Ass 1

1.

Match each of the numbered descriptions with the principle or assumption it best reflects.

Description Principle or Assumption 1. Usually created by a pronouncement from an authoritative body. Specific accounting principle 2. Financial statements reflect the assumption that the business continues operating. Going-concern assumption 3. Derived from long-used and generally accepted accounting practices. General accounting principle 4. Every business is accounted for separately from its owner or owners. Business entity assumption 5. Revenue is recorded only when the earnings process is complete. Revenue recognition principle 6. Information is based on actual costs incurred in transactions. Cost principle 7. A company records the expenses incurred to generate the revenues reported. Matching principle 8. A company reports details behind financial statements that would impact users’ decisions. Full disclosure principle

----------------------------------------------------------------------------------------------------------------------------------- 2.  Match each of the numbered descriptions with the term or phrase it best reflects. Description Term or Phrase 1. Principles that determine whether an action is right or wrong. Ethics 2. Accounting professionals who provide services to many clients. Public accountants 3. An accounting area that includes planning future transactions to minimize taxes paid. Tax accounting 4. An examination of an organization’s accounting system and records that adds credibility to financial statements. Audit 5. Amount a business earns after paying all expenses and costs associated with its sales and revenues. Net income ----------------------------------------------------------------------------------------------------------------------------------- 3. Select a transaction that affects the accounting equation as follows: Affect Transaction a. Decreases an asset and decreases equity. Business incurs an expense paid in cash b. Increases an asset and increases a liability. Business purchases equipment on credit c. Decreases a liability and increases a liability. Business signs a note payable to extend the due date on an account payable d. Decreases an asset and decreases a liability. Business pays an account payable with cash e. Increases an asset and decreases an asset. Business purchases office supplies for cash f. Increases a liability and decreases equity. Business incurs an expense that is not yet paid g. Increases an asset and increases equity. Stockholder invests cash in the business ----------------------------------------------------------------------------------------------------------------------------------- 4. Swiss Group reports net income of $40,000 for 2013. At the beginning of 2013, Swiss Group had $200,000 in assets. By the end of 2013, assets had grown to $300,000.    What is Swiss Group’s 2013 return on assets? Return on assets Choose Numerator: / Choose Denominator: = Return on assets Net income / Average total assets = Return on assets $ 40,000 / $ 250,000 = 16% ----------------------------------------------------------------------------------------------------------------------------------- 5. Match each description with its section from statement of cash flows. Description Statement of cash flow 1. Cash paid for advertising Cash flows from operating activity 2. Cash paid for wages Cash flows from operating activity 3. Cash paid for dividends Cash flows from financing activity 4. Cash purchase of equipment Cash flows from investing activity 5. Cash paid for rent Cash flows from operating activity 6. Cash paid on an account payable Cash flows from operating activity 7. Cash received from stock issued Cash flows from financing activity 8. Cash received from clients Cash flows from operating activity ----------------------------------------------------------------------------------------------------------------------------------- 6. Identify how each of the following separate transactions affects financial statements. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total equity. For the income statement, identify how each transaction affects net income. For the statement of cash flows, identify how each transaction affects cash flows from operating activities, cash flows from financing activities, and cash flows from investing activities. For increases, select “+” in the column or columns. For decreases, select “–” in the column or columns. If both an increase and a decrease occur, select “+/–” in the column or columns. The first transaction is completed as an example. Balance Sheet Income Statement Statement of Cash Flows Transaction Total Assets Total Liab. Total Equity Net Income Operating Activities Financing Activities Investing Activities 1. Owner invests cash for its stock + + + 2. Receives cash for services provided + + + + 3. Pays cash for employee wages – – – – 4. Incurs legal costs on credit + – – 5. Borrows cash by signing long-term note payable + + + 6. Pays cash dividend – – – 7. Buys land by signing note payable + + 8. Provides services on credit + + + 9. Buys office equipment for cash +/– – 10. Collects cash on receivable from (8) +/– + ----------------------------------------------------------------------------------------------------------------------------------- 7. Following is selected financial information of ABM Company for the year ended December 31, 2013.   