<question id="-14EE">Using accounting vocabulary [10-15 min]

Consider the following accounting terms and definitions:

TERMS: DEFINITIONS:

1. Accounting Equation A. An economic resource that is expected to be of benefit in the future

2. Asset B. An economic obligation (a debt) payable to an individual or an organization outside the

3. Balance Sheet
business
4. Expense C. Excess of total expenses over total revenues

5. Income Statement D. Excess of total revenues over total expenses

6. Liability E. The basic tool of accounting, stated as Assets = Liabilities + Equity

7. Net Income F. Decrease in equity that occurs from using assets or increasing liabilities in the

8. Net Loss course of delivering goods or services to customers

9. Revenue G. Amounts earned by delivering goods or services to customers

10. Statement of Cash Flows H. Report of cash receipts and cash payments during a period

11. Statement of Retained Earnings I. Report of an entity’s assets, liabilities, and equity as of a specific date

J. Report of an entity’s revenues, expenses and net income/net loss for the period

K. Report that shows the changes in retained earnings for a period of time
Requirement
1. <blockquote>Match the term to the correct definition</blockquote>
</question>
.
<question id="-15EE">Users of financial information; the accounting profession, types of
business organizations, and preparing the financial statements [15-20 min]
Evan O’Brien, Inc., publishes a travel magazine. In need of cash, the business applies for a loan with National Bank. The
bank requires borrowers to submit financial statements. With little knowledge of accounting, Evan O’Brien, the sole
shareholder, does not know how to proceed.

Requirements
1. <blockquote>Explain how to prepare the balance sheet and the income statement.
2. Which organization is the privately funded body of accountants that defines pronouncements that guide how the
financial statements will be prepared?
3. Indicate why a lender would require this information.
4. What type of organization is Evan O’Brien, Inc.?
5. If Evan wanted to attract outside investors, which form of business would best enable that option?
</blockquote>
</question>

<question id="-16EE">Characteristics of a corporation, accounting concepts, and using the

accounting equation [5-10 min]
Select financial information for three corporations follows:
Assets Liabilities Stockholders’ Equity
New Rock Gas $? $24,000 $50,000
DJ Video Rentals 75,000 ? 32,000
Corner Grocery 100,000 53,000 ?

Requirements
1. <blockquote>Compute the missing amount in the accounting equation for each entity.
2. List the seven main characteristics of a corporation.
3. Which accounting concept tells us that the previous three corporations will continue to exist in the future?
</blockquote>
</question>

<question id="-17EE">Comparing U.S. GAAP to IFRS [5-10 min]

Winged Wheel Garage, Inc., purchased a parcel of land on January 3, 2012, for
$50,000. Its market value at the end of 20l2 was $55,000.

Requirements
1. <blockquote>Using the U.S. GAAP cost principle, at what value would the land be reported on the balance sheet as of
January 3, 2012? What value would the land be reported at on the December 31, 2012, balance sheet?
2. Using IFRS, at what value would the land be reported on the balance sheet as of
January 3, 2012? What value would the land be reported at on the December 31, 2012, balance sheet?</blockquote>
</question>

<question id="-18EE">Using the accounting equation to analyze business transactions [5-10

min]
Great City Builders, Inc., balance sheet data at May 31, 2012, and June 30, 2012, follow:
May 31, 2012 June 30, 2012

Total assets $177,000 $213,000

Total liabilities 122,000 144,000

Requirement
1. <blockquote>Following are three situations about stockholders’ investments and dividends of the business during
June. For each situation, compute the amount of net income or net loss during June 2012.
a. <blockquote>The company issued $6,000 of common stock and paid no dividends.
b. The company issued no common stock. It paid dividends of $10,000.
c. The company issued $18,000 of common stock and paid dividends of $20,000.
</blockquote>
</blockquote>
</question>

<question id="-19EE">Using the accounting equation to analyze transactions [5-10 min]

As the manager of a Papa Sam’s Corporation restaurant, you must deal with a variety of business transactions.

Requirement
1. <blockquote>Give an example of a transaction that has each of the following effects on the accounting equation:
a. <blockquote> Increase one asset and decrease another asset.
b. Decrease an asset and decrease stockholders’ equity.
c. Decrease an asset and decrease a liability.
d. Increase an asset and increase stockholders’ equity.

Increase an asset and increase a liability.

</blockquote>

</blockquote>

</question>

<question id="-20EE">Using the accounting equation to analyze transactions [10-20 min]

Requirement
1. <blockquote>Indicate the effects of the following business transactions on the accounting equation of a Viviani Video
store. Transaction (a) is answered as a guide.
a. <blockquote> Received cash of $8,000 and issued common stock.
Answer: Increase asset (Cash)
Increase stockholders’ equity (Common stock)
 b. Earned video rental revenue on account, $1,800.
c. Purchased office furniture on account, $400.
d. Received cash on account, $600.
e. Paid cash on account, $100.
f. Sold land for $15,000, which was the cost of the land.
g. Rented videos and received cash of $300.
h. Paid monthly office rent of $900.
i. Paid $200 cash to purchase supplies that will be used in the future</blockquote></blockquote>.
</question>

<question id="-21EE">Using the accounting equation to analyze transactions [10-20 min]

Caren Smith opened a medical practice. During July, the first month of operation, the business, titled Caren Smith, M.D.,
P.C. (Professional Corporation), experienced the following events:

Jul 6 Smith invested $55,000 in the business by opening a bank account in the name of C. Smith,
M.D., P.C. The corporation issued common stock to Smith.
9 Paid $46,000 cash for land.
12 Purchased medical supplies for $1,800 on account.
15 Officially opened for business.
15-31 During the rest of the month, Smith treated patients and earned service revenue of $8,000,
receiving cash.
29 Paid cash expenses: employees’ salaries, $1,600; office rent, $900; utilities, $100.

