Chapter 1 What is Accounting?

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Le Thu Thuy - 11195077 Answer of Chapter 1’s Homework Le Thu Thuy - 11195077 TRUE-FALSE STATEMENTS Le Thu Thuy - 11195077 No Statement Correct False A business organized as a separate legal entity owned by stockholders is a corporation True Corporate stockholders generally pay higher taxes but have no personal liability True The liability of corporate stockholders is limited to the amount of their investment False The majority of U.S business is transacted by corporations False Corporations in the United States generate more revenue than the other three forms of business enterprise (Sole Proprietorship, Partnerships, Limited Liability Company) Owners of business firms are not the only people who need accounting information False (Internal users: owners, managers, and employees External users are suppliers, banks, customers, investors, potential investors, and tax authorities) False External users use the financial information to make decisions or to evaluate an entity's performance False Internal users of accounting information are managers who plan, organize, and run a business True The information needs and questions of external users vary considerably 10 True Accounting communicates financial information about a business to both internal and external users 11 True Two primary external users of accounting information are investors and creditors 12 True Financing activities for corporations include borrowing money and selling shares of their own stock 13 False 14 False The purchase of equipment is an example of a investing activity 15 True Assets are resources owned by a business and provide future services or benefits to the business 16 False Payments to owners are financing activities 17 False The economic resources that are owned by a business are called assets Financing activities involve collecting the necessary funds to support the business (Investing activities involve acquiring the resources necessary to run the business) Le Thu Thuy - 11195077 18 True Operating activities involve putting the resources of the business into action to generate a profit 19 False A business is usually involved in three types of activity - financing, operating and investing 20 False Net income for the period is determined by subtracting total expenses from total revenues 21 False Financial statements are generally prepared for a limited number of users 22 True The heading for the income statement might include the line “As of December 31, 20xx.” 23 False Net income is revenues minus expenses 24 False Cash is not another term of stockholder’s equity 25 True The primary purpose of statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time 26 True The balance sheet reports assets and claims to those assets at a specific point in time 27 False The basic accounting equation states that Assets = Liabilities + Equity 28 False One way of stating the accounting equation is: Assets = Liabilities + Stockholders’ Equity 29 True The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities 30 True The accounting equation can be expressed as Assets - Liabilities = Stockholders’ Equity 31 True If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders’ equity totals $45,000 32 False If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders’ equity totals $35,000 33 False 34 True Creditors’ rights to assets supersede owners’ rights to the assets 35 True All publicly traded U.S companies must provide their shareholders with an annual report each year 36 False Information in the notes to the financial statements does not have to be quantifiable Creditors' claims on assets are called liabilities The owner's claim on assets is called equity Le Thu Thuy - 11195077 (numeric) (explanation about company, its activities for the year…) 37 True An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company 38 True The management discussion and analysis (MD & A) section of an annual report covers various financial aspects of a company 39 False Explanatory notes and supporting schedules are not an optional part of an annual report 40 True Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics MULTIPLE CHOICE QUESTIONS 41.The proprietorship form of business organization a must have at least two owners in most states b generally receives favorable tax treatment relative to a corporation c combines the records of the business with the personal records of the owner d is classified as a separate legal entity 42.A business organized as a corporation a is not a separate legal entity in most states b requires that stockholders be personally liable for the debts of the business c is owned by its stockholders d has tax advantages over a proprietorship or partnership 43.The partnership form of business organization a is a separate legal entity b is a common form of organization for service-type businesses c enjoys an unlimited life d has limited liability 44.Which of the following is not one of the three forms of business organization? a corporations b partnerships c proprietorships d investors 45 Most business enterprises in the United States are a proprietorships and partnerships b partnerships Le Thu Thuy - 11195077 c corporations d government units 46 A business organized as a separate legal entity is a a corporation b proprietor c government unit d