Chapter 1 – Introduction to Accounting and Business
Cash
Accounts receivable
Spa supplies
Computers
Spa furniture & equipment
Total assets
Accounts payable
Stockholders’ equity
LEARNING OBJECTIVES:
167. The assets and liabilities of Rocky’s Day Spa at December 31 and expenses for the year are listed below. The
stockholders’ equity was $68,000 ($48,000 in Common Stock and $20,000 in Retained Earnings) at January 1. The
shareholders invested in an additional $10,000 of common stock during the year. Net income for the year 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
98,435
Wages expense
26,580
Spa furniture & equipment
56,000
Dividends
38,170
Computers
2,130
Prepare a statement of retained earnings for Rocky’s Day Spa for the current year ended December 31.
Retained earnings, January 1
Dividends
Change in retained earnings
Retained earnings, December 31
Chapter 1 – Introduction to Accounting and Business
168. Explain the interrelationship between the balance sheet and the statement of cash flows.
169. From the following list of items taken from Lamar’s accounting records, identify those that would appear on the
income statement.
(a)
Rent expense
(b)
Land
(c)
Common stock
(d)
Fees earned
(e)
Dividends
(f)
Wages expense
(g)
Investment
(a), (d), (f)
170. Identify which of the following accounts would appear on a balance sheet.
(a)
Cash
(b)
Fees earned
(c)
Common stock
(d)
Wages payable
(e)
Rent expense
(f)
Supplies
(g)
Land
(a), (c), (d), (f), (g)
Chapter 1 – Introduction to Accounting and Business
171. Indicate whether each of the following activities would be reported on the statement of cash flows as an operating
activity, an investing activity, a financing activity, or does not appear on the cash flow statement.
(a)
Cash paid for building
(b)
Cash paid to suppliers
(c)
Cash paid for dividends
(d)
Cash received from customers
(e)
Cash received from the sale of common stock
(f)
Cash received from the sale of a building
(g)
Borrowed cash from a bank
(a)
Investing
(b)
Operating
(c)
Financing
(d)
Operating
(e)
Financing
(f)
Investing
(g)
Financing
172. For each of the following, determine the amount of net income or net loss for the year.
(a)
Revenues for the year totaled $71,300 and expenses totaled $35,500. The shareholders
purchased $15,000 of common stock during the year.
(b)
Revenues for the year totaled $220,500 and expenses totaled $175,000. The shareholders
were paid $40,000 dividends during the year.
(c)
Revenues for the year totaled $149,000 and expenses totaled $172,000. The shareholders
purchased $12,000 of common stock and were paid $16,000 in dividends during the year.
(d)
Revenues for the year totaled $198,150 and expenses totaled $174,200. The shareholders
were paid $35,000 dividends during the year.
(a)
$35,800 net income ($71,300 − $35,500)
(b)
$45,500 net income ($220,500 − $175,000)
(c)
$23,000 net loss ($149,000 − $172,000)
(d)
$23,950 net income ($198,150 − $174,200)
Chapter 1 – Introduction to Accounting and Business
173. The total assets and total liabilities of Paul’s Pools and Palaces at the beginning and at the end of the current fiscal
year are as follows:
Jan. 1
Dec. 31
Total assets
$280,000
$475,000
Total liabilities
205,000
130,000
(a)
Determine the amount of net income earned during the year. The owner did not invest
any additional assets in the business during the year and made no withdrawals.
(b)
Determine the amount of net income during the year. The assets and liabilities at the
beginning and at the end of the year are unchanged from the amounts presented
above. However, the shareholders were paid $53,000 in cash dividends during the
year (no additional purchase of common stock).
(c)
Determine the amount of net income earned during the year. The assets and liabilities
at the beginning and at the end of the year are unchanged from the amounts presented
above. However, the shareholders paid for $35,000 of common stock in June of the
current fiscal year (no dividends).
(d)
Determine the amount of net income earned during the year. The assets and liabilities
at the beginning and at the end of the year are unchanged from the amounts presented
above. However, the shareholders paid for $12,000 of common stock in August of the
current fiscal year and were paid twelve monthly cash dividends of $1,500 each during
the year.
(a)
Stockholders’ equity at end of year ($475,000 −
$205,000)
(b)
Increase in stockholders’ equity as in (a)
Add dividends
(c)
Increase in stockholders’ equity as in (a)
Deduct sale of common stock
(d)
Increase in stockholders’ equity as in (a)
Add dividends ($1,500 × 12)
Deduct sale of common stock
Chapter 1 – Introduction to Accounting and Business
174. Selected transaction data of a business for September are summarized below. Determine the following amounts for
September: (a) total revenue, (b) total expenses, (c) net income.
