CHAPTER 2 BASIC FINANCIAL STATEMENTS
OVERVIEW OF BRIEF EXERCISES, EXERCISES AND CRITICAL THINKING CASES
Brief Exercises B. Ex. 2.1 B. Ex. 2.2 B. Ex. 2.3 B. Ex. 2.4 B. Ex. 2.5 B. Ex. 2.6 B. Ex. 2.7 B. Ex. 2.8 B. Ex. 2.9 B. Ex. 2.10 Learning Objectives 3 3 4 4 5 5 6 8 8 7 Learning Objectives 3
Topic Recording transactions Recording transactions Computing retained earnings Computing total liabilities Computing net income Computing net income Computing change in cash Alternative forms of equity Alternative forms of equity Articulation of financial statements
Skills Analysis, communication Analysis, communication Analysis Analysis Analysis Analysis Analysis Analysis Analysis Analysis
Exercises 2.1
2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9
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Students are asked to write a sentence or two explaining the nature of each transaction. 2.3 A,B Goldstar Communications/Delta Corporation Show in tabular form the effects of various business transactions upon the accounting equation. (Problem 2–4 is an alternate.) 2.4 A,B Rankin Truck Rental/Smith Trucking Show in tabular form the effects of various business transactions upon the accounting equation. (Alternate to Problem 2–3.) 15 Easy
15 Easy
15 Medium
15 Medium
© The McGraw-Hill Companies, Inc., 2010 Overview and Desc. of Cases
Problems (cont 'd)
2.5 A,B Here Come the Clowns/Circus World Preparation of a balance sheet for a circus—an entity with an unusual variety of asset accounts. Also requires students to explain the effects upon this balance sheet of a fire that destroys one of the assets. (Problem 2–6 is an alternate.) Wilson Farms, Inc./Apple Valley Farms Prepare a balance sheet for a farm—an entity with a wide variety of assets. Also, explain the effects upon this balance sheet of the destruction of one of the assets. (Alternate to Problem 2–5.) 20 Medium
2.6 A,B
20 Medium
2.7 A,B
The Oven Bakery/The City Butcher 35 Medium Prepare a balance sheet from an alphabetical listing of accounts, and prepare a second balance sheet and a statement of cash flows after some additional transactions. Evaluate the company’s relative solvency at each date. The Sweet Soda Shop/The Candy
An organization’s current ratio shows how liquid the assets of the agency are by comparison to the short term debts that the agency must pay to continue its operations. This ratio is calculated by taking the assets that can be converted to cash within a year (current assets) and dividing it by the liabilities that are either currently due or will become due within a year (current liabilities). The current ratio, ideally, should be at
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
| (TCO 2) Transaction analysis results in the development of a journal entry. In the start-up of a business, the owner contributes $750,000 of cash. (1) Name the accounts impacted and how to use the format account name/debit or credit/dollar amount (10 points), and (2) explain how the Accounting Equation is impacted. (10 points)
My dog Peyton has severe allergies , which affected him to not use any store – bought dog treats. Peyton allergic reation to dog treats had inspire me to start my own business to make all natural and hypoallergenic dog treats for any dogs who suffer from severe allergies . “ Peyton Approve “ company was established in 2005 and has been around 10 years with booming sales . To expand my doggy treat business to be moresuccessful, it would be best to open up a dog treat bakery . The only problem that’s holding me back from opening up the bakery is not having enough money . This memo will discuss the importants of why my business is ready to receive it’s own bakery by analyzing the accountant reports to show in numbers of how well my store can handle paying expenses , debts , while operating a business .
SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement
Accounting theory including recording, valuation, and statement presentation of assets, liabilities, capital, and earnings. Funds statements, financial analysis, interest theory and applications.
This course focuses on ways in which financial statements reflect business operations and emphasizes use of financial statements in the decision-making process. The course encompasses all business forms and various sectors such as merchandising, manufacturing and service. Students make extensive use of spreadsheet applications to analyze accounting records and financial statements. Prerequisites: COMP100 and MATH114 / 4-4
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
In this paper I have defined accrual and cash basis accounting. Also, I have answered the following questions: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? What are the purpose of a journal and a ledger? Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction. Explain what a “prepaid expense” is and how it is recorded on the ledger as a transaction. What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any? List and record each transaction
Fraser, L. M., & Ormiston, A. (201). Understanding financial statements (9th ed.). Upper Saddle River, NJ: Prentice Hall.
The process of recording and posting the effects of business transaction is done in a double entry t-form. The total dollar amount of debits must equal the total dollar amount of credits, with debits to the left and account credit to the right. Broken down, Assets = Liabilities + Stakeholder Equity. “Since debits increase assets, expense, and dividend accounts, they normally have debit balances. Conversely, because credits increase liability, capital stock, retained earnings, and revenue accounts, they normally have credit balances.”( Edwards, J. D., Hermanson, R.H., & Maher, M. W. (2011). p.84)
Balance sheets and income statements are a snapshot of a company’s stability and financial situation. Combined the statements show the income, expenses, and stockholder’s equity in the company. These statements are often analyzed by financial institutions when a company comes to them needing a loan. Stockholders and other investors also look at these statements to make sure their investment will return a profit for them. This paper will look at four different companies and their balance sheets and income statements. The companies are Eastman Chemical Company, Covenant Transportation
BE4-1 Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example.
In addition to accountants providing many useful numbers that signal a company’s performance, they also prepare many useful documents and a code of ethics to make sure that all stakeholders have a clear picture on the business’s financial position. For instance, journaling is what accountants do after every transaction. These entries of what is exchanged in a business provide evidence that money deserves to be in a certain account. Especially since every journal entry needs a corresponding document that proves the record did happen, journals can be used by executives to see what really occurred in case a number in an account looks wrong (Schneider). It is also used when a government official suspects that the company is unfairly representing itself to either indict the business or prove its innocence. Journaling illustrates the importance of accounting since everything is documented and has proof for existence in the case of errors. One thing that journals go hand-in-hand with is the general ledger. This is the document that actually lists each individual account and the amount in it. It organizes the overall picture of every entity a business comes in contact with so that every important number can be put neatly into a financial statement.
1.5 Define and recognize in a problem statement the economy symbols P, F, A, n, and i. 1.6 Define cash flow, state what is meant by end-of-period convention, and construct a cash-flow diagram, given a