partnership 47 Which of the following is not an advantage of the corporate form of business organization? a No personal liability b Easy to transfer ownership c Favorable tax treatment d Easy to raise funds 48 An advantage of the corporate form of business is that a it has limited life b its owner’s personal resources are at stake c its ownership is easily transferable via the sale of shares of stock d it is simple to establish 49 Which of the following is an advantage of corporations relative to partnerships and sole proprietorships? a Reduced legal liability for investors b Harder to transfer ownership c Lower taxes d Most common form of organization 50 A corporation has which of the following set of characteristics? a Shared control, tax advantages, increased skills and resources b Simple to set up and maintains control with founder c Easier to transfer ownership and raise funds, no personal liability d Harder to raise funds and gives owner control 51 A small neighborhood barber shop that is operated by its owner would likely be organized as a a joint venture b partnership c corporation d proprietorship 52 A local retail shop has been operating as a sole proprietorship The business is growing and now the owner wants to incorporate Which of the following is not a reason for this owner to incorporate? a ability to raise capital for expansion b desire to limit the owner’s personal liability c the prestige of operating as a corporation d the ease in transferring shares of the corporation’s stock Le Thu Thuy - 11195077 53 All of the following are advantages for choosing a proprietorship for a business except: a A proprietorship is a simple form of business to set up b A proprietorship gives the owner control of the business c Proprietorship receive more favorable tax treatment d Transfer of ownership is easily achieved through stock sales 54 Jack and Jill form a partnership Jack runs the business in New York, while Jill vacations in Hawaii During the time Jill is away from the business, Jack increases the debts of the business by $20,000 Which of the following statements is true regarding this debt? a Only Jack is personally liable for the debt, since he has been the managing partner during that time b Only Jill is personally liable for the debt of the business, since Jack has been working and she has not c Both Jack and Jill are personally liable for the business debt d Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity 55 Which one of the following questions is most likely asked by an internal human resources director for the company? a Which product line is most profitable? b What price for our product will maximize the company income? c What average pay raise is affordable for employees this year? d Should any product lines be eliminated? 56 Which of the following are internal reports that accounting provides to internal users? a Forecasts of cash needs for next year b Financial comparisons of operating activity alternative c Both a and b are internal reports d Neither a or b is an internal report 57 Which of the following is the best definition of an internal user of accounting information? a Investors who use accounting information to decide whether to buy or sell stock b Creditors like banks that use accounting information to evaluate the risk of lending money c Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits d Managers who use accounting information to plan, organize, and run a business 58 External users of accounting information, like the Internal Revenue Service, are most commonly known as: a taxing authorities b labor unions c customers Le Thu Thuy - 11195077 d regulatory agencies 59 Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX) of 2002? a The Act calls for increased oversight responsibilities for boards of directors b The Act has resulted in increased penalties for financial fraud by top management c The Act calls for decreased independence of outside auditors reviewing corporate financial statements d The Act is meant to decrease the likelihood of unethical corporate behavior 60 Which of the following is not a step for solving an ethical dilemma? a Identifying the alternatives and weighing the impact of each alternative on various stakeholders b Certifying the ethical accuracy of the financial information c Identifying and analyzing the principal elements in the situation d Recognizing the ethical situation and issues involved 61 Which of the following is the most appropriate and modern definition of accounting? a The information system that identifies, records, and communicates the economic events of an organization to interested users b A means of collecting information c The interconnected network of subsystems necessary to operate a business d Electronic collection, organization, and communication of vast amounts of information 62 Which of the following would not be considered an internal user of accounting data for the Xanadu Company? a President of the company b Production manager c Merchandise inventory clerk d President of the employees' labor union 63 Which of the following groups uses accounting information primarily to insure the entity is operating within prescribed rules? a Taxing authorities b Regulatory agencies c Labor Unions d Management 64 The group of users of accounting information charged with achieving the goals of the business is its a