Service sales charged to customers on account during September
$33,000
Cash received from cash customers for services performed in September
28,000
Cash received from customers on account during September:
Services performed and charged to customers prior to September
13,000
Services performed and charged to customers during September
18,000
Expenses incurred prior to September and paid during September
6,500
Expenses incurred and paid in September
36,250
Expenses incurred in September but not paid in September
5,000
Expenses for supplies used and insurance (not included above)
applicable to September
2,000
(a)
$61,000 ($33,000 + $28,000)
(b)
$43,250 ($36,250 + $5,000 + $2,000)
(c)
$17,750 ($61,000 − $43,250)
175. On March 1, the amount of retained earnings in Richard’s Catering Company was $150,000. During March,
stockholders were paid $31,000 in dividends from the business. The amounts of the various assets, liabilities, revenues,
and expenses are as follows:
Accounts payable
$10,250
Accounts receivable
45,950
Cash
23,840
Fees earned
64,950
Insurance expense
1,275
Land
88,400
Miscellaneous expense
1,210
Rent expense
9,000
Salary expense
20,300
Supplies
900
Supplies expense
525
Utilities expense
2,800
Present, in good form, (a) an income statement for March, (b) a statement of retained earnings for March, and (c) a
balance sheet as of March 31.
Chapter 1 – Introduction to Accounting and Business
Chapter 1 – Introduction to Accounting and Business
176. Using the following accounts and their amounts, prepare in good format an income statement for Bright Futures
Company for the month ended August 31.
Telephone expense
$ 1,150
Cash
3,000
Accounts payable
1,540
Dividends
800
Fees earned
15,700
Rent expense
1,400
Supplies
140
Accounts receivable
1,500
Computer equipment
17,600
Stockholders’ equity (August 1)
14,320
Wages expense
4,800
Utilities expense
750
Office expense
420
Fees earned
Expenses:
LEARNING OBJECTIVES:
Chapter 1 – Introduction to Accounting and Business
177. Using the following accounts and their amounts, prepare in good format a statement of retained earnings for Bright
Futures Company for the month ended August 31.
Telephone expense
$ 1,150
Cash
3,000
Accounts payable
1,540
Dividends
800
Fees earned
15,700
Rent expense
1,400
Supplies
140
Accounts receivable
1,500
Computer equipment
17,600
Retained earnings (August 1)
14,320
Wages expense
4,800
Utilities expense
750
Office expense
420
Retained earnings, August 1
Dividends
(800)
Change in retained earnings
Retained earnings, August 31
LEARNING OBJECTIVES:
178. Using the following accounts and their amounts, prepare in good format a balance sheet for Bright Futures Company
for the month ended August 31.
Telephone expense
$ 1,150
Cash
3,000
Accounts payable
1,540
Dividends
800
Fees earned
15,700
Rent expense
1,400
Supplies
140
Accounts receivable
1,500
Computer equipment
17,600
Stockholders’ equity (August 1)
14,320
Wages expense
4,800
Utilities expense
750
Office expense
420
Chapter 1 – Introduction to Accounting and Business
Cash
Accounts receivable
Supplies
Computer equipment
Total assets
Accounts payable
Stockholders’ equity
LEARNING OBJECTIVES:
179. The account balances of Awesome Travel Services at December 31 are listed below. There were no additional
investments or withdrawals by J. Trendsetter during the year.
Accounts payable
$12,000
Retained earnings (Jan. 1)
$6,000
Accounts receivable
14,000
Supplies
1,000
Cash
18,000
Income taxes expense
1,300
Common stock
4,000
Utilities expense
8,000
Computer equipment
21,000
Wages expense
25,000
Fees earned
78,000
Supplies expense
1.700
Rent expense
10,000
Prepare an income statement, retained earnings statement, and a balance sheet as of December 31.
Chapter 1 – Introduction to Accounting and Business
Chapter 1 – Introduction to Accounting and Business
180. Given the following data:
Dec. 31, Year 2 Dec. 31, Year 1
Total liabilities $128,250 $120,000
Total stockholders’ equity 95,000 80,000
Compute the ratio of liabilities to stockholders’ equity for each year. Round to two decimal places.
a.
1.50 and 1.07, respectively
b.
