beginning of the year Turpin Industries had liabilities of $44,000 and owner’s equity of $66,000. If
assets increased by $10,000 and liabilities decreased by $5,000, what was the owner’s equity at the end of the
year?
142. Collins Landscape Company purchased various landscaping supplies on account to be used for landscape
designs for their customers. How will this business transaction affect the accounting equation?
143. Bob Johnson is the sole owner of Johnson’s Carpet Cleaning Service. Bob purchased a personal
automobile for $10,000 cash plus he took out a loan for $20,000 in his name. Describe how this transaction is
related to the business entity concept.
144. Shiny Kar Company had the following transactions. For each transaction, show the effect on the
accounting equation by putting the amount and direction (plus, minus, or NC for no change) in each box of the
table below.
Assets
Liabilities
Owner’s Equity
a. Shiny Kar withdrew $500 cash for food.
b. Shiny Kar Company sold 2 cars for a total of $55,000 on account.
c. The cost of the cars sold in (b) above was $40,000.
d. Shiny Kar received $35,000 payment for a car previously sold on account.
e. Shiny Kar paid $450 for advertising.
f. Shiny Kar purchased $150 of cleaning supplies on account.
145. Ramierez Company received their first electric bill in the amount of $60 which will be paid next
month. How will this transaction affect the accounting equation?
146. Jonathan Martin is the owner and operator of Martin Consultants. At December 31, 2011, Martin
Consultants has assets of $430,000 and liabilities of $205,000. Using the accounting equation and considering
each case independently, determine the following:
a. Jonathan Martin, capital, as of December 31, 2011.
b. Jonathan Martin, capital, as of December 31, 2012, assuming that assets increased by $12,000 and liabilities
increased by $15,000 in 2012.
c. Jonathan Martin, capital, as of December 31, 2012, assuming that assets decreased by $8,000 and liabilities
increased by $14,000 during 2012.
Assets
Liabilities
a.
-$500
-$500
b.
+$55,000
+$55,000
c.
-$40,000
-$40,000
d.
-$450
-$450
$150
$150
147. Simpson Auto Body Repair purchased $20,000 of Machinery. The company paid $8,000 in cash at the
time of the purchase and signed a promissory note for the remainder to be paid in four monthly installments.
(a) How will the purchase affect the accounting equation?
(b) How will the payment of the first monthly installment affect the accounting equation?
148. On July 1 of the current year, the assets and liabilities of John Wong, DVM, are as follows: Cash, $27,000;
Accounts Receivable, $12,300; Supplies, $3,100; Land, $35,000; Accounts Payable, $13,900. What is the
amount of owner’s equity (John Wong’s capital) as of July 1 of the current year?
149. Indicate how the following transactions affect the accounting equation:
(a) The purchase of supplies on account.
(b) The purchase of supplies for cash.
(c) A withdraw by the owner to pay personal expenses.
(d) Revenues received in cash.
(e) Revenues received on account.
150. Discuss the characteristics of a LLC (Limited liability company).
151. Kim Hsu is the owner of Hsu’s Financial Services. At the end of its accounting period, December 31,
2011, Hsu’s has assets of $575,000 and owner’s equity of $335,000. Using the accounting equation and
considering each case independently, determine the following amounts.
a. Hsu’s liabilities as of December 31, 2011.
b. Hsu’s liabilities as of December 31, 2012, assuming that assets increased by $56,000 and owner’s equity
decreased by $32,000.
c. Net income or net loss during 2012, assuming that as of December 31, 2012, assets were $592,000,
liabilities were $450,000, and there were no additional investments or withdrawals.
152. a. A vacant lot acquired for $83,000 cash is sold for $127,000 in cash. What is the effect of the sale on
the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity?
b. Assume that the seller owes $52,000 on a loan for the land. After receiving the $127,000 cash in (a), the
seller pays the $52,000 owed. What is the effect of the payment on the total amount of the seller’s (1) assets,
(2) liabilities, and (3) owner’s equity?
153. Indicate whether each of the following represents an asset, liability, or owner’s equity:
(a)
accounts payable
(b)
wages expense
(c)
capital
(d)
accounts receivable
(e)
withdrawal
(f)
land
154. The Austin Land Company sold land for $85,000 in cash. The land was originally purchased for
$65,000. At the time of the sale, $40,000 was still owed to Regions Bank. After the sale, The Austin Land
Company paid off the loan. Explain the effect of the sale and the payoff of the loan on the accounting equation.
