Exercise 1-1 Types of Business Activities
Braxton Corp. was
organized on January 1 to operate a limousines service to and from the airport.
For each of the following business activities, indicate whether it is a financing
(F), investing (I), or operating (0) activity.
1.
Issued shares of stock to each of the four owners.
2.
Purchased two limousines.
3. Paid
first month's rent for use of garage.
4.
Obtained loan from local bank.
5.
Received cash from customer for trip to the airport.
6. Paid
driver first week's wages.
7.
Purchased 500-gal l on fuel tank.
Hint: "Operating activities" are what you are in business
to do, and anything dealing with a customer is operating. "Investing
activities" are the purchase or sale of long-lived assets such as
buildings, land, and equipment. "Financing activities" are the
raising of funds from investors and lenders or repayments to investors or
lenders
II. Exercise 1-12 Accounting Principles and Assumptions
Fill in each of the blanks with the accounting principle or
assumption that is relevant to the situation described.
The following basic accounting principles and assumptions were
discussed in the chapter:
Economic
entity
Monetary
unit
Cost
principle
Going
concern
Time
period
Fill in each of the blanks with the accounting principle or
assumption that is relevant to the situation described.
________________________________
1. Genesis Corporation is now in its
30th year of
business. The founder of the company is planning to
retire at the end of the year and turn the business
over to his daughter.
________________________________
2. Nordic Company purchased a 20-acre
parcel of
property on which to build a new factory. The
company recorded the property on the records at
the amount of cash given to acquire it.
________________________________
3. Jim Bailey enters into an agreement
to operate a
new law firm in partnership with a friend. Each
partner will make an initial cash investment of
$10,000. Jim opens a checking account in the name
of the partnership and transfers $10,000 from his
personal account into the new account.
________________________________
4. Multinational Corp. has a division
in Japan. Prior to
preparing the financial statements for the company
and
all of its foreign divisions, Multinational
translates the financial statements of its Japanese
division from yen to U.S. dollars.
________________________________
5. Camden Company has always prepared
financial
statements annually, with a year-end of June 30.
Because the company is going to sell its stock to
the
public for the first time, quarterly financial
reports
will also be required by the SEC.
Hint: After studying the appropriate pages, try these without going
back to the book. The exam will be timed so knowing the information will work
better than looking up every answer.
MULTI-CONCEPT EXERCISES
Exercise 1-15 Users of Accounting Information and the Financial
Statements
Following are a number of
users of accounting information and examples of questions they need answered
before making decisions. Fill n each blank to indicate whether the user is most
likely to find the answer by looking at the income statement (IS), the balance
sheet (BS), the statement of retained earnings (RE), or the statement of cash
flows (SCF).
Hint: Most financial information is
found on only one financial statement. The financial accounting information is
related but not the same. Think about what accounting term is being described
and where the information would be shown.
P1-5 Income Statement, Statement of Retained Earnings,
and Balance SheetThe following list, in alphabetical order, shows the various items that
regularly appear on the financial statements of Maple Park Theatres Corp. The
amounts shown for balance sheet items are balances as of September 30, 2014
(with the exception of retained earn- ings, which is the balance on September
1, 2014), and the amounts shown for income statement items are balances for the
month ended September 30, 2014.
Accounts payable $17,600 furniture and fixtures $34,000
accounts receivable 6,410 land 26,000
advertising expense 14,500 notes payable 20,000
buildings 60,000 projection equipment 25,000
capital stock 50,000 rent expense-movies 50,600
cash 15,230 retained earnings 73,780
concessions revenue 60,300 salaries and wages expense 46,490
cost of concessions sold 23,450 ticket sales 95,100
dividends paid during the month 8,400 water, gas, and electricity 6,700
Required
1.Prepare an income statement for the month ended September 30, 2014.
2. Prepare a statement of retained earnings for the month ended September 30, 2014.
3. Prepare a balance sheet at September 30, 2014.
4. You have $1,000 to invest. On the basis of the statements you prepared, would you use it to buy stock in Maple Park? Explain. What other information would you want before making a final decision?
Accounts payable $17,600 furniture and fixtures $34,000
accounts receivable 6,410 land 26,000
advertising expense 14,500 notes payable 20,000
buildings 60,000 projection equipment 25,000
capital stock 50,000 rent expense-movies 50,600
cash 15,230 retained earnings 73,780
concessions revenue 60,300 salaries and wages expense 46,490
cost of concessions sold 23,450 ticket sales 95,100
dividends paid during the month 8,400 water, gas, and electricity 6,700
Required
1.Prepare an income statement for the month ended September 30, 2014.
2. Prepare a statement of retained earnings for the month ended September 30, 2014.
3. Prepare a balance sheet at September 30, 2014.
4. You have $1,000 to invest. On the basis of the statements you prepared, would you use it to buy stock in Maple Park? Explain. What other information would you want before making a final decision?
Hint: First determine if an account
is an asset, a liability, stockholders' equity, revenue, or expense, and then
put a check mark by each item as you use it in preparing the financial
statements to ensure you account for everything. Format is important, including
a proper heading, so the user of the statement knows what they are
reading.
Decision case 1-7 Responsibility for financial
statements and the role of the auditor.
Financial
statements are the means by which accountants communicate to external users.
Recent financial reporting scandals have focused attention on the accounting
profession and its role in the preparation of these statements and the audits
performed on the statements.
1. Who is
responsible for the preparation of the financial statements that are included
in a company's annual report?
2. Who
performs an audit of the financial statements referred to in part (1)?
3. Why is it
important for those who are responsible for an audit of the financial
statements to be independent of those who prepare the statements? Explain your
answer.
TUTORIAL PREVIEW
USER FINANCIAL
STATEMENT
Stockholder IS
Banker BS
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