1.35 and 1.50, respectively
c.
1.07 and 1.19, respectively
d.
1.19 and 1.35, respectively
181. Schultz Tax Services, a tax preparation business, had the following transactions during the month of June:
1. Received cash for providing accounting services, $3,000
2. Billed customers on account for providing services, $7,000
3. Paid advertising expense, $800
4. Received cash from customers on account, $3,800
5. Paid shareholder dividends, $1,500
6. Received telephone bill, $220
7. Paid telephone bill, $220
Based on the information given above, calculate the balance of cash at June 30. Use the following format.
Cash, June 1 $25,000
Plus cash receipts for June ____________
Minus cash payments for June ____________
Cash, June 30 ____________
Chapter 1 – Introduction to Accounting and Business
182. Given the following data:
Dec. 31, Year 2 Dec. 31, Year 1
Total liabilities $128,250 $120,000
Total stockholders’ equity 95,000 80,000
(a) Compute the ratio of liabilities to stockholders’ equity for each year. Round your answer to two decimal places.
(b) Has the creditors’ risk increased or decreased from December 31, Year 1, to December 31, Year 2?
183. Company G has a ratio of liabilities to stockholders’ equity of 0.12 and 0.28 for Year 1 and Year 2, 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?
Chapter 1 – Introduction to Accounting and Business
184. The following data were taken from Miller Company’s balance sheet:
Dec. 31, Year 2 Dec. 31, Year 1
Total liabilities $150,000 $105,000
Total stockholders’ equity 75,000 60,000
(a) Compute the ratio of liabilities to stockholders’ equity. Round your answer to one decimal place.
(b) Has the creditors’ risk increased or decreased from December 31, Year 1, to December 31, Year 2?
185. A tax preparation firm
186. A law firm
187. A health club and spa
188. An automobile dealer
189. A book publisher
190. A hospital
Chapter 1 – Introduction to Accounting and Business
191. A supermarket
192. A modular homebuilder
193. A men’s clothing store
194. A dressmaking company
Match the following characteristics with the form of business entity that best describes it. Each may be used more than
once.
a.
Proprietorship
b.
Partnership
c.
Corporation
d.
Limited liability company (LLC)
DIFFICULTY:
Easy
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.01-02 – LO: 01–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.03 – Business Forms
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
195. Comprises 70% of business entities in the United States
196. Generates 90% of business revenues
197. Owned by two or more individuals
198. Organized as a separate legal taxable entity
199. Easy and cheap to organize
200. Often used as an alternative to a partnership
Chapter 1 – Introduction to Accounting and Business
201. Used by large businesses
202. Has the ability to obtain large amounts of resources
203. Offers tax and legal liability advantages for owners
Match each transaction with its effect on the accounting equation. Each letter may be used more than once.
a.
Increase assets, increase liabilities
b.
Increase liabilities, decrease stockholders’ equity
c.
Increase assets, increase stockholders’ equity
d.
No effect
e.
Decrease assets, decrease liabilities
f.
Decrease assets, decrease stockholders’ equity
DIFFICULTY:
Moderate
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.01-04 – LO: 01–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
204. Received cash for services provided
205. Received utility bill to be paid next month
206. Contribution of land by stockholder
207. Paid part of an amount owed to a creditor
208. Paid cash for the purchase of supplies
209. Received payment from a customer on account
210. Payment of dividends
211. Provided a service to a customer on account
Chapter 1 – Introduction to Accounting and Business
212. Purchased supplies on credit
213. Paid wages
214. Payment for common stock by stockholder
215. Borrowed money from a bank
216. Purchased equipment for cash
217. Received cash for providing services to customers
218. Used up supplies that were already on hand
Match each of the following characteristics with the financial statement it describes. Each financial statement may be
used more than once.
a.
Income statement
b.
Balance sheet
c.
Statement of retained earnings
d.
Statement of cash flows
DIFFICULTY:
Easy
Bloom’s: Remembering
LEARNING OBJECTIVES:
FNMN.WARD.17.01-05 – LO: 01–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.09 – Financial Statements
ACCT.ACBSP.APC.24 – Statement of Cash Flows
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
219. Reports as of a specific date
220. The first statement prepared
221. Has three sections: operating, investing and financing
Chapter 1 – Introduction to Accounting and Business
222. Reports only revenues and expenses
223. The second statement prepared
224. A formal presentation of the accounting equation
225. The connecting link between the income statement and balance sheet