Chapter 1: Q6DQ. (page 29)
Question: Describe the internal role of accounting for organizations
An organization is a group of people who work to achieve the organizational goal, and accounting plays a very important internal role in that.
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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
Question: Match each of the numbered descriptions 1 through 5 with the term or phrase it best reflects. Indicate your answer by writing the letter A through H for the term or phrase in the blank provided. A. Audit B. GAAP C. Ethics D. Tax accounting E. SEC F. Public accountants G. Net income H. IASB
1. An examination of an organization’s accounting system and its records that adds credibility to financial statements.
2. Amount a business earns in excess of all expenses and costs associated with its sales and revenues.
3. An accounting area that includes planning future transactions to minimize taxes paid.
4. Accounting professionals who provide services to many clients.
5. Principles that determine whether an action is right or wrong.
Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations.
May 1 G. Gram invested \(40,000 cash in the company in exchange for its common stock.
1 The company rented a furnished office and paid \)2,200 cash for May’s rent.
3 The company purchased \(1,890 of office equipment on credit.
5 The company paid \)750 cash for this month’s cleaning services.
8 The company provided consulting services for a client and immediately collected \(5,400 cash.
12 The company provided \)2,500 of consulting services for a client on credit.
15 The company paid \(750 cash for an assistant’s salary for the first half of this month.
20 The company received \)2,500 cash payment for the services provided on May 12.
22 The company provided \(3,200 of consulting services on credit.
25 The company received \)3,200 cash payment for the services provided on May 22.
26 The company paid \(1,890 cash for the office equipment purchased on May 3.
27 The company purchased \)80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1.
28 The company paid \(750 cash for an assistant’s salary for the second half of this month.
30 The company paid \)300 cash for this month’s telephone bill.
30 The company paid \(280 cash for this month’s utilities.
31 The company paid \)1,400 cash in dividends to the owner (sole shareholder).
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
Neva Nadal started a new business, Nadal Computing, and completed the following transactions during its first year of operations.
a. Neva Nadal invested \(90,000 cash and office equipment valued at \)10,000 in the company in exchange for its common stock.
b. The company purchased an office suite for \(50,000 cash.
c. The company purchased office equipment for \)25,000 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 \(750 cash for printing an announcement of the office’s opening.
f. The company completed a financial plan for a client and billed that client \)2,800 for the service.
g. The company designed a financial plan for another client and immediately collected a \(4,000 cash fee.
h. The company paid \)11,500 cash in dividends to the owner (sole shareholder).
i. The company received \(1,800 cash from the client described in transaction f.
j. The company made a payment of \)700 cash on the equipment purchased in transaction d.
k. The company paid $2,500 cash for the office secretary’s wages.
Required 2. Determine the company’s net income.
The following financial statement information is from five separate companies.
Company Company Company Company Company
V W X Y Z
December 31, 2016
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . \(54,000 \) 80,000 \(141,500 \)92,500 $144,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 60,000 68,500 51,500 ?
December 31, 2017
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,000 100,000 186,500 ? 170,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 ? 65,800 42,000 42,000
During year 2017
Stock issuances . . . . . . . . . . . . . . . . . . . 5,000 20,000 ? 48,100 60,000
Net income (or loss) . . . . . . . . . . . . . . . . ? 40,000 18,500 24,000 32,000
Cash dividends . . . . . . . . . . . . . . . . . . . 5,500 2,000 0 20,000 8,000
Required 1. Answer the following questions about Company V.
a. What is the amount of equity on December 31, 2016?
b. What is the amount of equity on December 31, 2017?
c. What is the net income or loss for the year 2017?
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