Chapter 1: Q18DQ. (page 29)
What events or transactions change equity?
Equity is assets minus liabilities and it changes because of stock issuance, revenues, dividends, and expenses.
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Question: Many accounting professionals work in one of the following three areas.
A. Financial accounting B. Managerial accounting C. Tax accounting
Identify the area of accounting that is most involved in each of the following responsibilities.
1.Internal auditing 2. External auditing 3. Cost accounting 4. Budgeting 5. Investigating violations of tax laws 6. Planning transactions to minimize taxes 7. Preparing external financial statements 8. Reviewing reports for SEC compliance
BMW Group, one of Europe’s largest manufacturers, reports the following income statement accounts for the year ended December 31, 2015 (euros in millions).
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . € 92,175
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,043
Selling and administrative costs . . . . . . . . . . . . 8,633
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . 3,103
Use this information to prepare BMW’s income statement for the year ended December 31, 2015.
Nina Niko launched a new business Niko’s Maintenance Co. that began operations on June 1. The following transactions were completed by the company during that first month.
June
1 Nina Niko invested \(130000 cash in the company in exchange for its common stock.
2 The company rented a furnished office and paid \)6000 cash for June’s rent.
4 The company purchased \(2400 of equipment on credit.
6 The company paid \)1150 cash for this month’s advertising of the opening of the business.
8 The company completed maintenance services for a customer and immediately collected \(850 cash.
14 The company completed \)7500 of maintenance services for City Center on credit.
16 The company paid \(800 cash for an assistant’s salary for the first half of the month.
20 The company received \)7500 cash payment for services completed for City Center on June 14.
21 The company completed \(7900 of maintenance services for Paula’s Beauty Shop on credit.
24 The company completed \)675 of maintenance services for Build-It Coop on credit.
25 The company received \(7900 cash payment from Paula’s Beauty Shop for the work completed on June 21.
26 The company made payment of \)2400 cash for equipment purchased on June 4.
28 The company paid \(800 cash for an assistant’s salary for the second half of this month.
29 The company paid \)4000 cash in dividends to the owner (sole shareholder).
30 The company paid \(150 cash for this month’s telephone bill.
30 The company paid \)890 cash for this month’s utilities.
Required 1. Create the following table similar to the one in Exhibit 1.9.
Enter the effects of each transaction on the accounts of the accounting equation by recording dollar increases and decreases in the appropriate columns. Do not determine new account balances after each transaction. Determine the final total for each account and verify that the equation is in balance.
Why is the revenue recognition principle needed? What does it demand?
What information is reported in an income statement?
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