Accounting

Accounting

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I just started Accounting 220 and I am looking for tutor to help me through the semester. Below you will find the Homework for week 1. Thanks

Chapter 1

Professor Pacioli was recently asked the following five questions by his aspiring accounting students. Prepare a summary of the professor’s reply to each question.

(a) Professor, I cannot quite put my finger on it, but your name has a familiar ring to it . . .why is that?

(b) Professor, I have no interest in being a bookkeeper. Why should I study accounting?

(c) Professor, I am not sure I understand why there is a distinction between financial and managerial accounting. If you are accounting for one business, how can there possibly be two separate approaches?

(d) Professor, haven’t computers and modern information systems made accountants obsolete?

(e) Professor, I am interested in becoming a CPA. What do I need to do, apply to the FASB?

2. Determine whether each of the following items is an: Asset Liability Revenue Expense Owners’ equity Other

(a) Cash

(b) Dividend to shareholders

(d) Accounts payable

(e) Capital stock

(f ) Notes payable

(g) Accounts receivable

(h) Salaries

(i) Rent

(j) Cost of utilities used

(k) Customer order not yet filled

(l) The value of completed services provided to customers

(m) Obligation to pay for utilities consumed

3. Indicate the impact (increase/decrease/no change) for each of the following transactions on total assets, liabilities, and owners’ equity.

(a) Paid the current month’s rent.

(b) Provided services to customers for cash.

(d) Recorded receipt of an electric bill to be paid next month.

(e) Paid an electric bill received in a prior month.

(f ) Purchased land for cash.

(g) Purchased equipment in exchange for a note payable (loan).

(h) Collected a previously recorded account receivable.

(i) Purchased a building by paying 20% in cash and agreeing to

pay the remainder over future years.

(j) Declared and paid a dividend to shareholders.

4. Goudar Bloodcare is a blood donation center where eligible donors give a pint of blood about once every other month. Assess each of the following to decide if Goudar should record the item as an asset, a liability, a revenue, or expense.

(a) The monthly fee paid to maintain Goudar’s website.

(b) Needles, bags, plastic bandages, etc. that were used to collect blood.

(d) Amounts received from hospitals to pay for the blood products.

(e) A loan that is owed to a bank.

(f ) The building and equipment that serves as the home office for Goudar.

(g) Amounts owed to a printing company that prepared T-shirts that were given away at a recent

blood drive campaign.

(h) The salaries of employees of Goudar.

5. Magee Corporation provided the following summary balance sheet information:

Dec. 31, 20X1 Dec. 31, 20X2

Total assets $1,500,000 $2,300,000

Total liabilities 700,000 1,400,000

Compute net income for the year ending December 31, 20X2, under each of the following independent scenarios:

(a) Magee paid no dividends, and no additional capital was raised via share issuances.

(b) Magee paid $100,000 in dividends, and no additional capital was raised via share issuances.

(d) Magee paid $100,000 in dividends, and raised $250,000 via issuances of additional shares of stock.

6.CUE Corporation was formed at the beginning of 20X2, and presents the following incomplete financial statements for three years. CUE has requested your help in completing the missing values for each year.

Begin by solving the unknowns in the 20X2 year, and work forward to subsequent years. Remember that

20X2 is the first year of business, so Cue begins with a zero balance in 20X2 beginning retained earnings.

7. Think very broadly about accounting, its societal role, and its underlying premises, then provide a general answer to each of the following.

(a) What is the role of accounting in society?

(b) Is accounting complete? Does it provide all of the information that investors and creditors need

for rationale decision making?

(c) Consider an intrinsic principle of accounting, such as the historical cost principle. Are the underlying principles and assumptions of accounting immutable truths, or is there some degree of arbitrariness that is apt to evolve over time?

8. As you study accounting, you will become increasingly familiar with a variety of generally accepted accounting principles. Already, you are beginning to appreciate some of the fundamental principles, rules, and procedures. Evaluate the following ten comments, and state whether you agree or disagree:

(a) The fundamental accounting equation precludes a situation where liabilities exceed assets.

(b) A complete set of financial statements would include a cash flow statement.

(d) The form of dating each financial statement is identical.

(e) Many assets are reported at their historical cost.

(f ) Revenue should not be recognized before it is collected.

(g) The term income is synonymous with the term revenue.

