Chapter 1: Q5RQ. (page 32)
What is the role of the Financial Accounting Standards Board (FASB)?
The primary role of FASB is to monitor the creation and governance of accounting standards.
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Tiny Town Kennel earns service revenue by caring for the pets of customers. Tiny
Town Kennel is organized as a corporation. During the past month, Tiny Town
Kennel has the following transactions:
a. Received \(520 cash for service revenue earned.
b. Paid \)325 cash for salaries expense.
c. Received a \(1,000 contribution in exchange for common stock.
d. Earned \)640 for service revenue, but the customer has not paid Tiny Town
Kennel yet.
e. Received utility bill of \(85, which will be paid next month.
f. Cash dividends of \)100 were paid to stockholders.
Indicate the effects of the business transactions on the accounting equation for Tiny
Town Kennel. Transaction (a) is answered as a guide.
Increase asset (Cash); Increase equity (Service Revenue)
Let’s examine a case using Greg’s Tunes and Sal’s Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg’s Tunes: Sal’s Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about. Requirements 4. Which business brought in more revenue?
How does retained earnings increase? What are the two ways that retained earnings decreases?
Mountain Drycleaners started 2018 with total assets of \(19,000 and total liabilities of \)14,000. At the end of 2018, Mountain’s total assets stood at \(12,000 and total liabilities were \)9,000. Requirements 1. Did the stockholders’ equity of Mountain Drycleaners increase or decrease during 2018? By how much? 2. Identify the four possible reasons that stockholders’ equity can change
Wizco Advertising’s balance sheet data at May 31, 2018, and June 30, 2018, follow:
May 31, 2018 June 30, 2018
Total Assets \( 122,000 \) 287,000
Total Liabilities 66,000 144,000
For each of the following situations that occurred in June, 2018 with regard to
common stock and dividends of a corporation, compute the amount of net income or
net loss during June 2018.
a. The company issued \(10,000 of common stock and paid no dividends.
b. The company issued no common stock. It paid cash dividends of \)3,000.
c. The company issued \(12,500 of common stock and paid cash dividends of
\)30,000.
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