Chapter 1: Q3DQ. (page 29)
Question: Identify four kinds of external users and describe how they use accounting information.
External Users are people outside the business who use financial information. It includes investors, creditors, tax authorities, and customers.
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Ford Motor Company, one of the world’s largest automakers, reports the following income statement accounts for the year ended December 31, 2015 (\( in millions). Use this information to prepare Ford’s income statement for the year ended December 31, 2015.
Selling and administrative costs . . . . . . . . . . . . \) 14,999
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,041
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,558
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . 3,145
Sanyu Sony started a new business and completed these transactions during December.
Dec. 1 Sanyu Sony transferred \(65000 cash from a personal savings account to a checking account in the name of Sony Electric in exchange for its common stock.
2 The company rented office space and paid \)1000 cash for the December rent.
3 The company purchased \(13000 of electrical equipment by paying \)4800 cash and agreeing to pay the \(8200 balance in 30 days.
5 The company purchased office supplies by paying \)800 cash.
6 The company completed electrical work and immediately collected \(1200 cash for these services.
8 The company purchased \)2530 of office equipment on credit.
15 The company completed electrical work on credit in the amount of \(5000.
18 The company purchased \)350 of office supplies on credit.
20 The company paid \(2530 cash for the office equipment purchased on December 8.
24 The company billed a client \)900 for electrical work completed; the balance is due in 30 days.
28 The company received \(5000 cash for the work completed on December 15.
29 The company paid the assistant’s salary of \)1400 cash for this month.
30 The company paid \(540 cash for this month’s utility bill.
31 The company paid \)950 cash in dividends to the owner (sole shareholder).
Required 1. Create the following table similar to the one in Exhibit 1.9
Lita Lopez started Biz Consulting, a new business, and completed the following transactions during its first year of operations.
a. Lita Lopez invested \(70,000 cash and office equipment valued at \)10,000 in the company in exchange for its common stock.
b. The company purchased an office suite for \(40,000 cash.
c. The company purchased office equipment for \)15,000 cash.
d. The company purchased \(1,200 of office supplies and \)1,700 of office equipment on credit.
e. The company paid a local newspaper \(500 cash for printing an announcement of the office’s opening.
f. The company completed a financial plan for a client and billed that client \)2,800 for the service.
g. The company designed a financial plan for another client and immediately collected a \(4,000 cash fee.
h. The company paid \)3,275 cash in dividends to the owner (sole shareholder).
i. The company received \(1,800 cash as partial payment from the client described in transaction f.
j. The company made a partial payment of \)700 cash on the equipment purchased in transaction d.
k. The company paid $1,800 cash for the office secretary’s wages for this period.
Required 2. Determine the company’s net income.
Identify how each of the following separate transactions 1 through 10 affects financial statements. For increases, place a “+” and the dollar amount in the column or columns. For decreases, place a “−” and the dollar amount in the column or columns. Some cells may contain both an increase (+) and a decrease (−) along with dollar amounts. The first transaction is completed as an example.
Required a. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total equity. For the income statement, identify how each transaction affects net income
1 Owner invests \(800 cash in business in exchange for stock +800 +800 +800
2 Purchases \)100 of supplies on credit
3 Buys equipment for \(400 cash
4 Provides services for \)900 cash
5 Pays \(400 cash for rent incurred
6 Incurs \)200 utilities costs on credit
7 Pays \(300 cash for wages incurred
8 Pays \)50 cash for dividends
9 Provides \(600 services on credit
10 Collects \)600 cash on accounts receivable
Use the information in Exercise 1-15 to prepare an October 31 statement of cash flows for Ernst Consulting. Assume the following additional information.
a. The owner’s initial investment consists of \(38,000 cash and \)46,000 in land in exchange for its common stock.
b. The company’s \(18,000 equipment purchase is paid in cash.
c. The accounts payable balance of \)8,500 consists of the \(3,250 office supplies purchase and \)5,250 in employee salaries yet to be paid.
d. The company’s rent, telephone, and miscellaneous expenses are paid in cash.
e. No cash has been collected on the $14,000 consulting fees earned
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