ACG-2021 Lecture Notes - Lecture 2: W. M. Keck Observatory, Vehicle Insurance, Retained Earnings

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13 Sep 2016
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CHAPTER 1 - HOMEWORK PROBLEMS
Multiple-Choice Questions
1. What type of activities relate to what the firm is in business to do?
a. Investing activities
b. Operating activities
c. Financing activities
d. Protection activities
2. Which financial statement is similar to the accounting equation?
a. The income statement
b. The balance sheet
c. The statement of changes in shareholders’ equity
d. The statement of cash flows
3. The Pets Plus Superstore, Inc., acquires 50 doggie beds from a supplier for $500 in cash. What is the give
portion of this transaction?
a. Pets Plus giving the doggie beds to customers in return for cash
b. The supplier giving the doggie beds to Pets Plus
c. Pets Plus giving $500 in cash to the supplier
d. The supplier giving $500 to Pets Plus
4. The two parts of shareholders’ equity are
a. assets and liabilities.
b. net income and common stock.
c. contributed capital and retained earnings.
d. revenues and expenses.
5. Which financial statement is a snapshot of the financial position of a company at a specific point in time?
a. Income statement
b. Balance sheet
c. Statement of changes in shareholders’ equity
d. Statement of cash flows
6. Online Pharmacy Company borrowed $5,000 cash from the National Bank. As a result of this transaction,
a. assets would decrease by $5,000.
b. liabilities would increase by $5,000.
c. equity would increase by $5,000.
d. revenue would increase by $5,000.
7. Accounting information is
a. useful in profitable businesses only.
b. considered the most important part of a company’s information system by all managers.
c. an integral part of business.
d. used only by CPAs.
8. During its first year of business, West Company earned service revenues of $2,000. If the company
collected $700 related to those sales, how much revenue would be shown on West’s income statement for the
year?
a. $2,000
b. $700
c. $1,300
d. Cannot be determined with the given information
9. Interest is the cost of
a. purchasing inventory.
b. making a sale.
c. being in business.
d. using someone else’s money.
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10. The balance sheet of United Studios at December 31 showed assets of $30,000 and shareholders’ equity
of $20,000. What were the liabilities at December 31?
a. $30,000
b. $10,000
c. $20,000
d. $50,000
Short Exercises
SE1-1A. Classify business transactions. For each of the following cash transactions, identify whether it is
better described as an operating, financing, or investing activity.
1. An entrepreneur contributes his own money to start a new business.
2. The business buys a machine.
3. The business purchases inventory.
4. The business sells inventory to customers.
5. The business repays a loan.
SE1-2A. Identify balance sheet items. Classify the items listed (1 to 6) under the following balance sheet
headings:
A - Assets
L - Liabilities
SE - Shareholders’ equity
1. Cash
2. Common stock
3. Equipment
4. Notes payable
5. Retained earnings
6. Accounts receivable
SE1-3A. Calculate owners’ equity. Doughnut Company shows $130,000 worth of assets on its December 31,
2009, balance sheet. If the company’s total liabilities are $55,800, what is the amount of owners’ equity?
SE1-4A. Calculate liability. Given the following items on Tiffany Restoration Company’s June 30, 2009,
balance sheet, how much did the company owe its creditors on June 30, 2009?
Cash $ 1,725 Liabilities ???
Inventory 205
Equipment 10,636 Common stock $7,600
Other assets 8,135 Retained earnings 7,450
Total $20,701
SE1-5A. Income statement analysis. . For each of the following, calculate the missing amount:
1. Revenues $560; Expenses $300; Net Income _
2. Net Income $700; Expenses $485; Revenues _
3. Expenses $600; Revenues $940; Net Income _
4. Revenues $1,240; Net Income $670; Expenses _
5. Net Income $6,450; Expenses $3,500; Revenues _
SE1-6A. Calculate owners’ equity. Pasta Enterprises has $42,000 in cash, $20,000 in inventory, $17,000
balance due to creditors, and $21,000 balance due from customers. What is the amount of owners’ equity?
SE1-7A. Calculate retained earnings. Super Shop had a retained earnings balance of $1,000 on December
31, 2010. Foryear 2011, sales were $14,000 and expenses were $7,500. Cash dividends of $1,000 were
declared and distributed on December 31, 2011. What was the amount of retained earnings on December 31,
2011?
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Exercises
E1-16A. Analyze business transactions using the accounting equation. John Weiss recently started a lawn
care service named “The Grass Is Always Greener, Inc.” The following transactions occurred during the
company’s first month of business. Enter each of the following transactions into the accounting equation and
identify an increase or decrease to assets, liabilities, shareholder’s equity, revenues, or expenses.
1. John contributed $16,500 of personal savings in exchange for common stock to start the business.
2. The company purchased $7,500 of inventory (plants and shrubs) from a gardening wholesaler in Kansas.
3. The company purchased three riding lawn mowers at a cost of $5,000 each.
4. The company paid rent expense of $500 the first month.
5. The company earned service revenue of $9,000 and sold the entire $7,500 of inventory it had purchased to
customers for $13,250 cash.
All the transactions were for cash.
E1-17A. Classify business transactions. For each of the transactions in E1-16A, tell whether the transaction
was an operating, investing, or financing activity.
E1-19A. Analyze business transactions using the accounting equation. Enter each transaction below into the
accounting equation. Then, calculate (1) the amount of assets owned by Tommy’s Irish Pub, Inc., at the end of
its first month of business, and
(2) the amount of net income for the month. All these transactions took place during the first 30 days of
business.
1. Tommy started the pub by contributing $17,000 in exchange for common stock, and the business borrowed
$12,750 from the bank.
2. The pub purchased $4,000 worth of beer and other items (its inventory) with cash.
3. The pub hired a bartender to assist Tommy and help run the new company. For this service, the pub paid
$100 each day for 30 days.
4. The pub was popular with the local college and sold half of its inventory for total cash revenues of $8,500.
5. The pub paid rent expense of $725 the first month.
6. The pub repaid $1,500 of the bank loan along with $50 of interest for the first month.
E1-20A. Classify business transactions. Classify each of the transactions in E1-19A as an operating,
investing, or financing activity.
E1-22A. Classify cash flows. Classify each transaction as an operating, investing, or financing activity.
Assume all transactionsare for cash.
1. Jackie Benefield makes a contribution of $95,000 to start the Horse Trails & Stables from her personal
funds in exchange for common stock.
2. The company purchases three horses and some equipment for $25,000 in cash.
3. The company purchases $5,000 worth of advertising with the local newspaper.
4. The company pays rent of $15,000 for barn and pasture space as well as use of 50 acres of land for riding
trails.
5. The company hires several people to clean stables at a cost of $600 for the month.
6. The first customers pay Horse Trails & Stables $4,225 for six months’ worth of riding lessons.
E1-23A. Analyze business transactions using the accounting equation. Enter each transaction into the
accounting equation and identify its increase or decrease to assets, liabilities, shareholder’s equity, revenues,
or expenses of Green Trees & Lawn Corp.
1. Green Trees & Lawn earned and collected the cash for $15,000 in service revenues.
2. The business paid $2,000 cash for supplies.
3. Green Trees & Lawn paid $1,500 of a $4,000 note payable to creditors.
4. The company paid $1,100 for rent expense.
5. The company’s owner provided $7,500 in additional financing in exchange for common stock.
6. The business declared and paid $2,100 in dividends.
7. Green Trees & Lawn loaned $2,225 cash to another company.
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