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Chapter 1: Q14RQ. (page 32)
How does retained earnings increase? What are the two ways that retained earnings decreases?
Retained earnings increase by revenues, and decreases by expenses and dividends of the business.
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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)
Annette Pachelo recently opened her own law office on March 1, which she operates as a corporation. The name of the new entity is Annette Pachelo, Attorney. Pachelo experienced the following events during the organizing phase of the new business and its first month of operation, March 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Mar. 1 Sold personal investment in Amazon stock, which she had owned for several years, receiving \(35,000 cash. 2 Deposited the \)35,000 cash from the sale of the Amazon stock in her personal bank account. 3 Deposited \(73,000 cash in a new business bank account titled Annette Pachelo, Attorney. The business issued common stock to Pachelo. 5 Paid \)700 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, \(5,000, within three months. 9 Received \)2,800 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, \(400. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, \)10,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, \(1,200. 31 Received \)3,300 cash from clients billed on March 23. 31 Cash dividends of $5,500 were paid to stockholders. Requirements Prepare the following financial statements: a. Income statement.
Annette Pachelo recently opened her own law office on March 1, which she operates as a corporation. The name of the new entity is Annette Pachelo, Attorney. Pachelo experienced the following events during the organizing phase of the new business and its first month of operation, March 2018. Some of the events were personal and did not affect the law practice. Others were business transactions and should be accounted for by the business. Mar. 1 Sold personal investment in Amazon stock, which she had owned for several years, receiving \(35,000 cash. 2 Deposited the \)35,000 cash from the sale of the Amazon stock in her personal bank account. 3 Deposited \(73,000 cash in a new business bank account titled Annette Pachelo, Attorney. The business issued common stock to Pachelo. 5 Paid \)700 cash for ink cartridges for the printer. 7 Purchased computer for the law office, agreeing to pay the account, \(5,000, within three months. 9 Received \)2,800 cash from customers for services rendered. 15 Received bill from The Lawyer for magazine subscription, \(400. (Use Miscellaneous Expense account.) 23 Finished court hearings on behalf of a client and submitted a bill for legal services, \)10,000, on account. 28 Paid bill from The Lawyer. 30 Paid utilities, \(1,200. 31 Received \)3,300 cash from clients billed on March 23. 31 Cash dividends of $5,500 were paid to stockholders. Requirements 2. Prepare the following financial statements: d. Statement of cash flows
Indicate the effects of the following business transactions on the accounting equation for Sam’s Snack Foods, a supplier of snack foods. Transaction (a) is answered as a guide. a. Sam’s Snack Foods received cash from issuance of common stock to stockholders. Answer: Increase asset (Cash); Increase equity (Common Stock) b. Cash purchase of land for a building site. c. Paid cash on accounts payable. d. Purchased equipment; signed a note payable. e. Performed service for a customer on account. f. Employees worked for the week but will be paid next Tuesday. g. Received cash from a customer on accounts receivable. h. Borrowed money from the bank. i. Cash dividends paid to stockholders. j. Incurred utilities expense on account.
Consider the following accounting terms and definitions, and match each term to the definition:
1. Sole proprietorship
2. Faithful representation
3. Partnership
4. IFRS
5. Corporation
6. Audit
a. Set of global accounting guidelines, formulated by
the IASB
b. Holds that fair market value should not be used
over actual costs
c. Stands for Financial Accounting Standards Board
d. Owner is referred to as a proprietor
e. Asserts that accounting information should be
complete, neutral, and free from material error
7. Cost principle
8. FASB
9. Creditors
10. SEC
f. An examination of a company’s financial statements
and records
g. Has two or more owners (called partners)
h. U.S. governmental agency that oversees the U.S.
financial markets
i. Type of entity that is designed to limit personal
liability exposure of owners to the entity’s debts
j. Person or business lending money
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