(h) Dividends are reported as an expense on the income statement.

(i) Retained earnings will equal cash on hand.

(j) Issuing stock does not increase a company’s revenue or income.

9. Review the following facts for four separate companies. Identify the two companies that lost money during the year, explaining how you reached your conclusion for each.

COMPANY A Ending retained earnings was less than beginning retained earnings and dividends were twice as much as income during the year.

COMPANY B Ending retained earnings was more than beginning retained earnings, but the company issued stock in an amount greater than the increase in retained earnings; no dividends were declared or paid.

COMPANY C No stock was issued and no dividends were declared or paid; total liabilities went up more than total assets.

COMPANY D Expenses exceeded revenues, but the company issued additional shares of stock in an amount that exceeded the difference between revenues and expenses.

Involved

I-01.03;

Prepare Bisceglia’s income statement, statement of retained earnings, and balance sheet for the year ending December 31, 20X5. The following information is all that is available. Be sure to prepare proper headings and dates on each financial statement.

Capital stock $41,000

Rent expense $10,000

Wage expense 37,000

Accounts payable 4,000

Revenue 90,000

Equipment 80,000

Cash 9,000

Dividends 5,000

Utilities expense 6,000

Accounts receivable 19,000

Beginning retained earnings 11,000

Notes payable 20,000

I-01.05

Bingo Corporation is a newly formed company. Below are the first 10 transactions that Bingo encountered. Prepare an income statement, statement of retained earnings, and balance sheet immediately following each of these consecutive transactions.

(1) Issued capital stock for $50,000 cash.

(2) Purchased building for $120,000, making a $20,000 down payment and signing a promissory

note payable for the balance.

(3) Paid wages expense of $5,000.

(4) Provided services to customers for $15,000 cash.

(5) Paid utilities expense of $2,000.

(6) Reduced note payable with an $8,000 cash payment (ignore interest costs).

(7) Provided services to customers on account, $10,000.

(8) Incurred wages expense of $3,000, to be paid in the future.

(9) Collected $4,000 on an outstanding account receivable.

(10) Declared and paid dividend of $6,000.

Chapter 2

Perhaps you have watched the game show known as “Jeopardy.” Contestants must prepare a question that is answered by a given prompt. It is your turn to play “Jeopardy” and your category is “tools of accounting.” For instance, if your prompt was “book of original entry,” you would reply: “What is the general journal?” And remember, the prompts get harder as you go. Don’t forget to answer in the form of a question!

(a) Debits must equal these

(b) Used to increase expense accounts

(d) Not a financial statement, showing balance

(e) The offspring of a control account

(f ) A “scratch pad” for accountants

Review the following list of accounts, and indicate the debit/credit rules for the account, as well as the account’s normal balance. The first one is done as an example.

Increased with a: Decreased with a: Normal Balance:

(A) Cash Debit Credit Debit Debit Debit Credit

(b) Capital Stock

(d) Revenues

(e) Rent Expense

(f ) Equipment

(g) Dividends

(h) Utilities Expense

(i) Accounts Receivable

(j) Loan Payable

Mo Lambert formed a corporation to provide concrete construction work. His jobs typically involve building parking lots, drives, and foundations. Mo provided the following information about transactions occurring during the first month of operation. Evaluate the transactions and prepare journal entries for this activity.

Jan. 2, 20X5 Mo Lambert invested $10,000 cash in the capital stock of the newly formed corporation.

Jan. 4, 20X5 Purchased equipment on account for $7,500.

Jan. 12, 20X5 Proceeds received from customers for services provided

Jan. 15, 20X5 Received a bill for construction supplies used in the amount of $2,000.

Jan. 18, 20X5 Provided $3,200 of services on account.

Jan. 20, 20X5 Paid employees $2,300 for wages earned.

Jan. 22, 20X5 Collected 60% of the amount due for the work provided on January 18.

Jan. 23, 20X5 Paid 40% of the amount due on the equipment purchased on January 4.

Jan. 25, 20X5 Purchased (and immediately used) construction supplies for cash in the amount of $600.

Jan. 31, 20X5 The company paid Mo Lambert a $1,500 dividend.

Yorkston Corporation was formed in 1961. The company came into existence concurrent with the beginning of construction of super highways throughout the country. It seems the company’s founders had innovated a unique process of applying high-gloss luminescent paint to street signs, and these were in high demand for the new high-speed roadways.