155. Given the following: Beginning capital $ 58,000
Ending capital $ 30,000
Owner’s withdrawals $ 25,000
Calculate net income or net loss.
Ending capital
$30,000
Beginning capital
58,000
Decrease in capital
$28,000
Less: Owner’s withdrawals
25,000
Net loss
$ 3,000
(a)
liability
(b)
(c)
(d)
asset
(e)
asset
156. The accountant for Franklin Company prepared the following list of account balances from the company’s
records for the year ended December 31, 2011:
Fees Earned
$165,000
Cash
$ 30,000
Accounts Receivable
14,000
Selling Expenses
44,000
Equipment
64,000
Franklin, Capital
27,000
Accounts Payable
12,000
Interest Income
3,000
Salaries & Wages Expense
40,000
Prepaid Rent
2,000
Income Taxes Payable
5,000
Income Taxes Expense
18,000
Notes Payable
20,000
Rent Expense
20,000
Determine the total assets at the end of 2011 for Franklin Company.
157. The accountant for Franklin Company prepared the following list of account balances from the company’s
records for the year ended December 31, 2011:
Fees Earned
$165,000
Cash
$ 30,000
Accounts Receivable
14,000
Selling Expenses
44,000
Equipment
64,000
Franklin, Capital
27,000
Accounts Payable
12,000
Interest Income
3,000
Salaries & Wages Expense
40,000
Prepaid Rent
2,000
Income Taxes Payable
5,000
Income Taxes Expense
18,000
Notes Payable
20,000
Rent Expense
20,000
Determine the total liabilities at the end of 2011 for Franklin Company.
$37,000
($12,000 Accounts Payable + $5,000 Income Taxes Payable + $20,000 Notes Payable = $37,000)
$110,000
($30,000 Cash + $14,000 Accounts Receivable + $64,000 Equipment + 2,000 Prepaid Rent = $110,000)
158. The accountant for Franklin Company prepared the following list of account balances from the company’s
records for the year ended December 31, 2011:
Fees Earned
$165,000
Cash
$ 30,000
Accounts Receivable
14,000
Selling Expenses
44,000
Equipment
64,000
Franklin, Capital
27,000
Accounts Payable
12,000
Interest Income
3,000
Salaries & Wages Expense
40,000
Prepaid Rent
2,000
Income Taxes Payable
5,000
Income Taxes Expense
18,000
Notes Payable
20,000
Rent Expense
20,000
Based on this information, is Franklin Company profitable? Explain your answer.
159. The assets and liabilities of Amos Moving Services at March 31, 2014, the end of the current year, and its
revenue and expenses for the year are listed below. The capital of the owner was $180,000 at April 1, 2013, the
beginning of the current year. Mr. Amos invested an additional $25,000 in the business during the year.
Accounts Payable
$2,000
Miscellaneous Expense
$1,030
Accounts Receivable
$10,340
Office Expense
$1,240
Cash
$21,420
Supplies
$1,670
Fees Earned
$73,450
Wages Expense
$23,550
Land
$47,000
Drawing
$16,570
Building
$157,630
Prepare an income statement for the current year ended March 31, 2014.
Expenses:
Wages Expense
$23,550
Office Expense
1,240
Miscellaneous Expense
1,030
Total Expenses
25,820
Net Income
$47,630
160. The assets and liabilities of Amos Moving Services at March 31, 2014, the end of the current year, and its
revenue and expenses for the year are listed below. The capital of the owner was $180,000 at April 1, 2013, the
beginning of the current year. Mr. Amos invested an additional $25,000 in the business during the year.
Accounts Payable
$2,000
Miscellaneous Expense
$1,030
Accounts Receivable
$10,340
Office Expense
$1,240
Cash
$21,420
Supplies
$1,670
Fees Earned
$73,450
Wages Expense
$23,550
Land
$47,000
Drawing
$16,570
Building
$157,630
Prepare a statement of owner’s equity for the current year ended March 31, 2014.
