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Business Activities—The Source of Accounting Information 37
P2-7 A.
ASSETS
=
LIABILITIES
+
OWNERS' EQUITY
Date
Accounts
Cash
Other
Assets
Contributed
Capital
Retained
Earnings
June 1
Cash
750
Contributed Capital
300
Note Payable—Dad
450
June 18
Advertising Expense
–70
Cash
–70
June 30
Cash
507
Service Revenue
507
B. Randi’s Lawn-Mowing Service
Income Statement
For the Month Ended June 30
Service revenue $1,157
C. Randi’s Lawn-Mowing Service
Balance Sheet
At June 30
Assets
38 Chapter 2
D. There is no clear answer. Following are some factors to consider:
1. Was the return on her investment of money and effort satisfacto-
P2-8 A. 1. Jill contributed $5,000 to the business.
2. The company acquired $300 of supplies inventory by paying
cash.
P2-9 A. Mar. 1 Jacqueline contributed $10,000 cash to the business.
3 The company borrowed $7,000 by issuing a note payable.
P2-10 1. Owners contributed $15,000 to the business.
2. A bank loan of $6,285 was obtained.
Business Activities—The Source of Accounting Information 39
P2-11 A.
ASSETS
=
LIABILITIES
+
OWNERS' EQUITY
Date
Accounts
Cash
Other
Assets
Contributed
Capital
Retained
Earnings
1
Cash
10,000
Contributed Capital
10,000
2
Cash
30,000
B. Sand Dune Trading Company
Income Statement
For the Month Ended May 31, 2007
Sales revenue $27,000
C. Sand Dune Trading Company
Balance Sheet
At May 31, 2007
Assets
Cash $28,900
40 Chapter 2
P2-12 1. I
2. B
P2-13 Moonbeam Enterprises
Income Statement
For the Month Ended April 30, 2007
Sales revenue $26,000
Moonbeam Enterprises
Balance Sheet
At April 30, 2007
Assets
Cash $ 10,360
Business Activities—The Source of Accounting Information 41
P2-14
ASSETS =
LIABILITIES
+ OWNERS' EQUITY
Date
Accounts
Cash
Other
Assets
Contributed
Capital
Retained
Earnings
Beginning Amounts
90,000
+ 150,000
=
80,000
+
60,000
+ 100,000
June 3
Merchandise Inventory
120,000
Cash
–120,000
June 4
Retained Earnings
–25,000
P2-15 June 3 Operating
June 4 Financing
42 Chapter 2
P2-16 A. Crimson Florist
Statement of Cash Flows
For the Month Ended July 31
Operating Activities
Cash received from sales to customers $ 15,000
B. The purpose of the statement of cash flows is to allow users to de-
Business Activities—The Source of Accounting Information 43
P2-17 The College Shop
Statement of Cash Flows
For the Month Ended January 31
Operating Activities
Cash received from sales to customers $13,000
Cash paid for wages (1,200)
Financing Activities
Cash received from owners $ 9,000
B. ROA measures the amount a company earned for each dollar of total
investment.
C. Managers can make changes to produce more income by increasing
44 Chapter 2
P2-19
1
Utilities Expense
5,800
Cash
5,800
2
Cash
89,460
Sales
89,460
Cost of Goods Sold
60,000
Merchandise Inventory
60,000
P2-20
1
Cash
3,000
Contributed Capital
3,000
2
Cash
4,000
Notes Payable
4,000
3
Merchandise Inventory
3,500
Cash
3,500
Business Activities—The Source of Accounting Information 45
P2-21
June 1
Cash
750
Note Payable—Dad
450
Contributed Capital
300
June 2
Equipment Rental Expense
85
Cash
85
June 3
Equipment Rental Expense
135
P2-22
1
Cash
10,000
Contributed Capital
10,000
2
Cash
30,000
Bank Loan Payable
30,000
46 Chapter 2
P2-24 1. b
CASES
C2-1 It is unlikely that Frank gets much information from his current account-
ing system. Since his personal finances are commingled with his busi-
Frank should be able to obtain information about his company’s assets,
liabilities, owners’ equity, revenues, and expenses from a new accounting
The accounting system could be improved by (a) establishing a separate
checking account for the business; (b) establishing a ledger to keep ac-
Business Activities—The Source of Accounting Information 47
The following accounts would be useful:
Account Name
Account Type
Cash
Hot Dogs
Canned Soda
asset
asset
asset
*As you will learn in Chapter 3, this usually is referred to as
Depreciation Expense.
Separate accounts by location would be useful for Carts, Sales
C2-2 The following questions are examples of key decisions needing to be
made at each stage of the transformation process.
Financing decisions:
Investing decisions:
• What building and equipment resources are needed?
Operating decisions:
48 Chapter 2
• What employees need to be hired, how should they be trained, and
what specific tasks should they be assigned to do?
• What will be the cost of adding new employees?
Business Activities—The Source of Accounting Information 49
P2-23
Cost of
Investment Retained Goods
Date Cash Inventory Supplies Equipment Notes Payable by Owners Earnings Sales Sold
9/30/2007 $ 4,238.72 $235,892.35 $2,343.28 $43,297.00 $123,452.88 $100,000.00 $62,318.47 $ — $ —
Balance Sheet Income Statement
Assets Liabilities & Equity Revenues
Cash $ 42,485.22 Notes Payable $123,452.88 Sales $38,246.50