The company has gone on to develop a full line of highway safety products. Yorkston is now in the process of building a company museum. Someone has dug up the first page from the company’s original general journal. This page will be on display in the museum. When you examine this page, you will note that the bookkeeper simply recorded the debits and credits, but included no descriptions.

Your job is to review the journal page and write a description for each transaction. These descriptions will

be included on an explanatory diagram included in the display case. The diagram should also include some information that would allow a museum visitor to know what the document is and what it was used for.

Bikash Mishra recently formed a financial services and consulting firm in Nepal. He was very busy during the first month and has not yet had an opportunity to install his computerized accounting package. But, he did understand the need to keep track of all transactions as they occurred. Following is a manual journal that he maintained for transactions occurring during January. All amounts are in the Nepalese rupee (NPR).Bikash has requested that you prepare a ledger of the company’s accounts, and post these transactions to determine the balance of each account. He needs this data in order to begin the process of transitioning to his new computerized accounting system.

The CEO of newly formed Targus Company printed a copy of the company’s general ledger prior to a recent plane flight. She settled into seat 7A next to where you were sitting. Once airborne, she removed the printed “GL” from her brief case and began examining the report. Unfortunately, she realized that her printer had run out of ink on the very last page. She is frustrated because she is not able to determine the company’s exact profitability to date, and is on her way to a shareholder meeting where she is to issue a report on the company’s progress. She happened to note that you were studying an accounting book, and asked if you might help her. Prepare a trial balance from the general ledger, determine the missing amount for salaries expense, and determine the company’s profit for its first month.

CASH
Date	Description	Debit	Credit	Balance
02-Jan-X8	Balance forward	–	–	–
03-Jan-X8	Journal Page 1	250,000	–	250,000
10-Jan-X8	Journal Page 1	–	75,000	175,000
14-Jan-X8	Journal Page 1	–	15,000	160,000
18-Jan-X8	Journal Page 2	40,000	–	200,000
21-Jan-X8	Journal Page 2		4,000	196,000
26-Jan-X8	Journal Page 2		3,000	193,000
31-Jan-X8	Journal Page 2	26,000	–	219,000



ACCOUNTS RECEIVABLE
Date	Description	Debit	Credit	Balance
02-Jan-X8	Balance forward	–	–	–
06-Jan-X8	Journal Page 1	55,000	–	55,000
18-Jan-X8	Journal Page 2	–	40,000	15,000



LAND
Date	Description	Debit	Credit	Balance
02-Jan-X8	Balance forward	–	–	–
10-Jan-X8	Journal Page 1	75,000	–	75,000



SALARIES PAYABLE
Date	Description	Debit	Credit	Balance
02-Jan-X8	Balance forward	–	–	–
31-Jan-X8	Journal Page 2	–	18,000	18,000



CAPITAL STOCK
Date	Description	Debit	Credit	Balance
02-Jan-X8	Balance forward	–	–	–
03-Jan-X8	Journal Page 1	–	250,000	250,000



REVENUES
Date	Description	Debit	Credit	Balance
02-Jan-X8		–	–	–
06-Jan-X8	Journal Page 1	–	55,000	55,000
31-Jan-X8	Journal Page 2	–	26,000	81,000



SUPPLIES EXPENSE
Date	Description	Debit	Credit	Balance
02-Jan-X8		–	–	–
26-Jan-X8	Journal Page 2	3,000	–	3,000



UTILITIES EXPENSE
Date	Description	Debit	Credit	Balance
02-Jan-X8		–	–	–
21-Jan-X8	Journal Page 2	4,000	–	4,000



SALARIES EXPENSE
Date	Description	Debit	Credit	Balance
02-Jan-X8		–	–	–
14-Jan-X8	Journal Page 1	15,000
31-Jan-X8	Journal Page 2

Professor Drebin’s Executive MBA students were recently discussing the benefits of a chart of accounts. Following is a transcript of the discussion. Most of the comments were correct, but two students were off base. Assume the role of Professor Drebin, and identify and adjust the incorrect statements.

Susie- I am a sales manager, but I occasionally need to review our company’s general journal.

It frustrates me because the accounts are often listed only by a number. What’s up with that?