161. The assets and liabilities of Amos Moving Services at March 31, 2014, the end of the current year, and its
revenue and expenses for the year are listed below. The capital of the owner was $180,000 at April 1, 2013, the
beginning of the current year. Mr. Amos invested an additional $25,000 in the business during the year.
Accounts Payable
$2,000
Miscellaneous Expense
$1,030
Accounts Receivable
$10,340
Office Expense
$1,240
Cash
$21,420
Supplies
$1,670
Fees Earned
$73,450
Wages Expense
$23,550
Land
$47,000
Drawing
$16,570
Building
$157,630
Prepare a balance sheet for the current year ended March 31, 2014.
Cash
$21,420
Accounts Payable
$ 2,000
Accounts Receivable
10,340
Supplies
1,670
Land
47,000
Building
157,630
Amos, Capital
236,060
Total Assets
$238,060
Total Liabilities and Owner’s Equity
$238,060
Amos, capital, April 1, 2013
$180,000
Additional investment by owner during year
$25,000
Net Income for the year
47,630
Subtotal
$72,630
Less withdrawals
16,570
Increase in owner’s equity
56,060
Amos, capital March 31, 2014
$236,060
162. A summary of cash flows for Alex Design Services for the year ended December 31, 2012, is shown
below.
Cash receipts:
Cash received from customers
$83,990
Cash received from additional investment by owner
25,000
Cash payments:
Cash paid for expenses
$27,000
Cash paid for land
47,000
Cash paid for supplies
410
Drawing
5,000
The cash balance as of January 1, 2012
$40,600
Prepare a statement of cash flows for Alex Design Services for the year ended December 31, 2012.
Cash flows from operating activities:
Cash received from customers
$83,990
Deduct cash payments for expenses and supplies
(27,410)
Net cash flows from operating expenses
$56,580
Cash flows from investing activities:
Cash paid for land
(47,000)
Cash from financing activities:
Cash investment received from owner
25,000
Deduct cash withdrawals from owner
(5,000)
Net cash flows from financing activities
20,000
Net increase in cash during year
$ 29,580
Cash as of January 1, 2012
40,600
Cash as of December 31, 2012
$70,180
163. The total assets and the total liabilities of a business at the beginning and at the end of the year appear
below. During the year, the owner had withdrawn $55,000 for personal use and had made an additional
investment of $33,000 in the business.
Assets
Liabilities
Beginning of year
$305,000
$200,000
End of year
365,000
230,000
Calculate the net income for the year.
164. What information does the Income Statement give to business users?
165. What are the three sections of the Statement of Cash Flows?
Assets
Liabilities
Beginning of year
$ 305,000
$ 200,000
End of year
$ 365,000
$ 230,000
Change
$ 60,000
$ 30,000
166. Match the following accounts to the financial statement where they can be found. (Hint: Some of the
accounts can be found in more than one financial statement.)
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Owner’s Equity
#
Account
1.
Withdrawals
2.
Revenues
3.
Supplies
4.
Land
5.
Accounts Payable
6.
Accounts Receivable
7.
Operating Activities
8.
Wages Expense
9.
Net Income
10.
Cash
167. Name and describe the four primary financial statements for a proprietorship.
#
Answer
Account
1.
D (If Cash, also C.)
Withdrawals
2.
B
Revenues
3.
A
Supplies
4.
A
Land
5.
A
Accounts Payable
6.
A
Accounts Receivable
7.
C
Operating Activities
8.
B
Wages Expense
9.
D (if using the indirect method, also C)
Net Income
10.
A & C
Cash
168. There are four transactions that affect Owner’s equity.
(a) What are the two types of transactions that increase Owner’s equity?
(b) What are the two types of transactions that decrease Owner’s equity?
169. A summary of cash flows for Lopez Wedding Planning for the year ended December 31, 2011 is shown
below.
Cash receipts:
Cash received from customers
$57,360
Cash received from bank loan
15,000
Cash payments:
Cash paid for operating expenses
$12,120
Cash paid for equipment
18,070
Cash paid for party supplies
9,480
Drawing
12,000
The cash balance as of January 1, 2011
$15,580
Prepare a statement of cash flows for Lopez Wedding Planning for the year ended December 31, 2011.