Cash used by investing activities $ (2,000 )   Net increase in cash 1,200   Cash used by financing activities (2,800 )   Cash from operating activities 6,000   Cash, December 31, 2012 2,300 Required: Prepare the 2013 statement of cash flows for ABM Company. (Cash outflows should be indicated with a minus sign.) ABM Company Statement of Cash Flows For Year Ended December 31, 2013 Cash provided by operating activities $ 6,000 Cash used by investing activities (2,000) Cash used by financing activities (2,800) Net increase in cash $1,200 Cash, December 31, 2012 2,300 Cash, December 31, 2013 $3,500 ----------------------------------------------------------------------------------------------------------------------------------- Questions 8-9 [The following information applies to the questions displayed below.] Helga Ander started a new business and completed these transactions during December.    Dec. 1   Helga Ander transferred $65,000 cash from a personal savings account to a checking account in the name of Ander Electric in exchange for its common stock. 2   The company rented office space and paid $1,000 cash for the December rent. 3   The company purchased $13,000 of electrical equipment by paying $4,800 cash and agreeing to pay the $8,200 balance in 30 days. 5   The company purchased office supplies by paying $800 cash. 6   The company completed electrical work and immediately collected $1,200 cash for these services. 8   The company purchased $2,530 of office equipment on credit. 15   The company completed electrical work on credit in the amount of $5,000. 18   The company purchased $350 of office supplies on credit. 20   The company paid $2,530 cash for the office equipment purchased on December 8. 24   The company billed a client $900 for electrical work completed; the balance is due in 30 days. 28   The company received $5,000 cash for the work completed on December 15. 29   The company paid the assistant’s salary of $1,400 cash for this month. 30   The company paid $540 cash for this month’s utility bill. 31   The company paid $950 cash in dividends to the owner (sole shareholder). 8. Required: 2. Enter the amount of each transaction on individual items of the accounting equation. (Enter reductions to account balances with a minus sign.) 9. 3.1 Prepare an income statement for the current month. ANDER ELECTRIC Income Statement For Month Ended December 31 Revenues Electrical fees earned $ 7,100 Expenses Rent expense 1,000 Salaries expense 1,400 Utilities expense 540 Total expenses 2,940 Net income $4,160 3.2 Prepare a statement of retained earnings for the current month. ANDER ELECTRIC Statement of Retained Earnings For Month Ended December 31 Retained earnings, December 1 $0 Add: Net income 4,160 4,160 Less: Dividends 950 Retained earnings, December 31 $3,210 3.3 Prepare a statement of cash flows for the current month. (Cash outflows should be indicated with a minus sign which will be displayed within parenthesis.) ANDER ELECTRIC Statement of Cash Flows For Month Ended December 31 Cash flows from operating activities Cash received from customers $ 6,200 Cash paid for supplies (800) Cash paid for rent (1,000) Cash paid to employees (1,400) Cash paid for utilities (540) Net cash provided by operating activities $2,460 Cash flows from investing activities Purchase of office equipment (2,530) Purchase of electrical equipment (4,800) Net cash used in investing activities (7,330) Cash flows from financing activities Investments by stockholder 65,000 Dividends to stockholder (950) Net cash provided by financing activities 64,050 Net increase in cash $59,180 Cash balance, Dec. 1 0 Cash balance, Dec. 31 $59,180 3.4 Prepare a balance sheet as of the end of the month. ANDER ELECTRIC Balance Sheet December 31 Assets Liabilities Cash $ 59,180 Accounts payable $ 8,550 Accounts receivable 900 Office supplies 1,150 Equity Office equipment 2,530 Common stock 65,000 Electrical equipment 13,000 Retained earnings 3,210 Total assets $76,760 Total liabilities and equity $76,760 ----------------------------------------------------------------------------------------------------------------------------------- 10. Coca-Cola and PepsiCo both produce and market beverages that are direct competitors. Key financial figures (in $ millions) for these businesses over the past year follow.   