College Accounting Study Set 7

Business

Quiz 2 :

Analyzing Business Transactions

Quiz 2 :

Analyzing Business Transactions

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Review the following excerpt from the 2009 consolidated statement of income for Southwest Airlines Co. Answer the questions that follow. img What three types of revenue are reflected on this statement?
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Income refers to an inflow of money which results from the sale of goods or by providing services to customers or clients or from the use of property or money.
The income earned is reflected in the statement of income of the company in its financial statements. The revenue generated is used to incur expenses relating to the business.
In case of S A Co. it shows three types of revenues from its customers which are described as follows:
1. Revenue from passengers: The Revenue earned by the airline through transporting the passengers from one country to the other or from one state to another state. The regular running flights from different places contribute this revenue for the company. For the year 2007, 2008 and 2009 the revenue earned by the company is $9,457, $ 10,549 and $9,892 (in millions) respectively.
2. Revenue from freight: The revenue earned in the form of Freight by the airline by transporting the goods or commercial luggage from one place to another. The amount of freight received from the transportation of goods for the year 2007, 2008 and 2009 the revenue earned by the company is $130, $ 145 and $118 (in millions) respectively.
3. Revenue from other sources: Revenue earned from other activities like Advertisement, providing services for private travelling. And other likely services. The amount received from such activities for the year 2007, 2008 and 2009 the revenue earned by the company is $274, $ 329 and $340 (in millions) respectively.

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Analyzing the effects of transactions on the accounting equation. Rhonda Johnson owns Johnson's Consulting Service. At the beginning of September, her firm's financial records showed the following assets, liabilities, and owner's equity. img INSTRUCTIONS Set up an equation using the balances given above. Record the effects of the following transactions in the equation. (Use plus, minus, and equals signs.) Record new balances after each transaction has been entered. Prove the equality of the two sides of the final equation on a separate sheet of paper. TRANSACTIONS 1. Performed services for $4,000 on credit. 2. Paid $1,440 in cash for utilities. 3. Performed services for $5,000 in cash. 4. Paid $800 in cash for office cleaning service. 5. Sent a check for $2,400 to a creditor. 6. Paid $960 in cash for the telephone bill. 7. Issued checks for $7,000 to pay salaries. 8. Performed services for $5,600 in cash. 9. Purchased additional supplies for $1,000 on credit. 10. Received $3,000 in cash from credit clients. Analyze: What is the ending balance for owner's equity after all transactions have been recorded?
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Part: 1
The accounting equation represents the relationship between the assets, liabilities and Capital of the company. The entire process of analysis, recording and presenting is called financial accounting for the company.
The transactions of Rhonda Johnson are as follows:
img Johnson consulting services
Income statement
Month ending August 31, 2013
img Johnson consulting services
Statement of owner's Equity
Month ending August 31, 2013
img Johnson consulting services
Balance sheet
Month end August 31, 2013
img

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What is the fundamental accounting equation?
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Fundamental accounting equation:
• The fundamental accounting equation is as following:
img • Here the assets refer the sum of the liabilities and Capital.
• It shows the relationship between assets and liabilities with owner's equity.
• Based on the fundamental accounting equation, analyzing, recording and reporting business transactions have to be done.
• Owner's equity is increased by Revenues.
• Owner's equity is decreased by Expenses.

