Week One Exercise Assignment
Basic Accounting Equations
1. Recognition of normal balances
The following items appeared in the accounting records of Triguero's, a retail music store that also sponsors concerts. Classify each of the items as an asset, liability, revenue, or expense from the company's viewpoint. Also indicate the normal account balance of each item.
a. The albums, tapes, and CDs held for sale to customers. * Asset; Normal account balance is debit b. A long-term loan owed to Citizens Bank. * Liability; Normal account balance is credit c. Promotional costs to publicize a concert. * Expense; Normal account balance is debit d. Daily sales of merchandise sold, * Revenue; Normal account
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8: Received a $150 electric bill, to be paid next month.
9: Parker withdrew $600 from the business.
10: Received $250 in cash from clients for consulting services rendered.
Instructions
a. Arrange the following asset, liability, and owner’s equity elements of the accounting equation: Cash, Accounts Receivable, Office Furniture, Van, Accounts Payable, Common Stock/Dividends, and Revenues/Expenses. (See Exhibit 1.5)
b. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items.
| Assets | Liability | Owner’s Equity | DescriptionInvestmentBuy van w/cashFurniture on accountServices on accountRepairs Collected amountPay on accountPay electric billWithdrawalCollected amountEnding Balance | Cash$ 19,000- (9,000)- (300)+ 800- (500)- (150) - (600) + 2509,500 | AccountsReceivable+ $ 2,100- (800)- (250)1,050 | OfficeFurniture+ $1,8001,800 | Van + $9,0009,000 | AccountsPayable+ $1,800- (500)1,300 | CommonStock/Dividends$ 19,00019,000 | Revenues/Expenses+ $ 2,100- 300- 150-6001,050 |
$ 21,350 $ 1,300 $ 20,050 Total Assets Total Liability Total Equity
c. Answer the following questions for Parker.
(1) How much does the company owe to its creditors at month-end? On which financial statement(s) would this information be found? The company owes its creditors $0. This information can be found on
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13. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment. Eddy Auto Supplies Balance Sheet December 31, 2014 Cash $84,000 Accounts payable $110,000 Accounts receivable $80,000 Salaries and wages payable $20,000 Inventory $140,000 Mortgage payable $180,000 Prepaid insurance $60,000 Total liabilities $310,000 Stock investments $170,000 Land $190,000 Buildings $226,000 Common stock $240,000 Less: Accumulated Retained earnings $500,000 depreciation ($40,000) $186,000 Total
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1. A company’s ending accounts receivable balance and the period’s advertising expense would be found on which financial statements, respectively
DQ3: What are some common ratios that are used to analyze financial information? Which two ratios do you think should be of greatest interest to: (a) A pension fund considering the purchase of 20-year bonds? (b) A bank contemplating a short-term loan? (c) A common stockholder?
3. On the basis of the responses to Question 1 and 2, what are the units of accounting in this arrangement?
5. Prepare any necessary adjusting entries to reflect the Inventory count at year end. These must be hand written.
Internal Revenue Code section 1221 defines “capital asset” as “property held by the taxpayer (whether or not connected with his trade or business), but does not include (1) Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” As defined, Haig Simmons’ anthracite coal home heating and delivery service business holds anthracite coal in the ordinary course of business and therefore, is not considered a capital asset. Section 64 defines ordinary income as income earned from providing services or the sale of goods (inventory) “which is not a capital asset.” Based on this definition, any asset that does not classify as a capital asset is an ordinary asset. Since Haig Simmons was providing home coal heating services for consumers, any inventory kept was for the purpose of maintaining a steady, stable, and regular supply of coal and not held as a long term asset for future sale gains.
Classify each of the items as an asset, liability; revenue; or expense from the company's viewpoint. Also indicate the normal account balance of each item.
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The last one is the Balance Sheet which tells a person the lists of assets he has, the list of
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