/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q1FC_1 Exeter is a building contractor ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 1: Q1FC_1 (page 54)

Exeter is a building contractor on the Gulf Coast. After losing a number of big lawsuits, it was facing its first annual net loss as the end of the year approached. The owner, Hank Snow, was under intense pressure from the company鈥檚 creditors to report positive net income for the year. However, he knew that the controller, Alice Li, had arranged a short-term bank loan of $10,000 to cover a temporary shortfall of cash. He told Li to record the incoming cash as 鈥渃onstruction revenue鈥� instead of a loan. That would nudge the company鈥檚 income into positive territory for the year, and then, he said, the entry could be corrected in January when the loan was repaid. Requirements 1. How would this action affect the year-end income statement? How would it affect the year-end balance sheet? 2. If you were one of the company鈥檚 creditors, how would this fraudulent action affect you?

Short Answer

Expert verified

The action will overstate net income and stockholders鈥� equity, and will understate total liabilities.

Step by step solution

01

Step-by-Step SolutionStep 1: Effect on Income Statement

As the loan amount is reported as construction revenue, it will increase the overall profit of the company, hence it will result in overstatement of net income at the end of the year.

02

Effect on Balance Sheet

As net income is increased by this action, it will overstate the stockholders鈥� equity also. Also, as the proceeds should be recorded as liability, which is not recorded in this case, it will understate the liabilities in the balance sheet.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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)

Indicate the effects of the following business transactions on the accounting equation of Vivian鈥檚 Online Video store. Transaction (a) is answered as a guide. a. Received cash of \(10,000 from issuance of common stock. Answer: Increase asset (Cash); Increase equity (Common Stock) b. Earned video rental revenue on account, \)2,800. c. Purchased office furniture on account, \(300. d. Received cash on account, \)400. e. Paid cash on account, \(100. f. Rented videos and received cash of \)200. g. Paid monthly office rent of \(1,000. h. Paid \)100 cash to purchase office supplies

Match each example with a component of a computerized accounting information system. Components may be used more than once.

ExampleComponent
1. Server
a. Source documents and input devices
2. Bank checksb. Processing and storage
3. Reportsc. Outputs
4. Keyboard
5. Software
6. Financial statement
7. Bar code scanner

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鈥檚 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鈥檚 debts

j. Person or business lending money

Question: The bookkeeper of Juniper Landscaping prepared the company鈥檚 balance sheet while the accountant was ill. The balance sheet, shown on the next page, contains numerous errors. In particular, the bookkeeper knew that the balance sheet should balance, so he plugged in the retained earnings amount needed to achieve this balance. The retained earnings is incorrect. All other amounts are correct, but some are out of place or should not be included on this statement. Prepare a corrected balance sheet. JUNIPER LANDSCAPING Balance Sheet Month Ended July 31, 2018 Accounts Receivable Dividends Service Revenue Office Supplies Salaries Expense Property Tax Expense Accounts Payable Retained Earnings Total Liabilities Common Stock Office Furniture Notes Payable Rent Expense Total Assets Assets Liabilities Stockholders鈥� Equity \( 5,300 \) 75,100 800 34,500 3,200 6,300 24,700 300 \( 1,800 14,000 38,000 \) 75,100 3,300 2,700 5,300 10,000 J
See all solutions

Recommended explanations on Business Studies Textbooks

Actuarial Science in Business

Read Explanation

Project Planning & Management

Read Explanation

Public Relations Business Studies

Read Explanation

Organizational Behavior

Read Explanation

Managerial Economics

Read Explanation

Startups

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.