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Analyzing the effects of transactions on the accounting equation. On September 1, Mireya Cortez opened Self Images Tutoring Service. INSTRUCTIONS Analyze the following transactions. Use the fundamental accounting equation form to record the changes in property, claims of creditors, and owner's equity. (Use plus, minus, and equals signs.) TRANSACTIONS 1. The owner invested $36,000 in cash to begin the business. 2. Purchased equipment for $16,000 in cash. 3. Purchased $6,000 of additional equipment on credit. 4. Paid $3,000 in cash to creditors. 5. The owner made an additional investment of $6,000 in cash. 6. Performed services for $4,200 in cash. 7. Performed services for $3,650 on account. 8. Paid $2,600 for rent expense. 9. Received $2,500 in cash from credit clients. 10. Paid $3,150 in cash for office supplies. 11. The owner withdrew $5,000 in cash for personal expenses. Analyze: Which transactions increased the company's debt? By what amount?
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What are expenses?
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Determining the effects of transactions on the accounting equation. Indicate the impact of each of the transactions below on the fundamental accounting equation (Assets = Liabilities + Owner's Equity) by placing a "+" to indicate an increase and a "?" to indicate a decrease. The first transaction is entered as an example. img TRANSACTIONS 1. Owner invested $90,000 in the business. 2. Purchased $26,700 supplies on account. 3. Purchased equipment for $21,000 cash. 4. Paid $6,000 for rent (in advance). 5. Performed services for $7,800 cash. 6. Paid $2,160 for utilities. 7. Performed services for $10,500 on account. 8. Received $6,600 from charge customers. 9. Paid salaries of $4,500 to employees. 10. Paid $6,000 to a creditor on account.
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What is revenue?
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Preparing a balance sheet. Valdez Equipment Repair Service is owned by Francisco Valdez. INSTRUCTIONS Use the following figures to prepare a balance sheet dated February 28, 2013. (You will need to compute the owner's equity.) img Analyze: What is the net worth, or owner's equity, at February 28, 2013 for Valdez Equipment Repair Service?
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Describe the effects of each of the following business transactions on assets, liabilities, and owner's equity. a. Sold services on credit. b. Bought furniture for cash. c. Paid cash to a creditor. d. Sold services for cash. e. Paid salaries to employees. f. Bought equipment on credit.
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Analyzing the effects of transactions on the accounting equation. Jim Jackson is a painting contractor who specializes in painting commercial buildings. At the beginning of June, his firm's financial records showed the following assets, liabilities, and owner's equity. img INSTRUCTIONS Set up an accounting equation using the balances given above. Record the effects of the following transactions in the equation. (Use plus, minus, and equals signs.) Record new balances after each transaction has been entered. Prove the equality of the two sides of the final equation on a separate sheet of paper. TRANSACTIONS 1. Performed services for $6,580 on credit. 2. Paid $1,600 in cash for new office chairs. 3. Received $10,200 in cash from credit clients. 4. Paid $780 in cash for telephone service. 5. Sent a check for $2,500 in partial payment of the amount due creditors. 6. Paid salaries of $8,700 in cash. 7. Sent a check for $1,020 to pay electric bill. 8. Performed services for $9,500 in cash. 9. Paid $2,250 in cash for auto repairs. 10. Performed services for $11,500 on account. Analyze: What is the amount of total assets after all transactions have been recorded?
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Analyzing the effects of transactions on the accounting equation. On July 1, John Walker established Home Appraisal Services, a firm that provides expert residential appraisals and represents clients in home appraisal hearings. INSTRUCTIONS Analyze the following transactions. Record in equation form the changes that occur in assets, liabilities, and owner's equity. (Use plus, minus, and equals signs.) TRANSACTIONS 1. The owner invested $92,000 in cash to begin the business. 2. Paid $18,750 in cash for the purchase of equipment. 3. Purchased additional equipment for $12,400 on credit. 4. Paid $10,800 in cash to creditors. 5. The owner made an additional investment of $25,000 in cash. 6. Performed services for $7,200 in cash. 7. Performed services for $4,300 on account. 8. Paid $3,000 for rent expense. 9. Received $2,500 in cash from credit clients. 10. Paid $5,460 in cash for office supplies. 11. The owner withdrew $8,000 in cash for personal expenses. Analyze: What is the ending balance of cash after all transactions have been recorded?
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Accounting for a New Company James Mitchell opened a gym and fitness studio called Body Builders Fitness Center at the beginning of November of the current year. It is now the end of December, and James is trying to determine whether he made a profit during his first two months of operations. You offer to help him and ask to see his accounting records. He shows you a shoe box and tells you that every piece of paper pertaining to the business is in that box. As you go through the material in the shoe box, you discover the following: a. A receipt from Clayton Properties for $8,000 for November's rent on the exercise studio. b. Bank deposit slips totaling $7,360 for money collected from customers who attended exercise classes. c. An invoice for $50,000 for exercise equipment. The first payment is not due until December 31. d. A bill for $2,100 from the maintenance service that cleans the studio. James has not yet paid this bill. e. A December 19 parking ticket for $200. James says he was in a hurry that morning to get to the Fitness Center on time and forgot to put money in the parking meter. f. A handwritten list of customers and fees for the classes they have taken. As the customers attend the classes, James writes their names and the amount of each customer's fee on the list. As customers pay, James crosses their names off the list. Fees not crossed off the list amount to $2,400. g. A credit card receipt for $800 for printing flyers advertising the grand opening of the studio. For convenience, James used his personal credit card. h. A credit card receipt for $800 for four warm-up suits James bought to wear at the studio. He also put this purchase on his personal credit card. Use the concepts you have learned in this chapter to help James. 1. Prepare an income statement for the first two months of operation of Body Builders Fitness Center. 2. How would you evaluate the results of the first two months of operation? 3. What advice would you give James concerning his system of accounting?
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Is it reasonable to expect that all new businesses will have a net income from the first month's operations? From the first year's operations?
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Review the following excerpt from the 2009 consolidated statement of income for Southwest Airlines Co. Answer the questions that follow. img Although the format for the heading of an income statement can vary from company to company, the heading should contain the answers to who, what, and when. List the answers to each question for the statement presented above.
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Financial Statements The following account balances are for Dolly Garcia, Certified Public Accountant, as of April 30, 2013. img INSTRUCTIONS Using the accounting equation form, determine the balance for Dolly Garcia, Capital, April 1, 2013. Prepare an income statement for the month of April, a statement of owner's equity, and a balance sheet as of April 30, 2013. List the expenses on the income statement in alphabetical order. Analyze: What net change in owner's equity occurred during the month of April?
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Completing the accounting equation. The fundamental accounting equation for several businesses follows. Supply the missing amounts. img
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Why should managers be concerned with changes in the amount of creditors' claims against the business?
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Review the following excerpt from the 2009 consolidated statement of income for Southwest Airlines Co. Answer the questions that follow. img The net income of $99,000,000 reflected on Southwest Airlines Co.'s consolidated statement of income for 2009 will be transferred to the next financial statement to be prepared. Net income is needed to complete which statement?
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How does an accounting system help managers control operations and make sound decisions?
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Determining accounting equation amounts. Just before Anderson Laboratories opened for business, Roy Anderson, the owner, had the following assets and liabilities. Determine the totals that would appear in the firm's fundamental accounting equation (Assets = Liabilities + Owner's Equity). img
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