Key Figures ($ millions) Coca-Cola PepsiCo   Sales $ 46,542 $ 66,504   Net income 8,634 6,462   Average assets 76,448 70,518 Required: 1. Compute return on assets for Coca-Cola and PepsiCo. Return on assets Choose Numerator: / Choose Denominator: = Return on assets Net income / Average total assets = Return on assets Coca-Cola return $ 8,634 / $ 76,448 = 11.3% PepsiCo return $ 6,462 / $ 70,518 = 9.2% 2. Which company is more successful in its total amount of sales to consumers? PepsiCo  3. Which company is more successful in returning net income from its assets invested? Coca-Cola  ----------------------------------------------------------------------------------------------------------------------------------- 11. Kyzera manufactures, markets, and sells cellular telephones. The average total assets for Kyzera is $250,000. In its most recent year, Kyzera reported net income of $65,000 on revenues of $475,000. Required: 1. What is Kyzera’s return on assets? Return on assets Choose Numerator: / Choose Denominator: = Return on assets Net income / Average total assets = Return on assets $ 65,000 / $ 250,000 = 26% 2. Does return on assets seem satisfactory for Kyzera given that its competitors average a 12% return on assets? Yes  3. What are total expenses for Kyzera in its most recent year? Total expenses $ 410,000 4. What is the average total amount of liabilities plus equity for Kyzera? Average total financing (liabilities plus equity) $ 250,000 ----------------------------------------------------------------------------------------------------------------------------------- 12. Zen began a new consulting firm on January 5. The accounting equation showed the following balances after each of the company’s first five transactions. Analyze the accounting equation for each transaction and match the given transaction with its most likely description. Assets = Liabilities + Equity   Transaction Cash + Accounts Receivable + Office Supplies + Office Furniture = Accounts Payable + Common Stock +  Revenues a. $ 40,000   + $ 0     + $ 0     + $ 0     = $ 0      + $ 40,000   + $ 0     b. 38,000   + 0     + 3,000     + 0     = 1,000      + 40,000   + 0     c. 30,000   + 0     + 3,000     + 8,000     = 1,000      + 40,000   + 0     d. 30,000   + 6,000     + 3,000     + 8,000     = 1,000      + 40,000   + 6,000     e. 31,000   + 6,000     + 3,000     + 8,000     = 1,000      + 40,000   + 7,000     Transaction Description a. Started the business with the owner investing cash in the business in exchange for common stock b. Purchased office supplies, paid in cash and on credit c. Purchased office furniture by paying cash d. Billed a customer for services rendered e. Provided services for cash ----------------------------------------------------------------------------------------------------------------------------------- Questions 13-14 [The following information applies to the questions displayed below.] Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations. May 1   G. Gram invested $40,000 cash in the company in exchange for its common stock. 1   The company rented a furnished office and paid $2,200 cash for May’s rent. 3   The company purchased $1,890 of office equipment on credit. 5   The company paid $750 cash for this month’s cleaning services. 8   The company provided consulting services for a client and immediately collected $5,400 cash. 12   The company provided $2,500 of consulting services for a client on credit. 15   The company paid $750 cash for an assistant’s salary for the first half of this month. 20   The company received $2,500 cash payment for the services provided on May 12. 22   The company provided $3,200 of consulting services on credit. 25   The company received $3,200 cash payment for the services provided on May 22. 26   The company paid $1,890 cash for the office equipment purchased on May 3. 27   The company purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1. 28   The company paid $750 cash for an assistant’s salary for the second half of this month. 30   The company paid $300 cash for this month’s telephone bill. 30   The company paid $280 cash for this month’s utilities. 31   The company paid $1,400 cash in dividends to the owner (sole shareholder). 13. Required: 2. Enter the amount of each transaction on individual items of the accounting equation. Do not determine new account balances after each transaction. (Enter the transactions in the given order. Enter reductions to account balances with a minus sign.)

