Business

1. Select the financial statement that matches with the description (Related transactions)

Related transactions Financial Statements
a. Change in owners’ claims to resources
b. Profitability of the company
c. Change in cash as a result of operating, investing, and financing activities
d. Resources equal creditors’ and owners’ claims to those resources

2. At the beginning of the year (January 1), Buffalo Drilling has $11,000 of common stock outstanding and retained earnings of $8,200. During the year, Buffalo reports net income of $8,500 and pays dividends of $3,200. In addition, Buffalo issues additional common stock for $8,000.

Required:

Prepare the statement of stockholders’ equity at the end of the year (December 31).

BUFFALO DRILLING
Statement of Stockholders’ Equity
Common Stock Retained Earnings Total Stockholders’ Equity
Beginning balance
Ending balance

3. Wolfpack Construction has the following account balances at the end of the year.

  Accounts Balances
  Equipment $ 26,000  
  Accounts payable   3,000  
  Salaries expense   33,000  
  Common stock   11,000  
  Land   18,000  
  Notes payable   20,000  
  Service revenue   39,000  
  Cash   6,000  
  Retained earnings   ?  

Required:

Use only the appropriate accounts to prepare a balance sheet.

WOLFPACK CONSTRUCTION
Balance Sheet
Assets Liabilities
Total liabilities 0
Stockholders’ Equity
Total stockholders’ equity 0
Total assets $0 Total liabilities and stockholders’ equity $0

4. Longhorn Corporation provides low-cost food delivery services to senior citizens. At the end of the year, the company reports the following amounts:

               
  Cash $ 1,200   Service revenue $ 67,700  
  Equipment   29,000   Cost of goods sold (food expense)   53,400  
  Accounts payable   4,400   Buildings   40,000  
  Delivery expense   2,600   Supplies   3,400  
  Salaries expense   5,500   Salaries payable   800  

 

In addition, the company had common stock of $40,000 at the beginning of the year and issued an additional $4,000 during the year. The company also had retained earnings of $18,200 at the beginning of the year.

Show your work

1. Prepare the income statement for Longhorn Corporation.

LONGHORN CORPORATION
Income Statement
Expenses:
Total expenses 0

2. Prepare the statement of stockholders’ equity for Longhorn Corporation.

LONGHORN CORPORATION
Statement of Stockholders’ Equity
Common Stock Retained Earnings Total Stockholders’ Equity
Beginning balance
Ending balance

5. Below are incomplete financial statements for Bulldog, Inc.  Required:

Calculate the missing amounts.

BULLDOG, INC.
Income Statement
Revenues $39,000
Expenses:
Salaries
Advertising 6,000
Utilities 4,000
Net income
BULLDOG, INC.
Statement of Stockholders’ Equity
Common Stock Retained Earnings Total Stockholders’ Equity
Beginning balance $10,000 $7,000 $17,000
Issuances 1,100 1,100
Add: Net income
Less: Dividends (3,000) (3,000)
Ending balance $11,100 $10,000 $21,100
BULLDOG, INC.
Balance Sheet
Assets Liabilities
Cash $4,000 Accounts payable Write in here
Accounts receivable 3,000 Stockholders’ Equity
Supplies 9,000 Common stock Write in here
Equipment 10,000 Retained earnings Write in here
Total assets $26,000 Total liabilities and stockholders’ equity Write answer in here

6. Cornhusker Company provides the following information at the end of 2018.

       
  Cash remaining $ 4,800  
  Rent expense for the year   7,000  
  Land that has been purchased   21,000  
  Retained earnings   12,400  
  Utility expense for the year   4,900  
  Accounts receivable from customers   7,200  
  Service revenue earned during the year   37,000  
  Salary expense for the year   13,300  
  Accounts payable to suppliers   2,200  
  Dividends paid to shareholders during the year   3,200  
  Common stock that has been issued prior to 2018   16,000  
  Salaries owed at the end of the year   2,400  
  Insurance expense for the year   3,500  

 

No common stock is issued during 2018, and the balance of retained earnings at the beginning of 2018 equals $7,300.

 

Required:

1. Prepare the income statement for Cornhusker Company on December 31, 2018.

CORNHUSKER COMPANY
Income Statement
For the year ended December 31, 2018
Expenses:
Total expenses

2. Prepare the statement of stockholders’ equity for Cornhusker Company on December 31, 2018.

CORNHUSKER COMPANY
Statement of Stockholders’ Equity
For the year ended December 31, 2018
Common Stock Retained Earnings Total Stockholders’ Equity
Beginning balance
Ending balance

3. Prepare the balance sheet for Cornhusker Company on December 31, 2018.

CORNHUSKER COMPANY
Balance Sheet
December 31, 2018
Assets Liabilities
Total liabilities
Stockholders’ Equity
Total stockholders’ equity
Total assets Total liabilities and stockholders’ equity

7. The four underlying assumptions of generally accepted accounting principles are economic entity, monetary unit, periodicity, and going concern. Consider the four independent situations below.

1. Jumbo’s is a local restaurant. Due to a bad shipment of potatoes, several of the company’s customers become ill, and the company receives considerable bad publicity. Revenues are way down, several of its bills are past due, and the company is making plans to close the restaurant at the end of the month. The company continues to report its assets in the balance sheet at historical (original) cost.

2. Gorloks Tax Services is owned and operated by Sam Martin. The company has the usual business assets: land, building, cash, equipment, and supplies. In addition, Sam decides to buy a boat for him and his family to enjoy on the weekends. Sam includes the boat as an asset on the balance sheet of Gorloks Tax Services.

3. Claim Jumpers International, a U.S.-based company, has operations in the United States and in Europe. For the current year, the company purchased two trucks in the United States for $10,000 and three trucks in Europe for €20,000 (euros). Because of the differences in currencies, the company reported “Five Trucks” with no corresponding amount in the balance sheet.

4. Cobbers Etc. sells specialty music equipment ranging from African bongo drums to grand pianos. Because of the fluctuating nature of the business, management decides to publish financial statements only when a substantial amount of activity has taken place. Its last set of financial statements covered a period of 14 months, and the set of financial statements before that covered a period of 18 months.

Required:

For each situation, select which of the underlying assumptions of GAAP is violated.

Situation Assumption Violated
1.
2.
3.
4.

Chap 2.

1. Suppose a local company has the following balance sheet accounts. Calculate the missing amounts assuming the business has total assets of $37,500.

Accounts Balances
Land $9,000
Equipment
Salaries Payable 4,300
Notes Payable
Supplies 2,100
Cash 7,200
Stockholders’ Equity 13,500
Accounts Payable 1,700
Prepaid Rent 3,200

2. Boilermaker House Painting Company incurs the following transactions for September.

 

Required:

For each transaction, describe the dual effect on the accounting equation. For example, for the first transaction, (1) assets increase and (2) stockholders’ equity increases.

Transactions Dual Effect
1. Paint houses in the current month for $15,000 on account. Assets increase and stockholders’ equity increases.
2. Purchase painting equipment for $16,000 cash.
3. Purchase office supplies on account for $2,500.
4. Pay employee salaries of $3,200 for the current month.
5. Purchase advertising to appear in the current month, $1,200.
6. Pay office rent of $4,400 for the current month.
7. Receive $10,000 from customers in (1) above.
8. Receive cash of $5,000 in advance from a customer who plans to have his house painted in the following month.

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