Professor- What you are likely seeing are references to the chart of accounts. Chart of accounts are quite typical. Why would a company use a chart of accounts?

Miguel- I am an IT manager, and I can tell you that computer programming is much simpler when numeric values are used in lieu of text descriptions. This aids the construction of underlying computer programs that are able to match and sort.

Roberta- Miguel may be right, but I work in our cash department and I have to monitor receivables, payables, and cash. A key benefit for me is that I can determine the total of all receivables by doing a query of our 1002 accounts. If I want data by customer, I can refine the query to look for sub accounts like 1002.003, etc. And, the same thing is true for cash and payables. For example, our cash account is 1001, but we have unique sub accounts for each bank account (1001.001, 1001.002, etc.). So, I think one key benefit is to have a unique master account that can easily be broken down into many sub components.

Fletcher- This is all interesting to me. I guess you don’t even need textual names for accounts if you use a numeric system.

Randy- I had no idea about this. All I know is that I am in charge of managing our delivery trucks, and I track individual trucks for scheduled maintenance based on an asset ID tag number. Each truck has a unique long number, but it just occurred to me that it always begins with the digits 10005. I wonder if that “10005” might tie back to the company’s chart of accounts as well.

Jana- Randy, I doubt it. We have trucks, and I know for a fact that they are numbered 1500 in our chart of accounts. I am pretty sure that all company’s must use the same chart of accounts. Otherwise, comparing data from different companies would be chaos.

Louis- Jana makes an interesting point. But, I don’t think everyone uses the same chart of accounts. Although, I must add that I recently read about a project called XBRL that purports to develop some uniform data management schemes that will aid data comparison and exchange. And, it involves a lot more than just the chart of accounts.

Arman- I am a divisional manager, and I regularly review our unit’s ledger accounts and compare them to balances of other divisions. It is very helpful to be able to identify all assets, expenses, and so forth by uniform account numbering. This uniformity greatly aids data mining and evaluation. For example, our travel costs all start with a 503 digit, but 503.01 further identifies air travel, 503.02 relates to lodging, and so forth. This scheme enables me to look

at overall data, as well as its components. It sure helps me control costs and compare results

The following narratives describe transactions impacting cash, accounts receivable, accounts payable, revenues, and selected expense accounts. Use T-accounts to analyze this activity and determine the ending balances for accounts receivable and accounts payable. At the beginning of the period, accounts receivable totaled $54,300, while accounts payable totaled $31,275. The company started the period with $85,000 in cash.

Transaction #1 Services were provided to customers for cash in the amount of $15,230.

Transaction #2 Supplies were purchased and used. This purchase occurred on account, in the

amount of $2,400.

Transaction #3 Collections of outstanding receivables occurred in the amount of $19,410.

Transaction #4 Utilities costs in the amount of $763 were incurred and paid in cash.

Transaction #5 Payments on outstanding accounts payable were made for $23,900.

Transaction #6 Services were provided to customers on account in the amount of $48,654.

Narmadha Narayan distributes electronic parts. Most transactions with customers are immediately paid with cash or check. But, Narayan has five major customers that have established accounts. These approved customers routinely buy on credit. The terms of the credit agreement provide that payment must occur within 30 days, and each customer has a maximum credit limit of $10,000.

Following is information for May regarding each of the credit customers:

Customer #1 Beginning balance, $1,403. Purchases on account on May 5, $7,237.

Payment on account on May 17, $1,403.

Customer #2 Beginning balance, $5,275. Purchase on account on May 15, $2,275.

Payment on account on May 26, $4,275.

Customer #3 Beginning balance, $0. Purchase on account on May 9, $9,550.

Customer #4 Beginning balance, $7,557. Purchase on account on May 7, $2,100.

Purchase on account on May 22, $9,444. Payment on account on May 11, $7,557.

Customer #5 Beginning balance, $2,990. Payment on account on May 18, $2,990.

(a) Prepare a subsidiary accounts receivable ledger account for each of Narayan’s customers.

(b) Prepare the general ledger Accounts Receivable “control” account. Be sure the total in this account reconciles to the sum of the individual balances in the subsidiary ledgers.

(d) Review Narayan’s subsidiary ledgers and identify which customer should be put on credit watch for

being delinquent, and which customer has exceeded their credit limit.

