Chapter 2: Q13DQ (page 79)
Why does the user of an income statement need to know the time period that it covers?
An income statement is needed by different users for predicting future cash flow, assessing tax liability and income generation capacity, and making policies based on operating results.
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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).
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).
Nuncio Consulting completed the following transactions during June.
a. Armand Nuncio, the owner, invested \(35,000 cash along with office equipment valued at \)11,000 in the new company in exchange for common stock.
b. The company purchased land valued at \(7,500 and a building valued at \)40,000. The purchase is paid with \(15,000 cash and a long-term note payable for \)32,500.
c. The company purchased \(500 of office supplies on credit.
d. Nuncio invested his personal automobile in the company in exchange for more common stock. The automobile has a value of \)8,000 and is to be used exclusively in the business.
e. The company purchased \(1,200 of additional office equipment on credit.
f. The company paid \)1,000 cash salary to an assistant.
g. The company provided services to a client and collected \(3,200 cash.
h. The company paid \)540 cash for this month’s utilities.
i. The company paid \(500 cash to settle the payable created in transaction c.
j. The company purchased \)3,400 of new office equipment by paying \(3,400 cash.
k. The company completed \)4,200 of services for a client, who must pay within 30 days.
l. The company paid \(1,000 cash salary to an assistant.
m. The company received \)2,200 cash in partial payment on the receivable created in transaction k.
n. The company paid $1,100 cash in dividends.
Required
3. Prepare a trial balance as of the end of June.
Which financial statement is sometimes called thestatement of financial position?
Identify whether a debit or credit results in the indicated change for each of the following accounts.
a. To increase Land f. To decrease Prepaid Rent
b. To decrease Cash g. To increase Notes Payable
c. To increase Fees Earned (Revenues) h. To decrease Accounts
Receivable
d. To increase Office Expense i. To increase Common Stock
e. To decrease Unearned Revenue j. To increase Store Equipment
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