auditors b investors c managers d creditors Le Thu Thuy - 11195077 65 Which of the following groups uses accounting information to determine whether the company can pay its obligations? a Investors in common stock b Marketing managers c Creditors d Chief Financial Officer 66 Which of the following groups uses accounting information to determine whether the company’s net income will result in a stock price increase? a Investors in common stock b Marketing managers c Creditors d Chief Financial Officer 67 Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective? a Investors in common stock b Marketing managers c Creditors d Chief Financial Officer 68 Which of the following would not be considered an external user of accounting data for the Julian Company? a Internal Revenue Service Agent b Management c Creditors d Customers 69 Which of the following would not be considered an internal user of accounting data for a company? a The president of a company b The controller of a company c Creditor of a company d Salesperson of a company 70 Which of the following is a primary user of accounting information with a direct financial interest in the business? a Taxing authority b Creditor c Regulatory agency d Labor union 71 Which of the following is a user of accounting information with an indirect financial interest in a business? a A financial adviser b Management c Investor d Creditor 72 Which type of corporate information is readily available to investors? Le Thu Thuy - 11195077 a financial comparison of operating alternatives b marketing strategies for a product that will be introduced in eighteen months c forecasts of cash needs for the upcoming year d amount of net income retained in the business 73 Which of the following statements concerning users of accounting information is incorrect? a Management is considered an internal user b Present creditors are considered external users c Regulatory authorities are considered internal users d Taxing authorities are considered external users 74 External users want answers to all of the following questions except a Is the company earning satisfactory income? b Will the company be able to pay its debts as they come due? c Will the company be able to afford employee pay raises this year? d How does the company compare in profitability with competitors? 75 Which type of corporate information is not available to investors? a dividend history b forecast of cash needs for the upcoming year c cash provided by investing activities d beginning cash balance 76 The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) a account payable b account receivable c revenue d expense 77 The right to receive money in the future is called a(n) a account payable b account receivable c liability d revenue 78 Which of the following is not a principal type of business activity? a Operating b Investing c Financing d Delivering 79 Borrowing money is an example of a(n) a delivering activity b financing activity c investing activity d operating activity Le Thu Thuy - 11195077 Liabilities and Stockholders’ Equity Liabilities Accounts payable Notes payable Total liabilities 4,400 Stockholders’ Equity Common stock Retained earnings 86,000 Total liabilities and stockholders’ equity $90,400 $ 1,100 3,300 $ $52,000 34,000 Ex 194 At September 1, the balance sheet accounts for Kiner's Restaurant were as follows: Accounts Payable Accounts Receivable Buildings Cash Equipment $ 3,800 1,600 66,000 5,000 15,700 Land Common Stock Notes Payable Supplies Retained Earnings $33,000 ? 46,000 3,600 45,200 The following transactions occurred during the next two days: Stockholders invested an additional $25,000 cash in the business The accounts payable were paid in full (No payment was made on the notes payable.) Instructions Prepare a balance sheet at September 3, 2012 KINER’S RESTAURANT Balance Sheet September 3, 2012 ASSETS Cash Accounts receivable Supplies Equipment Buildings Land Total assets $26,200 1,600 3,600 15,700 66,000 33,000 $146,100 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Notes payable Stockholders’ Equity Common stock Retained earnings 100,100 Total liabilities and stockholders’ equity Cash ($5,000 + $25,000 - $3,800) = $26,200 Accounts Payable ($3,800 - $3,800) = $0 Common Stock Beginning balance ($124,900 - $95,000) Additional investment Ending balance Ex 195 $ 46,000 $54,900 45,200 $146,100 $ 29,900 25,000 $ 54,900 Le Thu Thuy - 11195077 This information relates to Connor Co for the year 2012 Retained earnings, January 1, 2012 Advertising expense Dividends paid during 2012 Rent expense Service revenue Utilities expense Salaries and wages expense $59,000 1,800 9,000 10,400 52,000 2,400 28,000 Instructions After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2012 CONNOR CO Income Statement For the Year Ended December 31, 2012 Revenues Service revenue $52,000 Expenses Salaries and wages expense $28,000 Rent expense 10,400 Utilities expense 2,400 Advertising expense 1,800 Total expenses 42,600 Net income $9,400 CONNOR CO Retained Earnings Statement For the Year Ended December 31, 2012 Retained earnings, January $59,000 Add: Net income 9,400 68,400 Less: Dividends 9,000 Retained earnings, December 31 $59,400 Ex 196 Here are incomplete financial statements for Brandon, Inc BRANDON, INC Balance Sheet Le Thu Thuy - 11195077 Assets Equity Liabilities and Stockholders' Cash