Cash flows from operating activities:
Cash received from customers
$57,360
Net cash flows from operating expenses
$35,760
Cash flows from investing activities:
Cash paid for equipment
(18,070)
Cash from financing activities:
Cash received from bank loan
15,000
Deduct cash withdrawals from owner
(12,000)
Net cash flows from financing activities
3,000
Cash as of January 1, 2011
15,580
Cash as of December 31, 2011
$36,270
170. Explain the interrelationship between the Balance Sheet and the Statement of Cash Flows.
171. The following data were taken from Harrison Company’s balance sheet:
Dec. 31, 2012 Dec. 31, 2011
Total liabilities $150,000 $105,000
Total owner’s equity 75,000 60,000
a. Compute the ratio of liabilities to owner’s equity.
b. Has the creditors’ risk increased or decreased from December 31, 2011, to December 31, 2012?
172. Company G has a ratio of liabilities to stockholders’ equity of 0.12 and 0.28 for 2010 and 2011,
respectively. In contrast, Company M has a ratio of liabilities to stockholders’ equity of 1.13 and 1.29 for the
same period.
REQUIRED:
Based on this information, which company’s creditors are more at risk and why? Should the creditors of either
company fear the risk of nonpayment?
173. Given the following data:
Dec. 31,2014 Dec. 31,2013
Total liabilities $128,250 $120,000
Total owner’s equity 95,000 80,000
a. Compute the ratio of liabilities to owner’s equity for each year.
b. Has the creditors’ risk increased or decreased from December 31, 2013, to December 31, 2014?
174. The assets and liabilities of S&P Day Spa at December 31, 2014 and expenses for the year are listed
below. The capital of the owner was $68,000 at January 1, 2014. The owner invested an additional $10,000
during the year. Net income for 2014 is $45,625.
Accounts Payable
$4,375
Spa Operating Expense
$23,760
Accounts Receivable
$8,490
Office Expense
$2,470
Cash
$13,980
Spa Supplies
$9,230
Fees Earned
???
Wages Expense
$26,580
Spa Furniture & Equipment
$56,000
Drawing
$38,170
Computers
$2,130
Prepare an income statement for the current year ended December 31, 2014.
175. The assets and liabilities of S&P Day Spa at December 31, 2014 and its revenue and expenses for the year
are listed below. The capital of the owner is $68,000 at December 31, 2014. The owner invested an additional
$10,000 during the year.
Accounts Payable
$4,375
Spa Operating Expense
$23,760
Accounts Receivable
$8,490
Office Expense
$2,470
Cash
$13,980
Spa Supplies
$9,230
Fees Earned
$98,435
Wages Expense
$26,580
Spa Furniture & Equipment
$56,000
Drawing
$38,170
Computers
$2,130
Determine the capital of the owner at January 1, 2014 (Hint: Calculate the increase/decrease in owner’s equity first.). Prepare a statement of
owner’s equity for the current year ended December 31, 2014.
Owner capital, January 1, 2014
$68,000
Additional investment by owner during year
$10,000
Net Income for the year
45,625
Subtotal
$55,625
Less withdrawals
38,170
Increase in owner’s equity
17,455
Fees Earned
$98,435
Expenses:
Wages Expense
$26,580
Spa Operating Expense
23,760
Office Expense
2,470
Total Expenses
52,810
Net Income
$45,625
176. The assets and liabilities of S&P Day Spa at December 31, 2014 and its revenue and expenses for the year
are listed below. The capital of the owner was $68,000 at January 1, 2014. The owner invested an additional
$10,000 during the year.
Accounts Payable
$4,375
Spa Operating Expense
$23,760
Accounts Receivable
$8,490
Office Expense
$2,470
Cash
???
Spa Supplies
$9,230
Fees Earned
$98,435
Wages Expense
$26,580
Spa Furniture & Equipment
$56,000
Drawing
$38,170
Computers
$2,130
Prepare a balance sheet for the year ended December 31, 2014.
177. For each of the following companies, identify whether they are a service, merchandising, or manufacturing
business.
Cash
$13,980
Accounts Payable
$ 4,375
Accounts Receivable
8,490
Spa Supplies
9,230
Computers
2,130
Spa Furniture & Equipment
56,000
Owner Capital
85,455
Total Assets
$89,830
Total Liabilities and Owner’s Equity
$89,830