Concept explainers
CHALLENGE PROBLEM
In this chapter, you learned about three important financial statements: the income statement, statement of owner’s equity, and balance sheet. As mentioned in the margin note on page 34, most firms also prepare a statement of
REQUIRED
Take another look at the Demonstration Problem for Kenny Young’s “Home and Away Inspections.” Note that when revenues are measured based on the amount earned, and expenses are measured based on the amount incurred, net income for the period was $4,165. Now, compute the difference between cash received from customers and cash paid to suppliers of goods and services by completing the form provided below. Are these measures different? Which provides a better measure of profitability?
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Chapter 2 Solutions
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
- Codification Situation You are conducting an accounting research project for your boss. Your boss has asked you to determine the appropriate U.S. GAAP that specifies how your company should recognize revenues from the sales of products in a retail store. Your boss is confused because most customers pay cash, but some customers purchase on credit terms, and pay in cash 30 days later. Your manager also wants you to determine the GAAP guidance for how revenue should be recognized in income. Your manager has a lot of knowledge and experience in accounting and has heard about, but has never used, the FASB Accounting Standards Codification system. Directions Use the FASB Accounting Standards Codification system to conduct the research your manager has assigned to you. Use the Codification to determine how to recognize revenue from retail sales, including the right to return. Be prepared to show your manager the specific FASB ASC references that provide the appropriate guidance. Also prepare a brief memo explaining to your manager the different levels of the Codification and how to use the Codification system.arrow_forwardAssume that you are going to start a Business after graduation. Describe 10 transactions that the. business might undertake by using your own idea with the following assumptions: Started business with cash Goods purchase for cash Goods purchased on credit Any asset purchased and paid cash Any asset purchase on credit Sold goods for cash Sold goods on credit Paid any bill Paid salary to staff Cash withdraw from business for personal use Basedarrow_forwardnOD Well you have understood the lessons by working on some of the enrichment activity/ies below. Good luck! Deepen Activity 1: Transaction Analysis You own and operate a business that seills goods to other businesses. You allow established customers to buy goods from you on account, meaning you let them charge purchases and offer terms of 2/10, n/30. Record the following transactions in the sales journal and cash receipts journal: July 1 Sales on credit to DJ Vera Co. amounting to Php7,200.00, Invoice #123 July 9 Sales on credit to J. Tonesa Inc., amounting to Php5,200, Invoice # 124 2/10; n/30 July 16 Receive Php7,200 from DJ Vera Co. (did not receive during the discount period) July 17 Sales on credit to A. Caoile amounting to Php3,780, Invoice 125 July 18 Received the whole amount from J. Tonesa within the discount period Great job! You have understood the lesson well! ready to take the final assessment? Arearrow_forward
- Ali has been in business for some years as a petit trader. He simply calculates his profit by adding his sales (cash sales only) and deducting his purchase costs from it. As a grade 10 Accounting student, you are required to analyze the importance of FINANCIAL STATEMENTS (Income Statement and Statement of Financial Position) to Ali. Guidelines:- Start off with an Introduction of what you want to analyze. Your analysis should include but not limited to:- Books of original entry Ledger accounts Trial Balance Accounting concepts ( which ones are needed when and where) Etc Your conclusion should be an advice to Ali.arrow_forwardA statement of cash flows classifies cash receipts and cash payments into what 3 categories of activity? For each category of activity, share 2 specific examples of both cash receipts and cash payments based on 2 different business scenarios of your choosing. The business scenarios you choose can be based on real or fictional companies. For example, if you chose Uber and the fictional MarksABunch Art Supplies company, you would share 6 examples of cash receipts and cash payments per company, each broken out into one of the 3 different categories of activity presented in a statement of cash flows.arrow_forwardUse the following items to prepare a balance sheet and a cash flow statement. Determine the total assets, total liabilities, net worth, total cash inflows, and total cash outflows. (Omit the "$" sign in your response.) Rent for the month Monthly take-home salary Cash in chequing account Savings account balance Spending for food Balance of educational loan Current value of automobile Telephone bill paid for month Credit card balance Loan payment picture Click here for the Excel Data File Total assets Total liabilities Net worth Total cash inflows Total cash outflows $ $ $ $ 1,410 3,740 650 2,860 1,040 2,320 7,960 70 265 98 Auto insurance Household possessions Stereo equipment Payment for electricity Lunches/parking at work Donations Home computer Value of stock investment Clothing purchase Restaurant spendingarrow_forward
