Professor Pacioli was recently asked the following five questions by his

aspiring accounting students. Prepare a summary of the professor's reply

to each question.

(a) Professor, I 'm not sure why, but your name sounds familiar . . . why
is that?

https://en.wikipedia.org/wiki/Luca_Pacioli

(b) Professor, I have no interest in being a bookkeeper. Why should I

study accounting?
https://www.careeronestop.org/toolkit/careers/occupations/occupation-profile.aspx

(c) Professor, I am not sure I understand why there is a distinction

between financial and managerial accounting. If you are accounting
for one business, how can there possibly be two separate
approaches?
Financial is for 3rd party users and is used to access financial
markets. Managerial is to run the organization. There are a lot of
similarities... you will learn about managerial next semester.
(d) Professor, haven't computers and modern information systems made
accountants obsolete?

There are certainly fewer data processing jobs, but somebody still
needs to design systems and evaluate data. Accounting has a great
future (see b above)
(e) Professor, I am interested in becoming a CPA. Do I need to apply to
the FASB?

http://www.dca.ca.gov/cba/applicants/index.shtml
Determine whether each of the following items is a(n):
Asset
Liability
Revenue
Expense
Owners'
equity
Other

(a) Cash/Asset Cash that is legally owned

(b) Dividend to shareholders/Dividend (included on retained earnings

statement) Return of capital to shareholders
(c) Land/Asset Land that is legally owned

(d) Accounts payable/Liability Payable accounts describe legal debts

(e) Capital stock/owners' equity Capital stock or Common stock are

financial instruments that an organization sells to raise capital
(f) Notes payable/Liability Payable accounts keep track of legal
liabilities
(g) Accounts receivable/Asset This account is used to keep track of
monies owed to the organization by customers who purchased
(h) Salaries/(could be expense or liability if owed) if an expired cost,
then expense.
(i) Rent paid/Could be asset if prepaid or expense

(j) Cost of utilities used/Expense Expired cost

(k) Customer order not yet filled/could be nothing... or liability if they

prepaid... unearned revenue
(l) The value of completed services provided to customers/Revenue
(completed)
(m) Obligation to pay for utilities consumed/Liability obligation means legal
debt
 Indicate the impact (increase/decrease/no change) for each of the following transactions
assets, liabilities, and owners' equity. The first one is done as an example on the blank w

Assets "=" Liabilities "+" Equity

(a) Paid the current month's rent.

Decrease No Change Decrease
Rent expense XXXX
Cash XXXX

(b) Provided services to customers for cash.

increase no change increase
Cash XXXXX
Revenue XXXXX

(c) Provided services to customers on account.

increase no change Increase
Accounts receivable XXXX
Revenue XXXX

(d) Recorded receipt of an electric bill to be paid next month.

no change Increase Decrease
Electricity expense XXXXX
Accounts payable XXXXX

(e) Paid an electric bill received in a prior month.

Decrease Decrease No change
Accounts payable XXXXX
Cash XXXXX

(f) Purchased land for cash.

No change No change No change
Land XXXXX
Cash XXXXX

(g) Purchased equipment in exchange for a note payable (loan).

Increase Increase No change
Equipment XXXXX
Note Payable XXXXX

(h) Collected a previously recorded account receivable.

No change No change No change
Cash XXXXX
 Accounts receivable XXXXX

(i) Purchased a building by paying 20% in cash and agreeing to pay the remaind
Increase Increase No change
Building XXXXX
Cash XXXXX
Mortgage payable XXXXX
(j) Declared and paid a dividend to shareholders.
Decrease no change Decrease
Dividend XXXXx
Cash XXXXX
 following transactions on total
example on the blank worksheet.
Goudar Bloodcare is a blood donation center where eligible donors give a pint of blood
about one every other month. Assess each of the following to decide if Goudar should
Asset Unexpired
Liability cost debt
Legal
Revenue Earned in
Expense the
Costperiod
expired in
(a) The monthly fee paid to maintain Goudar's website.

Expense if paid at end of month, Asset if paid in advance

(b) Needles, bags, plastic bandages, etc. that were used to collect blood.

Since it has been used... expense...

(c) Needles, bags, plastic bandages, etc. that will be used in the future to
collect blood.
Asset until used. Expense... after it has been used (expired cost)

(d) Amounts received from hospitals to pay for the blood products.

Revenue earned when blood supplied.... this is cash received which is an asset

(e) A loan that is owed to a bank.

Liability

(f) The building and equipment that serves as the home office for Goudar.

Asset... if they own it

(g) Amounts owed to a printing company that prepared T-shirts given away at
a recent blood drive campaign.
Liability

(h) The salaries of employees of Goudar.

