Chapter 2: Q12DQ (page 79)
What information is reported in an income statement?
The income statement depicts the information regarding income, expenses, and gains or losses for a particular period.
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Question:Aracel Engineering completed the following transactions in the month of June.
a. Jenna Aracel, the owner, invested \(100,000 cash, office equipment with a value of \)5,000, and \(60,000 of drafting equipment to launch the company in exchange for common stock.
b. The company purchased land worth \)49,000 for an office by paying \(6,300 cash and signing a longterm note payable for \)42,700.
c. The company purchased a portable building with \(55,000 cash and moved it onto the land acquired in b.
d. The company paid \)3,000 cash for the premium on an 18-month insurance policy.
e. The company completed and delivered a set of plans for a client and collected \(6,200 cash.
f. The company purchased \)20,000 of additional drafting equipment by paying \(9,500 cash and signing a long-term note payable for \)10,500.
g. The company completed \(14,000 of engineering services for a client. This amount is to be received in 30 days.
h. The company purchased \)1,150 of additional office equipment on credit.
i. The company completed engineering services for \(22,000 on credit.
j. The company received a bill for rent of equipment that was used on a recently completed job. The \)1,333 rent cost must be paid within 30 days.
k. The company collected \(7,000 cash in partial payment from the client described in transaction g.
l. The company paid \)1,200 cash for wages to a drafting assistant.
m. The company paid \(1,150 cash to settle the account payable created in transaction h.
n. The company paid \)925 cash for minor maintenance of its drafting equipment.
o. The company paid \(9,480 cash in dividends.
p. The company paid \)1,200 cash for wages to a drafting assistant.
q. The company paid $2,500 cash for advertisements on the web during June.
Required
1. Prepare general journal entries to record these transactions (use the account titles listed in part 2).
In a recent year’s financial statements, Home Depot reported the following: Total liabilities = \(30,624 million and Total assets = \)39,946 million. Compute and interpret Home Depot’s debt ratio (assume competitors average a 60.0% debt ratio).
Question:Assume that Catherine Mahugu of Soko plans on expanding her business to accommodate more product lines. She is considering financing her expansion in one of two ways: (1) contributing more of her own funds to the business or (2) borrowing the funds from a bank.
Required
Identify at least two issues that Catherine should consider when trying to decide on the method for financing her expansion.
Question:Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account.
a. Cash d. Prepaid Insurance g. Accounts Payable
b. Prepaid Rent e. Office Equipment h. Unearned Rent Revenue
c. Office Supplies f. Common Stock i. Dividends
Roshaun Gould started a web consulting firm called Gould Solutions. He began operations and completed seven transactions in April that resulted in the following accounts, which all have normal balances.
Cash ………………………………………. \(20,000
Office supplies ……………………………….. 750
Prepaid rent ………………………………… 1,800
Office equipment …………………………. 12,250
Accounts payable ………………………… 12,250
Common stock ……………………………. 15,000
Dividends ……………………………………. 5,200
Consulting fees earned ………………….. 20,400
Miscellaneous expenses ………………….. 7,650
Required
2. The following seven transactions produced the account balances shown above.
a. Gould invested \)15,000 cash in the business in exchange for common stock.
b. Paid \(1,800 cash in advance for next month’s rent expense.
c. Paid \)7,650 cash for miscellaneous expenses.
d. Purchased office supplies for \(750 cash.
e. Purchased \)12,250 of office equipment on credit (with accounts payable).
f. Received \(20,400 cash for consulting services provided in April.
g. The company paid \)5,200 cash in dividends.
Prepare a Cash T-account, enter the cash effects (if any) of each transaction, and compute the ending Cash balance (code each entry in the T-account with one of the transaction codes athrough g).
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