- Answer the following questionsYou were hired to assist Oman based Company in designing an accounting system for Oman Co., Ltd. has developed a list of the journals, ledgers, reports and documents that he thinks Oman Co., Ltd. The company asks you to complete the following tasks:c) Design a report to assist in managing credit sales and cash collections.d) What types of journals, ledgers and blank forms for various documents ( Sales invoices, purchase orders etc)arrow_forwardnu bartleby search message Q&A Sign in Business Accounting Q&A Library Directions: Analyze the transaction of Tiny Bubbles Co, put an emojey smileyif it is part in the preparation of Statement of Comprehensive Income and NA if it is not part in the preparation of Statement of Comprehensive Income. Tiny Bubbles, a parlor owner, asks to you to prepare her Statement of Comprehensive Income for the month of August with the following transactions. 1. Her company has cash deposited in a bank account amounting to P50, 000 as her initial capital 2. She bought parlor furniture set amounting to P75, 000 by paying 20% down and the balance in 12 monthly installments 3. Supplies expense for the month is P20,000 4. She paid two months rent amounting to P24, 000 5. Her total income for the month of August is 120,000 cash 6. She paid one staff for P5, 000 a month 7. The business paid P4, 500 for the light, water, and Internet connection 8. She has trade receivables amounting to P25, 000 for…arrow_forwardYour managers showed you the income statement for your company. The income statement shows a net income of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations. How is this possible? Please address the following issues in your discussion this week: How can a company make a profit and still be short of cash? In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow? How does the purchase of fixed assets or additional inventory adversely affect cash flow?arrow_forward
- This problem challenges you to apply your cumulative accounting knowledge to move a step beyond the material in the chapter. Days cash is outstanding for merchandise: 54.04 days Combining the information provided by various ratios can enhance your understanding of the financial condition of a business. Review the information provided for Na Pali Coast Company in the Mastery Problem. Using this information, respond to the following questions: REQUIRED 1. Compute the average number of days required to sell inventory and collect cash from customers buying on account. 2. Note that Na Pali Coast Company also buys inventory on account. On average, how many days pass before Na Pali pays its creditors? 3. Using the information from your answers to parts (1) and (2), compute the number of days from the time Na Pali Coast pays for inventory until it receives cash from customers on account.arrow_forwardConsider again the example introduced in Section 4.5 of a credit card company that has a database of information provided by its customers when the customers apply for credit cards. An analyst has created a multiple regression model for which the dependent variable in the model is credit card charges accrued by a customer in the data set over the past year (y), and the independent variables are the customers annual household income (x1), number of members of the household (x2), and number of years of posthigh school education (x3). Figure 4.23 provides Excel output for a multiple regression model estimated using a data set the company created. a. Estimate the corresponding simple linear regression with the customers annual household income as the independent variable and credit card charges accrued by a customer over the past year as the dependent variable. Interpret the estimated relationship between the customers annual household income and credit card charges accrued over the past year. How much variation in credit card charges accrued by a customer over the past year does this simple linear regression model explain? b. Estimate the corresponding simple linear regression with the number of members in the customers household as the independent variable and credit card charges accrued by a customer over the past year as the dependent variable. Interpret the estimated relationship between the number of members in the customers household and credit card charges accrued over the past year. How much variation in credit card charges accrued by a customer over the past year does this simple linear regression model explain? c. Estimate the corresponding simple linear regression with the customers number of years of posthigh school education as the independent variable and credit card charges accrued by a customer over the past year as the dependent variable. Interpret the estimated relationship between the customers number of years of posthigh school education and credit card charges accrued over the past year. How much variation in credit card charges accrued by a customer over the past year does this simple linear regression model explain? d. Recall the multiple regression in Figure 4.23 with credit card charges accrued by a customer over the past year as the dependent variable and customers annual household income (x1), number of members of the household (x2), and number of years of posthigh school education (x3) as the independent variables. Do the estimated slopes differ substantially from the corresponding slopes that were estimated using simple linear regression in parts a, b, and c? What does this tell you about multicollinearity in the multiple regression model in Figure 4.23? e. Add the coefficients of determination for the simple linear regression in parts a, b, and c, and compare the result to the coefficient of determination for the multiple regression model in Figure 4.23. What does this tell you about multicollinearity in the multiple regression model in Figure 4.23? f. Add age, a dummy variable for gender, and a dummy variable for whether a customer has exceeded his or her credit limit in the past 12 months as independent variables to the multiple regression model in Figure 4.23. Code the dummy variable for gender as 1 if the customers gender is female and 0 if male, and code the dummy variable for whether a customer has exceeded his or her credit limit in the past 12 months as 1 if the customer has exceeded his or her credit limit in the past 12 months and 0 otherwise. Do these variables substantially improve the fit of your model?arrow_forwardAs an accountant, your new client Michael Sue's he's assistance in setting up his books for his business. To do this successfully, you start by showing him how you perform a transaction analysis based on the accounting equation assets equals liabilities plus owners equity. You explain to Michael how to show increases and decreases in assets liabilities and owners equity accounts using that analysis template. To help Michael understand the transaction analysis you reconcile each side of the equation by balancing out each column at the end of the transaction. complete by using the accounts cash, accounts receivable, supplies, equipment, accounts payable, notes payable, Suze capital, Suze drawing, service revenue, rent expense, salary expense, utilities expense, and advertising expense. Please record the transactions listed in the image.arrow_forward
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