Accounting Study Set 8

Business

Quiz 1 :

Introductionto Accountingand Business

Quiz 1 :

Introductionto Accountingand Business

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Name some users of accounting information.
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Accounting is defined as an information system which reports financial performance of a business to the users. The process of reporting accounting information involves the following steps:
1) Identify the users.
2) Assess user's information needs.
3) Design the accounting information system to meet the user's needs.
4) Record economic data about business activities and events.
5) Prepare accounting reports for users.
Users of accounting information can be divided into two groups such as internal and external users.
Internal users of the accounting information are defined as users who are directly involved in the management and operations of the business for the purpose of decision making needs. Such information is sensitive and is not distributed to the outsiders.
Internal users of accounting information are managers, employees and company executives.
Examples of accounting information include information about customers, prices and plans to expand the business.
External users of the accounting information are defined as users who are not involved in the managing and operating the business. External users include investors, creditors, customers, government.

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What is the role of accounting in business
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Accounting:
Accounting is a process of documenting all the financial transactions of a business enterprise for a specific period, that is, usually one year. It provides all the necessary information regarding the financial position of the company to its stakeholders.
Accounting can be divided into financial, cost and management accounting. Financial accounting is helpful for both internal and external stakeholders. On the other hand, cost and management accounting is mainly useful for the internal users like employees and management for better understanding of the operations of business and decision-making process.
Explain the role of accounting in business as under:
1.
Accounting provides the necessary information regarding the financial aspect of the business to its internal users like management and employees for better decision making.
2.
Accounting helps in the planning process for the operating, financing and investing activities of the business.
3.
Financial accounting provides the information regarding financial position of the business to its external users like investors in case of a company, creditors and government authorities.
4.
Accounting helps in comparison of financial position of one company with another. Also accounts for one financial period can be compared with another, by analyzing the difference in profits, expenses, cash flows, etc.
5.
Accounting provides an accountability to its users for the efficient usage of their funds. The investors can decide to further invest or withdraw their funds from the company based on its financial position.

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Peyton Smith enjoys listening to all types of music and owns countless CDs. Over the years, Peyton has gained a local reputation for knowledge of music from classical to rap and the ability to put together sets of recordings that appeal to all ages. During the last several months, Peyton served as a guest disc jockey on a local radio station. In addition, Peyton has entertained at several friends' parties as the host deejay. On June 1, 2014, Peyton established a proprietorship known as PS Music. Using an extensive collection of music MP3 files, Peyton will serve as a disc jockey on a fee basis for weddings, college parties, and other events. During June, Peyton entered into the following transactions: img Instructions 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings: img 2. Prepare an income statement for PS Music for the month ended June 30, 2014. 3. Prepare a statement of owner's equity for PS Music for the month ended June 30, 2014. 4. Prepare a balance sheet for PS Music as of June 30, 2014.
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1. Effect of each transaction-:
img In the end Assets = Liabilities + Owner's equity
2. Determination of Net Income-:
img Notes -:
• Supplies would form part of balance sheet and expenses related to it shall form part of income statement.
3. Statement of Owner's equity
img 4. Balance Sheet for PS Music
img