30 Returned supplies purchased on the 12th for the cost of those supplies, $700.
31 Paid $1,100 on account.

Requirement
1. <blockquote>1. Analyze the effects of these events on the accounting equation of the medical practice of Caren Smith,
M.D., P.C. Use a format similar to that of Exhibit 1-6, with headings for Cash, Medical supplies, Land, Accounts
payable, Common stock, and Retained earnings.
2. </blockquote>
</question>
3.
<question id="-22EE">Using the accounting equation to analyze transactions and calculate
net income or net loss [10-15 min]
The analysis of the first eight transactions of All-in-one Accounting Service, Inc., follows. Stockholders made only one
investment and there were no dividend payments.
Cash + Accounts Equipment = Accounts payable Common Retained +
stock
receivable + + earnings
1 + 31,000 + 31,000
2 + 3,800 + 3,800
3 + 13,400 + 13,400
4 + 190 - 190
5 - 410 + 410
6 - 8,000 - 8,000
7 + 790 +790
8 - 1,500 - 1,500

Requirements
1. <blockquote> Describe each transaction.
2. If these transactions fully describe the operations of All-in-one Accounting Service, Inc., during the month, what was
the amount of net income or net loss?
</blockquote>
</question>

<question id="-23EE"> Using the accounting equation and evaluating business performance
[10 min]
Bob Auto Repairs, Inc., started 2012 with total assets of $19,000 and total liabilities of $9,000. At the end of 2012, Bob’s
total assets stood at $27,000, and total liabilities were $13,000.

Requirements
1. <blockquote> Did the stockholders’ equity of Bob Auto Repairs, Inc. increase or decrease during 2012? By how much?
2. Identify two possible reasons for the change in stockholders’ equity during the year.
</blockquote></question>

<question id="-24EE">Using the accounting equation, preparing financial statements, and

evaluating business performance [10-15 min]
The 2012 annual report of American Express Services (AES) reported revenue of $21,000,000,000. Total expenses for the
year were $14,000,000,000. AES ended the year with total assets of $30,000,000,000, and it owed debts totaling
$14,000,000,000. At year-end 2011, the business reported total assets of $23,000,000,000 and total liabilities of
$14,000,000,000.

Requirements
1. <blockquote>Compute AES’s net income for 2012.
2. Did AES’s stockholders’ equity increase or decrease during 2012? By how much?
3. Assume you are a creditor of AES. Would the company’s 2012 performance be
good or bad for you, as a creditor?
</blockquote></question>

<question id="-25EE">Using the accounting equation, preparing financial statements, and

evaluating business performance [30-40 min]
Compute the missing amount for Felix Company. You will need to work through total stockholders’ equity.

Beginning: Stockholders’ Equity:

Assets . . . . $45,000 Issuance of stock ...$0

Liabilities . . . . 29,000 Dividend payments . . . . . . . 19,000

Ending: Income Statement:
Assets . . . . $55,000 Revenues . . . $242,000

Liabilities . . . . 38,000 Expenses

Requirements
1. <blockquote> Did Felix earn a net income or suffer a net loss for the year? Compute the amount.
2. Would you consider Felix’s performance for the year to be good or bad? Give your reason.
</blockquote>
</question>

<question id="-26EE">Analyzing business transactions [10-15 min]

Shane’s Roasted Peanuts, Inc., supplies snack foods. The business experienced the following events.
a. <blockquote> Shane’s Roasted Peanuts received cash from the sole stockholder and issued common stock.
b. Cash purchase of land for a building site.
c. Paid cash on accounts payable.
d. Purchased equipment; signed a note payable.
e. Performed service for a customer on account.
f. Employees worked for the week but will be paid next Tuesday.
g. Received cash from a customer on account receivable.
h. Borrowed money from the bank.
i. Paid cash dividends.
j. Incurred utility expense on account</blockquote>.
Requirement
1. <blockquote>State whether each event (1) increased, (2) decreased, or (3) had no effect on the total assets of the
business. Identify any specific asset affected.
</blockquote>
</question>

<question id="-27EE"> Preparing financial statements and evaluating business performance

[10-20 min]
The account balances of Wilson Towing Service, Inc., at June 30, 2012, follow:

Requirements
1. <blockquote>Prepare the balance sheet of the business at June 30, 2012.
2. What does the balance sheet report—financial position or operating results?
3. Which financial statement reports the other accounts listed for the business?
</blockquote>
</question>

<question id="-28EE">Preparing financial statements and evaluating business performance

[10-15 min]
The assets, liabilities, stockholders’ equity, revenues, and expenses of Davis Design Studio, Inc., have the following
balances at December 31, 2012, the end of its first year of operation. During the year, the business issued common stock for
$15,000.

Requirements
1. <blockquote> Prepare the income statement of Davis Design Studio for the year ended December 31, 2012. What is
the result of operations for 2012?
2. What was the amount of the company’s dividend payments during the year?</blockquote></question>