Expense
which is an asset
Compute net income for the year ending December 31, 20X2, under
each of the following independent scenarios:
Dec. 31, 20X1 Dec. 31, 20X2
Total assets ### ###
Total liabilities
equity (Retained 700,000 1,400,000
Earnings + Capital Stock) $ 800,000 $ 900,000

Ending equity $ 900,000

Beginning equity 800,000
Increase in equity $ 100,000
(a) Magee paid no dividends, and no additional capital was raised via
share issuances.
$ 100,000

(b) Magee paid $100,000 in dividends, and no additional capital was

raised via share issuances.
Dividend 100000
$ 200,000

(c) Magee paid no dividends, but raised $250,000 via issuances of

additional
Sold stock shares of stock. 250000
$ (150,000)

(d) Magee paid $100,000 in dividends, and raised $250,000 via

issuances of additional shares of stock.
Dividend 100000
Sold stock 250000
Net Loss ###
Calculator... only change yellow
Beginning
Add total equit $
Net Income 800,000
(less Net Loss) -50,000
Add Stock sale 250000
Less Dividend 100000
Ending total equity $ 900,000

Net Income

Net Income
unknowns in the 20X2 year, and work forward to subsquent years. Remember that 20X2 is the first y
business, so Cue begins with a zero balance in 20X2 beginning retained earnings.

CUE CORPORATION
Income Statement
For the Years Ending December 31, 20XX
20X4 20X3
Revenues
Services to customers ### ###
Expenses
Wages ### ###
Interest 3,000 ### 3,000 ###
Net income ### ###

CUE CORPORATION
Statement of Retained Earnings
For the Year Ending December 31, 20XX
20X4 20X3
Beginning retained earnings ### ###
Plus: Net income 60,000 40,000
### ###
Less: Dividends 30,000 20,000
Ending retained earnings ### ###

CUE CORPORATION
Balance Sheet
December 31, 20XX
20X4 20X3
Assets
Cash ### ###
Accounts receivable 65,000 50,000
Land ### ###
Total assets ### ###

Liabilities
Interest payable $ 1,000 $ 1,000
Loan payable 10,000 30,000
Total liabilities ### ###
Stockholders' equity
Capital stock ### ###
Retained earnings 60,000 30,000
Total stockholders' equity ### ###
Total Liabilities and equity ### ###
r that 20X2 is the first year of
ngs.

0XX
20X2

###

###
5,000 75,000
###

XX
20X2
$ -
25,000
###
15,000
###

20X2

###
70,000
###
###

$ 2,000
60,000
###
 ###
10,000
###
###
(a) What is the role of accounting in society?
Keeping track of data in accordance with rules
(b) Is accounting complete? Does it provide all of the information that investors and
creditors
No need for rational decision making?
(c) Consider an intrinsic principle of accounting, such as the historical cost principle. Are
the
It is aunderlying
philosophy....principles andthe
that has stood assumptions of accounting
test of time. From tiny Venice,immutable truths,
this philosophy or is over
has taken therethe w
 t investors and

l cost principle. Are

ble truths,
osophy or is over
has taken therethe world.
some of the fundamental principles, rules, and procedures. Evaluate the following ten
comments, and state whether you:
Agree
Disagree
The fundamental accounting equation precludes a situation where
(a) liabilities exceed assets.
disagree
A complete set of financial statements would include a cash flow
(b) statement.
agree
(c) The balance sheet can be prepared in a vertical or horizontal format.
agree
(d) The period of time covered by each financial statement is identical.
disagree... month, quarter, year
(e) Many assets are reported at their historical cost.
agree
(f) Revenue should not be recognized before it is collected.
disagree
(g) The term income is synonymous with the term revenue.
agree... and disagree... depends
(h) Dividends are reported as an expense on the income statement.
disagree
(i) Retained earnings will equal cash on hand.
disagree
(j) Issuing stock does not increase a company's revenue or income.
agree
Review the following facts for four separate companies. Identify the two companies that had Net Los
(Expenses exceeded Revenues) during the year, explaining how you reached your conclusion for eac
COMPANY A -- Ending retained earnings was less than beginning retained earnings, and
dividends were twice as much as income during the year.
company issued stock in an amount greater than the increase in retained earnings; no d
were declared or paid.
COMPANY C -- No stock was issued and no dividends were declared or paid; total liabilitie
increased more than total assets.
COMPANY D -- Expenses exceeded revenues, but the company issued additional shares
in an amount that exceeded the difference between revenues and expenses.
Beginning retained A B C D
earnings 100 100 200 Don't need to compute, they tell
Add Net Income 100 100 -100
Sub total 200 200 100
Less Dividends 200 0 0
Ending retained earnings 0 200 100
 mpanies that had Net Losses
ed your conclusion for each.
ng retained earnings, and

in retained earnings; no dividends

ared or paid; total liabilities

issued additional shares of stock

and expenses.

n't need to compute, they tell you expense exceed revenue