Inventory Buildings Total assets (a) $ 5,000 10,000 40,000 $55,000 Liabilities Accounts payable Stockholders' equity Common stock $ 5,000 Retained earnings (b) Total liabilities and stockholders' equity $55,000 Ex 196 (Cont.) Income Statement Revenues Cost of goods sold Administrative expenses Net income $80,000 (c) 10,000 $ (d) Retained Earnings Statement Beginning retained earnings $10,000 Net income (e) Dividends 5,000 Ending retained earnings $29,000 Instructions Calculate the missing amounts (a) Common stock = Total liabilities and stockholders' equity - Accounts payable - Retained earnings = 55000 - 5000 - 29000 = 21000 (b) Retained earnings = 29000 (d), (e) Net income = Ending retained earnings - Beginning retained earnings + Dividends = 29000 - 10000 + 5000 = 24000 (c) Cost of goods sold = - Net income +Revenue - Administrative expenses = -24000 + 80000 - 10000 = 46000 Ex 197 Sleep Cheap is a private camping ground near the Boulder Peak Recreation Area It has compiled the following financial information as of December 31, 2012 Revenues during 2012: camping fees Revenues during 2012: general store 50,000 Accounts payable Cash 2,500 Equipment $137,000 25,000 13,000 13,500 113,000 Dividends Notes payable $ 8,000 Expenses during 2012 Supplies 133,000 Common stock 40,000 Le Thu Thuy - 11195077 Retained earnings (1/1/2012) 5,000 Instructions (a) Determine net income from Sleep Cheap for 2012 (b) Prepare a retained earnings statement and a balance sheet for Sleep Cheap as of December 31, 2012 (a) Net income = Camping fees revenue + Geneeral store revenue - Expenses = 137000 + 25000 - 133000 = $29000 (b) SLEEP CHEAP Retained Earnings Statement For the Year Ended December 31, 2012 Retained earnings, January Add: Net income Less: Dividends Retained earnings, December 31 $ 5,000 29,000 34,000 8,000 $26,000 SLEEP CHEAP Balance Sheet December 31, 2012 Assets Cash $ 13,500 Supplies 2,500 Equipment 113,000 Total assets $129,000 Liabilities and Stockholders’ Equity Liabilities Notes payable Accounts payable Total liabilities 63,000 Stockholders’ equity Common stock Retained earnings 66,000 Total liabilities and stockholders’ equity $129,000 Ex 198 $50,000 13,000 $ 40,000 26,000 Le Thu Thuy - 11195077 John Tate is the bookkeeper for Gabelli Company John has been trying to get the balance sheet of Gabelli Company to balance It finally balanced, but now he's not sure it is correct GABELLI COMPANY Balance Sheet December 31, 2012 Assets Equity Cash Supplies Equipment Dividends 39,000 Total assets Liabilities and Stockholders' $15,500 9,500 (12,000) 50,000 10,000 Accounts payable Accounts receivable $85,000 Total liabilities and stockholders' equity $18,000 Common stock Retained earnings 40,000 $85,000 Instructions Prepare a correct balance sheet GABELLI COMPANY Balance Sheet December 31, 2012 Assets Cash Accounts receivable Supplies Equipment Total assets Liabilities and Stockholders’ Equity Liabilities Accounts payable $18,000 Stockholders’ equity Common stock Retained earnings 69,000 Total liabilities and stockholders’ equity $87,000 $15,500 12,000 9,500 50,000 $87,000 $40,000 29,000* *$39,000 – $10,000 Ex 199 The summaries of data from the balance sheet, income statement, and retained earnings statement for two corporations, Bates Corporation and Wilson Enterprises, Le Thu Thuy - 11195077 are presented below for 2012 Bates Corporation Beginning of year Total assets Total liabilities Total stockholders' equity End of year Total assets Total liabilities Total stockholders' equity Changes during year in retained earnings Dividends Total revenues Total expenses Wilson Enterprises $110,000 70,000 (a) $130,000 (d) 90,000 (b) 120,000 70,000 190,000 65,000 (e) (c) 225,000 165,000 5,000 (f) 80,000 Instructions Determine the missing amounts Assume all changes in stockholders' equity are due to changes in retained earnings (a) 40000 (b) 190000 (c) Dividends = Beginning stockholder’s equity - Ending stockholder’s equity + Revenues - Expenses = 40000 - 70000 + 225000 - 165000 = 30000 (d) 40000 (e) 125000 (f) Revenues = Dividens - Beginning stockholder’s equity + Ending stockholder’s equity + Expenses = 5000 - 90000 + 125000 + 80000 = 120000 Ex 200 This information is for Campo Corporation for the year ended December 31, 2012 Cash received from lenders Cash received from customers Cash paid for new equipment Cash dividends paid Cash paid to suppliers Cash balance 1/1/12 $20,000 65,000 30,000 6,000 18,000 12,000 Instructions Prepare the 2012 statement of cash flows for Campo Corporation CAMPO CORPORATION Statement of Cash Flows For the Year Ended December 31, 2012 Le Thu Thuy - 11195077 Cash flows from operating activities Cash received from customers Cash paid to suppliers Net cash provided by operating activities $47,000 Cash flows from investing activities Cash paid for new equipment Net cash used by investing activities (30,000) Cash flows from financing activities Cash received from lenders Cash dividends paid Net cash provided by financing activities 14,000 Net increase in cash 31,000 Cash at beginning of period 12,000 Cash at end of period $43,000 $65,000 (18,000) (30,000) 20,000 (6,000) Ex 201 One item is omitted in each of the following summaries of balance sheet and income statement data for three different corporations, A, B, and C Determine the amounts of the missing items, identifying each corporation by letter A Beginning of the Year: Assets Liabilities End of the Year: Assets Liabilities During the Year: Additional Investment by stockholders Dividends Corporation B $410,000 250,000 $150,000 115,000 $199,000 166,000 430,000 280,000 195,000 95,000 195,000 169,000 ? 