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Why are most large companies like Microsoft , PepsiCo , Caterpillar , and AutoZone organized as corporations
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Business entity concept Ozark Sports sells hunting and fishing equipment and provides guided hunting and fishing trips. Ozark Sports is owned and operated by Eric Griffith, a well-known sports enthusiast and hunter. Eric's wife, Linda, owns and operates Lake Boutique, a women's clothing store. Eric and Linda have established a trust fund to finance their children's college education. The trust fund is maintained by Missouri State Bank in the name of the children, Mark and Steffy. a. For each of the following transactions, identify which of the entities listed should record the transaction in its records. img 1. Linda authorized the trust fund to purchase mutual fund shares. 2. Linda purchased two dozen spring dresses from a St. Louis designer for a special spring sale. 3. Eric paid a breeder's fee for an English springer spaniel to be used as a hunting guide dog. 4. Linda deposited a $2,000 personal check in the trust fund at Missouri State Bank. 5. Eric paid a local doctor for his annual physical, which was required by the workmen's compensation Insurance policy carried by Ozark Sports. 6. Eric received a cash advance from customers for a guided hunting trip. 7. Linda paid her dues to the YWCA. 8. Linda donated several dresses from Inventory for a local charity auction for the benefit of a women's abuse shelter. 9. Eric paid for dinner and a movie to celebrate their twelfth wedding anniversary. 10. Eric paid for an advertisement in a hunters' magazine. b. What is a business transaction
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Financial statements Seth Feye established Reliance Financial Services on July 1, 2014. Reliance Financial Services offers financial planning advice to its clients. The effect of each transaction and the balances after each transaction for July are shown below. img Instructions 1. Prepare an income statement for the month ended July 31, 2014. 2. Prepare a statement of owner's equity for the month ended July 31, 2014. 3. Prepare a balance sheet as of July 31, 2014. 4. (Optional). Prepare a statement of cash flows for the month ending July 31, 2014.
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Transactions and financial statements Lisa Duncan, a junior in college, has been seeking ways to earn extra spending money. As an active sports enthusiast, Lisa plays tennis regularly at the Phoenix Tennis Club, where her family has a membership. The president of the club recently approached Lisa with the proposal that she manage the club's tennis courts. Lisa's primary duty would be to supervise the operation of the club's four indoor and 10 outdoor courts, including court reservations. In return for her services, the club would pay Lisa $325 per week, plus Lisa could keep whatever she earned from lessons. The club and Lisa agreed to a one-month trial, after which both would consider an arrangement for the remaining two years of Lisa's college career. On this basis, Lisa organized Serve-N-Volley. During September 2014, Lisa managed the tennis courts and entered into the following transactions: a. Opened a business account by depositing $950. b. Paid $300 for tennis supplies (practice tennis balls, etc.). c. Paid $275 for the rental of video equipment to be used in offering lessons during September. d. Arranged for the rental of two ball machines during September for $250. Paid $100 in advance, with the remaining $150 due October 1. e. Received $1,750 for lessons given during September. f. Received $600 in fees from the use of the ball machines during September. g. Paid $800 for salaries of part-time employees who answered the telephone and took reservations while Lisa was giving lessons. h. Paid $290 for miscellaneous expenses. i. Received $1,300 from the club for managing the tennis courts during September. j. Determined that the cost of supplies on hand at the end of the month totaled $180; therefore, the cost of supplies used was $120. k. Withdrew $400 for personal use on September 30. As a friend and accounting student, you have been asked by Lisa to aid her in assessing the venture. 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings: img 2. Prepare an income statement for September. 3. Prepare a statement of owner's equity for September. 4. Prepare a balance sheet as of September 30. 5. a. Assume that Lisa Duncan could earn $10 per hour working 30 hours a week as a waitress. Evaluate which of the two alternatives, working as a waitress or operating Serve-N-Volley, would provide Lisa with the most income per month. b. Discuss any other factors that you believe Lisa should consider before discussing a long-term arrangement with the Phoenix Tennis Club.
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Transactions Amy Austin established an insurance agency on March 1 of the current year and completed the following transactions during March: a. Opened a business bank account with a deposit of $50,000 from personal funds. b. Purchased supplies on account, $4,000. c. Paid creditors on account, $2,300. d. Received cash from fees earned on insurance commissions, $13,800. e. Paid rent on office and equipment for the month, $5,000. f. Paid automobile expenses for month, $1,150, and miscellaneous expenses, $300. g. Paid office salaries, $2,500. h. Determined that the cost of supplies on hand was $2,700; therefore, the cost of supplies used was $1,300. i. Billed insurance companies for sales commissions earned, $12,500. j. Withdrew cash for personal use, $3,900. Instructions 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings: img 2. Briefly explain why the owner's investment and revenues increased owner's equity, while withdrawals and expenses decreased owner's equity. 3. Determine the net income for March. 4. How much did March's transactions increase or decrease Amy Austin's capital
