Business Activities—The Source of Accounting Information 37
P2–7 A.
ASSETS
=
LIABILITIES
+
OWNERS’ EQUITY
Date
Accounts
Other
Assets
Contributed
Capital
Retained
Earnings
June 1
Cash
Contributed Capital
300
Note Payable—Dad
450
June 18
Advertising Expense
–70
Cash
June 30
Cash
Service Revenue
507
June 30
Oil and Gas Expense
Cash
June 30
Interest Expense
Note Payable—Dad
Cash
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
June 2
Equipment Rental Expense
–85
Cash
–85
June 3
Equipment Rental Expense
Cash
June 16
Cash
650
June 16
Gas and Oil Expense
–67
Cash
–67
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
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
Bank Loan Payable
3
Equipment
Cash
4
Merchandise Inventory
Cash
5
Cash
27,000
Sales Revenue
27,000
6
Cost of Goods Sold
Merchandise Inventory
7
Bank Loan Payable
Cash
8
Retained Earnings
Cash
Ending Amounts
28,900
+ 27,000
=
+
10,000
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
Cash
June 5
Cash
Sales Revenue
Cost of Goods Sold
Merchandise Inventory
June 5
Advertising Expense
Cash
June 6
Utility Expense
Cash
June 6
Equipment
15,000
Cash
June 7
Wages Expense
Cash
Ending Amounts
47,650
+ 173,000
+ 60,000
+ 80,650
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
4
Cash
Cost of Goods Sold
Merchandise Inventory
4
Commissions Expense
Cash
5
Notes Payable
1,500
Cash
1,500
6
Retained Earnings
3
Equipment
28,600
28,600
4
Notes Payable
4,900
Cash
4,900
5
Cash
65,000
Notes Payable
65,000
6
Salaries Expense
59,430
Cash
59,430
7
Maintenance Expense
11,900
Cash
11,900
8
Cash
48,600
Contributed Capital
48,600
9
Supplies Expense
3,750
3,750
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
3
Equipment
25,000
Cash
25,000
4
Merchandise Inventory
12,000
Cash
12,000
5
Cash
27,000
Sales Revenue
27,000
6
Cost of Goods Sold
10,000
Merchandise Inventory
10,000
7
Bank Loan Payable
300
Cash
300
8
Retained Earnings
800
Cash
800
Cash
135
June 16
Cash
650
Service Revenue
650
June 16
Gas and Oil Expense
67
Cash
67
June 18
Advertising Expense
70
Cash
70
June 30
Cash
507
Service Revenue
507
June 30
Gas and Oil Expense
105
Cash
105
June 30
Interest Expense
225
Cash
230
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