14.

3-a.	Prepare income statement for May.

	THE GRAM CO. Income Statement For Month Ended May 31 Revenues: Consulting services revenue $11,100 Expenses Telephone expense $300 Cleaning expense 750 Utilities expense 280 Advertising expense 80 Rent expense 2,200 Salaries expense 1,500 Total expenses 5,110 Net income $5,990

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15.

Determine the missing amount from each of the separate situations given below.

	Assets = Liabilities + Equity (a) $65,000 = $20,000 + $45,000 (b) $100,000 = $34,000 + $66,000 (c) $154,000 = $114,000 + $40,000

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16.

The following table shows the effects of five transactions (a through e) on the assets, liabilities, and equity of Mulan's Boutique. Match the given transaction with its probable description.

	Assets											=	Liabilities		+	Equity
	Cash		+	Accounts Receivable		+	Office Supplies		+	Land		=	Accounts Payable		+	Common Stock		+	Revenues
	$	21,000	+	$	0	+	$	3,000	+	$	19,000	=	$	0	+	$	43,000	+	$	0
a.	–	4,000							+		4,000
b.						+		1,000					+	1,000
c.			+		1,900													+		1,900
d.	–	1,000											–	1,000
e.	+	1,900	–		1,900
	$	17,900	+	$	0	+	$	4,000	+	$	23,000	=	$	0	+	$	43,000	+	$	1,900
Transaction Description a. Purchased land for cash b. Purchased office supplies on credit c. Billed a client for services provided d. Paid the account payable created in transaction b e. Collected cash for the billing in transaction c

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Questions 17-19

[The following information applies to the questions displayed below.]

On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $84,000 in assets to launch the business. On October 31, the company’s records show the following items and amounts.   Cash $ 11,360 Cash dividends $ 2,000     Accounts receivable 14,000 Consulting fees earned 14,000     Office supplies 3,250 Rent expense 3,550     Land 46,000 Salaries expense 7,000     Office equipment 18,000 Telephone expense 760     Accounts payable 8,500 Miscellaneous expenses 580     Common stock 84,000

17.

Using the above information prepare an October income statement for the business.

	ERNST CONSULTING Income Statement For Month Ended October 31 Revenues Consulting fees earned $14,000 Total revenues $14,000 Expenses Salaries expense 7,000 Rent expense 3,550 Telephone expense 760 Miscellaneous expenses 580 Total expenses 11,890 Net income $2,110

18.

Using the above information prepare an October statement of retained earnings for Ernst Consulting.

	ERNST CONSULTING Statement of Retained Earnings For Month Ended October 31 Retained earnings, Oct. 1 $0 Add: Net income 2,110 2,110 Less: Dividends 2,000 Retained earnings, Oct. 31 $110

19.

Using the above information prepare an October 31 balance sheet for Ernst Consulting.

	ERNST CONSULTING Balance Sheet As of October 31 Assets Liabilities Cash $11,360 Accounts payable $8,500 Office equipment 18,000 Office supplies 3,250 Land 46,000 Equity Accounts receivable 14,000 Common stock 84,000 Retained earnings 110 Total assets $92,610 Total liabilities and equity $92,610

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Questions 20-22

[The following information applies to the questions displayed below.]

   

The following financial statement information is from five separate companies:

	Company A			Company B			Company C			Company D			Company E
December 31, 2014
Assets	$	55,000		$	34,000		$	24,000		$	60,000		$	119,000
Liabilities		24,500			21,500			9,000			40,000			?
December 31, 2015
Assets		58,000			40,000			?			85,000			113,000
Liabilities		?			26,500			29,000			24,000			70,000
During year 2015
Stock issuances		6,000			1,400			9,750			?			6,500
Net income (loss)		8,500			?			8,000			14,000			20,000
Cash dividends		3,500			2,000			5,875			0			11,000

20.

Required:

1-a.	What is the amount of equity on December 31, 2014 for Company A?

	Assets = Liabilities + Equity $55,000 = $24,500 + $30,500

1-b.	What is the amount of equity on December 31, 2015 for Company A?

	Equity, December 31, 2014 $30,500 Add: Net income 8,500 Add: Stock issuances 6,000 45,000 Less: Dividends 3,500 Equity, December 31, 2015 $41,500

1-c.	What is the amount of liabilities on December 31, 2015 for Company A?

	Assets = Liabilities + Equity $58,000 = $16,500 + $41,500

21.

2-a.	What is the amount of equity on December 31, 2014 for Company B?

	Assets = Liabilities + Equity $34,000 = $21,500 + $12,500

2-b.	What is the amount of equity on December 31, 2015 for Company B?

	Assets = Liabilities + Equity $40,000 = $26,500 + $13,500

2-c.	What is net income for year 2015 for Company B?

	Equity, December 31, 2014 $12,500 Add: Net income 1,600 Add: Stock issuances 1,400 15,500 Less: Dividends 2,000 Equity, December 31, 2015 $13,500

22.

3.	Calculate the amount of assets for Company C on December 31, 2015.

	December 31, 2014 Assets = Liabilities + Equity $24,000 = $9,000 + $15,000

	Equity, December 31, 2014 $15,000 Add: Net income 8,000 Add: Stock issuances 9,750 32,750 Less: Dividends 5,875 Equity, December 31, 2015 $26,875

	December 31, 2015 Assets = Liabilities + Equity $55,875 = $29,000 + $26,875