79,000 78,000 70,000 83,000 ? Revenue 195,000 ? 187,000 Expenses 155,000 113,000 183,000 COMPLETION STATEMENTS 202 A business organized as a separate legal entity owned by stockholders is a corporations Le Thu Thuy - 11195077 203 Internal users of accounting information are managers who plan, organize, and run a business 204 Investing activities involve collecting the necessary funds to start the business 205 The balance sheet reports the assets, liabilities, and stockholders’ equity of a business at a specific date 206 The claims of owners on the assets of a corporation are known as stockholder’s equity 207 The basic accounting equation is Assets = Liabilities + Stockholder’s equity 208 The primary purpose of a statement of cash flows is to provide financial information about the cash receipts and cash payments of a business 209 The element of annual report is prepared by an independent auditor stating the auditor’s opinion as to the fairness of the presentation of the financial statements MATCHING 210 Match the items below by entering the appropriate code letter in the space provided A B C D E Internal users Management discussion and analysis Annual report Sole proprietorship Dividends F G H I J Corporation Assets Liabilities Expenses Investing activities No Item Distributions of cash from a corporation to its stock holders Code letter E Dividends Consumed assets or services I Expenses Ownership is limited to one person D Sole proprietorship Officers and others who manage the business A Internal users Creditor claims against the assets of the business H Liabilities A separate legal entity under state laws F Corporation A report prepared by management that presents financial information C Annual report Le Thu Thuy - 11195077 A section of the annual report that presents B Management discussion and management’s views analysis Future economic benefits J Investing activities 10 Involves acquiring the resources necessary to run the business G Assets SHORT-ANSWER ESSAY QUESTIONS S-A E 211 What are the advantages to a business of being formed as a corporation? What are the disadvantages? * Advantages of C Corporations: - Owners have limited liability The owners' assets are protected from the debts and liabilities of the corporation Shareholders are not held liable for business losses - Easier to raise capital It is easier to attract capital with the sale of stocks and bonds A corporation can have an unlimited number of investors - Easy to transfer ownership Shares of stock can be sold - Corporations have perpetual lifetimes The entity continues to exist beyond the deaths of the owners - Certain expenses are tax deductible Owners can receive tax-free benefits such as deductions for retirement plans and insurance * Disadvantages of C Corporations: - Double taxation of corporation profits The corporation pays federal and state taxes on its profits When dividends are paid to shareholders, they are treated as income and taxed again - Forming a corporation costs more Attorneys charge more to form a corporation - States have higher fees States charge annual franchise fees for corporations - More state and federal regulations and oversight Tax filings are more complicated for corporations States require the filing of Articles of Incorporation, corporate bylaws and annual reports Corporations must designate a board of directors and hold annual meetings S-A E 212 Why would it be safer for a wealthy individual to set up his or her business as a corporation rather than as a proprietorship or partnership? With a proprietorship or partnership, the owner(s) have unlimited liability That is, they may be required to use personal assets to satisfy business debts The liability of a corporate shareholder, however, is limited to his or her investment in the business Therefore, it would be safer for a wealthy individual to set up his/her business as a corporation Le Thu Thuy - 11195077 S-A E 213 Your friend, James, made this comment: “My major is biology and I plan to research for cures for major illnesses Therefore, I have no need to study accounting.” What is your response to James? S-A E 214 The information needs of a specific user of financial accounting information depends upon the kinds of decisions that user makes Identify the major users of accounting information and discuss what questions financial accounting information answers for each group of users The major users of accounting information are internal users and external users Internal users are those who manage the business External users are those outside the business who have either a present or potential financial interest Financial accounting information may answer the following questions for internal users: Is cash sufficient to pay our debts? Can we afford to give employee pay raises this year? What is the cost of manufacturing each unit of product? Which product line is the most profitable? Questions answered by financial accounting information for external users include: Is the company earning satisfactory income? How does the company compare in size and profitability with competitors? Will