Involved

Tom Pryor formed a management consulting firm specializing in cost management systems. Below are the transactions that occurred during the initial month of operation.

June 2 Tom Pryor invested $25,000 cash in the capital stock of the newly formed corporation.

June 3 Hired an administrative assistant, to be paid $3,000 per month. Leased office space at the rate of $1,000 per month. Signed a contract with Pomero to deliver consulting services valued at $7,500.

June 8 Purchased (and immediately used) office supplies on account for $750.

June 9 Received $2,500 from Pomero for work performed to date.

June 15 Paid $1,200 for travel costs associated with consultation work.

June 16 Provided services on account to Arpy for $3,000.

June 17 Paid $1,500 to administrative assistant for salary.

June 23 Billed Farris for $4,000 consulting engagement performed.

June 25 The company paid Tom Pryor a $1,000 dividend.

June 26 Collected 50% of the amount due for the billing on June 23.

June 27 Purchased computer furniture for $4,000, paying $1,000 down.

June 27 Paid $750 on the open account relating to the June 8 purchase.

June 28 Completed the Pomero job and billed the remaining amount.

June 30 Paid $1,500 to administrative assistant for salary.

June 30 Paid rent for June, $1,000.

Pryor consulting uses the following accounts:

Cash

Accounts Receivable

Equipment

Accounts Payable

Capital Stock

Revenues

Salary Expense

Rent Expense

Travel Expense

Supplies Expense

Dividends

(a) Journalize the listed transactions.

(b) Post the transactions to the appropriate general ledger accounts.

Paul Morris is a doctor of veterinary medicine specializing in horses. At the beginning of March, he incorporated his practice, and has completed his first month in business. He has come to you seeking help setting up his “books.” The following is a transcript of your conversation with Dr. Morris.

Dr. Morris “I specialize in embryo transplants for horses that will be used in cutting horse competitions. I started the month by investing $30,000 of my own money in the stock of the business.”

You “By stock, do you mean livestock animals or capital stock?”

Dr. Morris “I mean the capital stock of the business — I don’t actually own any animals. I work with clients’ animals only.”

You “Ok, is that all the money you had to start out the business? Were there any other investors?”

Dr. Morris “I am the only owner, but the business did borrow $50,000 to buy some land on which I plan to build a barn next year. Is that what you mean by other investors?”

You “Not exactly. The loan will need to be listed as a liability of the business. Have you paid off any of the loan yet?”

Dr. Morris “Not yet. The loan is not due for several years. But, I did pay $400 interest on the loan for the month.”

You “I see. So, you plan to build a barn next year on the land. I guess that is where you will be working with animals in the future. But, where are you caring for animals currently?”

Dr. Morris “I rent stalls from Tri-County arena. That costs me $1,500 per month. Which reminds me, I need to pay them for the first month. I forgot to send them their check!”

You “Besides the interest, what other bills have you paid so far?”

Dr. Morris “I knew you would ask that, so I kept a list. I paid for salaries of $2,000, for supplies used of $3,300, and utilities of $700. That’s it so far.”

You “Do you have any other bills that have not been paid yet?”

Dr. Morris “Nope, just the rent , but we already talked about.”

You “Good. Let’s talk about your revenues. Do you have a list of what customers paid you this month?”

Dr. Morris “No, just a total of all my bank deposits. They come to a total of $26,315 — excluding the cash deposits for my original investment and the $50,000 loan.”

Processing transactions into financial reports I-02.02

You “I see, and this $26,315 all relates to services provided to customers? Have you done any work for which you have not been paid?”

Dr. Morris “Yes, my wife keeps up with the outstanding balances due from customers. She told me that we are still owed $9,500.”

You “Well, Dr. Morris, I think that gives me enough information to get started. I will prepare you a set of financial statements for your first month of business, and we will see where you stand. Then, I think the first order of business for next month will be to get you set up with a computerized accounting system. You really will need an organized accounting system going forward, and that is best handled with a basic computer program. There are many from which to choose.”

Dr. Morris “Great, that is what I was hoping you would say. I cannot tell you how much I appreciate your help on this.”

(a) Prepare summary journal entries that reflect the first month of business.

(b) Use T-accounts to capture the impact of the transactions on the accounts.

(d) Prepare an income statement and statement of retained earnings for the month of March. Prepare the resulting balance sheet as of the end of the month.

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