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Accounting equation Megan Newell is the owner and operator of Ultima LLC, a motivational consulting business. At the end of its accounting period, December 31, 2013, Ultima has assets of $942,000 and liabilities of $584,000. Using the accounting equation, determine the following amounts: a. Owner's equity as of December 31, 2013. b. Owner's equity as of December 31, 2014, assuming that assets increased by $113,000 and liabilities Increased by $44,000 during 2014. Fritz Evans Is the owner and operator of Be-The-One, a motivational consulting business. At the end of its accounting period, December 31, 2013, Be-The-One has assets of $395,000 and liabilities of $97,000. Using the accounting equation, determine the following amounts: a. Owner's equity as of December 31, 2013. b. Owner's equity as of December 31, 2014, assuming that assets decreased by $65,000 and liabilities Increased by' $36,000 during 2014.
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Types of businesses The following Is a list of well-known companies. 1. Alcoa Inc. 2. Boeing 3. Caterpillar 4. Citigroup Inc. 5. CVS 6. Dow Chemkal Company 7. eBay Inc. 8. FedEx 9. Ford Motor Company 10. Gap Inc. 11. H R Block 12. Hilton Hospitality, Inc 13. Procter Gamble 14. SunTrust 15. Walmart Stores, Inc. a. Indicate whether each of these companies Is primarily a service, merchandise, or manufacturing business. If you are unfamiliar with the company, use the Internet to locate the company's home page or use the finance Web site of Yahoo (http://finance.yahoo.com). b. For which of the preceding companies Is the accounting equation relevant
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Financial statements The amounts of the assets and liabilities of Wilderness Travel Service at April 30, 2014, the end of the current year, and its revenue and expenses for the year are listed below. The capital of Harper Borg, owner, was $180,000 at May 1, 2013, the beginning of the current year, and the owner withdrew $40,000 during the current year. img Instructions 1. Prepare an income statement for the current year ended April 30, 2014. 2. Prepare a statement of owner's equity for the current year ended April 30, 2014. 3. Prepare a balance sheet as of April 30, 2014. 4. What item appears on both the income statement and statement of owner's equity
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Professional ethics A fertilizer manufacturing company wants to relocate to Yellowstone County. A report from a fired researcher at the company Indicates the company's product Is releasing toxic by-products. The company suppressed that report A later report commissioned by the company shows there Is no problem with the fertilizer. Should the company's chief executive officer reveal the content of the unfavorable report In discussions with Yellowstone County representatives Discuss.
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Certification requirements for accountants By satisfying certain specific requirements, accountants may become certified as public accountants (CPAs), management accountants (CMAs), or internal auditors (CIAs). Find the certification requirements for one of these accounting groups by accessing the appropriate Internet site listed below. img
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Transactions Arrowhead Delivery Service is owned and operated by Gates Deeter. The following selected transactions were completed by Arrowhead Delivery Service during August: 1. Received cash from owner as additional investment, $25,000. 2. Paid creditors on account, $3,750. 3. Billed customers for delivery services on account, $22,400. 4. Received cash from customers on account, $11,300. 5. Paid cash to owner for personal use, $6,000. Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner's Equity, Drawing. Revenue, and Expense). Also indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below. (1) Asset (Cash) increases by $25,000; Owner's Equity (Gates Deeter, Capital) increases by $25,000. Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery' Service during May: 1. Received cash from owner as additional Investment, $18,000. 2. Paid advertising expense, $4,850. 3. Purchased supplies on account, $2,100. 4. Billed customers for delivery services on account, $14,700. 5. Received cash from customers on account, $8,200. Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner's Equity, Drawing. Revenue, and Expense). Also indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below. (1) Asset (Cash) increases by $18,000; Owner's Equity (Katie Wyer, Capital) increases by $18,000.