the company be able to pay its debts as they come due? S-A E 215 The statement of cash flows for Nyland Corporation reveals the following information: Net cash used by operating activities ($150,000) Net cash used by investing activities ($200,000) Net cash provided by financing activities Issuance of common stock $100,000 Issued note payable 250,000 $350,000 Net change in cash Provide three comments about this information Make your comments concise yet thorough (1) Operating activities represent the ongoing activities of the company and are a result of its reason for being in business The fact that this is a negative cash flow is a cause of concern This may be a new company and future cash flows from operations will be positive Le Thu Thuy - 11195077 The cash that was used for operating and investing activities came from the shareholders (issuance of common stock) and creditors (borrowing with a notes payable) This is to be expected for a new company, or a company that is expanding, but should not be considered an ongoing way to finance the business Cash from operating activities should be available to purchase assets and pay dividends to shareholders (3) There is a concern that all proceeds raised from issuing stock have been used If operating activities cannot generate positive cash flows, can the corporation issue additional stock to raise cash? (4) The corporation owes on the note payable Will there be sufficient cash from operating activities to pay the interest and repay the principal? (5) Does the corporation need to acquire additional assets for use in the business? If so, will it be able to get the cash to pay for these future acquisitions (2) S-A E 216 How are each of the following financial statements interrelated? (a) Retained earnings statement and income statement (b) Retained earnings statement and balance sheet (c) Balance sheet and statement of cash flows (a) Net income from the income statement is reported as an increase to retained earnings on the retained earnings statement (b) The ending amount on the retained earnings statement is reported as the retained earnings amount on the balance sheet (c) The ending amount on the statement of cash flows is reported as the cash amount on the balance sheet S-A E 217 Broadway Corporation’s stockholders’ equity equals one-fourth of the company’s total assets The company’s liabilities are $270,000 What is the amount of the company’s stockholders’ equity? Since stockholders’ equity equals one-fourth of the company’s total assets, consider the amount of the company’s stockholders’ equity as x, we have total assets = 4x Equation: Assets = Liabilities + Stockholder’s equity 4x = 270000 +x 3x = 270000 x=90000 Thus, the amount of the company’s stockholders’ equity is $90000 S-A E 218 Which three types of transactions affect retained earnings, and how they affect it? Three major types of transactions affect retained earnings: - Revenues: Retained earnings increase when a business receives revenues, whether through profits gained by providing customers a service or a product or through capital stock investments - Expenses: Overhead expenses such as rent, payroll and purchasing goods or supplies to provide services or products to customers are all things that will reduce retained earnings Anything that deducts from a business's income or cash causes a Le Thu Thuy - 11195077 resultant dip in retained earnings, even if the expenses are necessary to keep the business running - Dividends: Dividends are what allow stockholders to receive a return on their investment in the business through the receipt of company assets, often cash This cash is paid out by the company to its stockholders on a date declared by the business's board of directors, but only if the company has sufficient retained earnings to make the dividend payments S-A E 219 The framework used to record and summarize the economic activities of a business enterprise is referred to as the accounting equation State the basic accounting equation and define its major components How are business transactions and financial statements related to the accounting equation? * The basic accounting equation: Assets=(Liabilities+Owner’s Equity) - An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit - Liabilities are what a company typically owes or needs to pay to keep the company running - Shareholders' equity represents the amount of money that would be returned to shareholders if all of the assets were liquidated and all of the company's debt was paid off * Business transactions are economic events and activities that affect the elements of the basic accounting equation; that is, transactions cause increases or decreases in the assets, liabilities, and stockholders’ equity The financial statements report the results and effects of transactions on the business' assets, liabilities, and stockholders’ equity The balance sheet is a summary expression of the basic accounting equation S-A E 220 What types of information are presented in the notes to the financial statements? Notes are considered an integral part of the financial statements Information included in the notes to the financial statements clarifies information presented in the financial statements and includes descriptions of accounting policies, explanations of uncertainties and contingencies, and details too voluminous to be reported in the financial statements S-A E 221 (Ethics) Joe Laramie owns and operates Joe's Burgers, a small fast food store, located at the edge of City College campus in Newton, Ohio After several very profitable years, Joe's Burgers began to have problems Most of the problems were related to Joe's expansion of the eating area in the restaurant without corresponding increases in the food preparation area Joe does not have the cash or financial backing to expand further He has therefore decided to sell his business William Sheets is interested in purchasing the business However, he is located in another city and is unfamiliar with Newton He has asked Joe why he is selling Joe's Burgers Joe replies that his elderly mother requires extra care, and that his brother needs help in his manufacturing business Both are true, but neither is his primary Le Thu Thuy - 11195077 reason for selling Joe reasons that William should not have asked him anyway, since profitable businesses don't come up for sale Required: Identify the stakeholders in this situation Did Joe act ethically in not revealing fully his reasons for selling the business? Why or why not? The stakeholders in this situation: Joe Laramine, William Sheets, Newton, City College’s students Joe did not act ethically in not revealing fully his reasons for selling the business A purchaser should investigate a business before purchasing it, rather than relying entirely on the seller's assertions However, Joe should have said something about his problems He might ethically be allowed to put these in the best possible light, perhaps, but failure to disclose them at all is certainly unethical This is especially true, since family concerns might well cause someone to sell a business that is otherwise doing well Joe has shown an intent to deceive that is unethical, and might be actionable in court as well S-A E 222 (Communication) Mary Baroni is a friend of yours from high school She decided to become a beautician after leaving high school, rather than to attend college She recently opened her own shop, and has contracted her services to a local hospital She is paid a monthly fee for her services, and receives a small gratuity from each of the patients She has just received her first set of financial statements from her accountant She is quite upset The statements show a cash balance of $3,600 at the end of the month, but a net income of only $500 She has written you a letter, asking you whether such a situation is possible, or whether she should find another accountant Required: Write a short letter to your friend Use proper form Answer her question completely, but briefly 213 Tran Dai Nghia, Hai Ba Trung District, Ha Noi September 12th, 2020 Dear Mary, Congratulations on opening your business, what a courage dicision! I am sure you will well, combining your creative genius with your talent for serving others You asked me about your financial statements from your accountant Although I am just an accounting student, but I know that it is possible to have a large cash balance and little net income You may have had expenses that were not paid in cash yet These expenses Le Thu Thuy - 11195077 reduce your income, but not your cash I think that you should discuss this statements with the accountant who prepared them He or she will be in the best position to explain the results for you Thanks for the question It really made me think Sincerely, Thuy IFRS Questions Internal users of accounting information include all of the following except a the CEO of Sony b the Human Resources department at Hyundai c the marketing department at Braun d the shareholders of Airbus Internal users of accounting information include a the shareholders of Royal Dutch Shell b the Internal Revenue Service c the Chief Financial Officer of Credit Suisse d the International Accounting Standards Board External users of accounting information include all of the following except a the shareholders of Air Italy b the management of Pirelli c a potential customer of Olivetti d All of the above are external users of accounting information External users of accounting information include a the Financial Accounting Standards Board b the shareholders of Ferragamo c the Marketing department at Olivetti d the CEO of Air Italy When preparing a set of financial statement, the statement of cash flows is prepared a first b second c third d fourth (1) (2) (3) (4) balance sheets; income statements; cash flow statements; statements of shareholders' equity Le Thu Thuy - 11195077 The Cash account balance reported on the Statement of Financial Position is needed to prepare a the income statement b the share capital statement c the retained earnings statement d the statement of cash flows ... Corporation B $ 410 ,000 250,000 $15 0,000 11 5,000 $19 9,000 16 6,000 430,000 280,000 19 5,000 95,000 19 5,000 16 9,000 ? 79,000 78,000 70,000 83,000 ? Revenue 19 5,000 ? 18 7,000 Expenses 15 5,000 11 3,000 18 3,000... Stockholders’ Le Thu Thuy - 11 195077 Cash A $13 5,000 $13 5000 $85000 $50000 Cash B 12 0,000 12 0000 85000 35000 Cash C 10 5,000 10 5000 85000 20000 Be 19 1 Compute the missing amount in each category... receivable 30,000 Retained earnings, 1/ 1 /12 15 0,000 Benedict’s assets on December 31, 2 012 are: a $470,000 b $340,000 c $16 0,000 Le Thu Thuy - 11 195077 d $19 0,000 15 7 Benedict Company compiled the