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Cost concept On May 19, Integrity Repair Service extended an offer of $335,000 for land that had been priced for sale at $363,000. On June 4, Integrity' Repair Service accepted the seller's counteroffer of $345,000. On October 10, the land was assessed at a value of $290,000 for property tax purposes. On February 5 of the next year. Integrity Repair Service was offered $380,000 for the land by a national retail chain. At what value should the land be recorded In Integrity Repair Service's records On March 31, Higgins Repair Service extended an offer of $415,000 for land that had been priced for sale at $460,000. On April 15, Higgins Repair Service accepted the seller's counteroffer of $437,500. On September 9, the land was assessed at a value of $375,000 for property' tax purposes. On December 8, Higgins Repair Service was offered $475,000 for the land by a national retail chain. At what value should the land be recorded In Higgins Repair Service's records
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Financial statements Following are the amounts of the assets and liabilities of Oriental Travel Agency at December 31, 2014, the end of the current year, and its revenue and expenses for the year. The capital of Sung Kim, owner, was $450,000 on January 1, 2014, the beginning of the current year. During the current year, Sung withdrew $25,000. img Instructions 1. Prepare an income statement for the current year ended December 31, 2014. 2. Prepare a statement of owner's equity for the current year ended December 31, 2014. 3. Prepare a balance sheet as of December 31, 2014. 4. What item appears on both the statement of owner's equity and the balance sheet
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Transactions On June 1 of the current year, Bret Eisen established a business to manage rental property. He completed the following transactions during June: a. Opened a business bank account with a deposit of $30,000 from personal funds. b. Purchased office supplies on account, $1,200. c. Received cash from fees earned for managing rental property, $7,200. d. Paid rent on office and equipment for the month, $3,000. e. Paid creditors on account, $750. f. Billed customers for fees earned for managing rental property, $5,000. g. Paid automobile expenses (including rental charges) for month, $600, and miscellaneous expenses, $300. h. Paid office salaries, $1,800. i. Determined that the cost of supplies on hand was $700; therefore, the cost of supplies used was $500. j. Withdrew cash for personal use, $1,500. Instructions 1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings: 2. Briefly explain why the owner's investment and revenues increased owner's equity, while withdrawals and expenses decreased owner's equity. 3. Determine the net income for June. 4. How much did June's transactions increase or decrease Bret Eisen's capital
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Financial statements Jose Loder established Bronco Consulting on August 1, 2014. The effect of each transaction and the balances after each transaction for August are shown below. img Instructions 1. Prepare an income statement for the month ended August 31, 2014. 2. Prepare a statement of owner's equity for the month ended August 31, 2014. 3. Prepare a balance sheet as of August 31, 2014. 4. (Optional). Prepare a statement of cash flows for the month ending August 31, 2014.
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Ethics and professional conduct in business Group Project Colleen Fernandez, president of Rhino Enterprises, applied for a $175,000 loan from First Federal Bank. The bank requested financial statements from Rhino Enterprises as a basis for granting the loan. Colleen has told her accountant to provide the bank with a balance sheet. Colleen has decided to omit the other financial statements because there was a net loss during the past year. In groups of three or four, discuss the following questions: 1. Is Colleen behaving in a professional manner by omitting some of the financial statements 2. a. What types of information about their businesses would owners be willing to provide bankers What types of information would owners not be willing to provide b. What types of information about a business would bankers want before extending a loan c. What common interests are shared by bankers and business owners
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Net income On January 1, 2013, Dr. Marcie Cousins established Health-Wise Medical, a medical practice organized as a proprietorship. The following conversation occurred the following August between Dr. Cousins and a former medical school classmate, Dr. Avi Abu, at an American Medical Association convention in Seattle. Dr. Abu: Marcie, good to see you again. Why didn't you call when you were in Miami We could have had dinner together. Dr. Cousins: Actually, I never made it to Miami this year. My husband and kids went up to our Vail condo twice, but I got stuck in Jacksonville. I opened a new consulting practice this January and haven't had any time for myself since. Dr. Abu: I heard about it … Health … something … right Dr. Cousins: Yes, Health-Wise Medical. My husband chose the name. Dr. Abu: I've thought about doing something like that. Are you making any money I mean, is it worth your time Dr. Cousins: You wouldn't believe it. I started by opening a bank account with $25,000, and my July bank statement has a balance of $80,000. Not bad for six months-all pure profit. Dr. Abu: Maybe I'll try it in Miami! Let's have breakfast together tomorrow and you can fill me in on the details. Comment on Dr. Cousins' statement that the difference between the opening bank balance ($25,000) and the July statement balance ($80,000) is pure profit.
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