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Chapter 1: Q20E (page 37)
Compute the missing amount in the accounting equation for each entity from the financial information presented:
Assets Liabilities Equity
Hair Styles \( ? \) 36,000 $ 36,000
Style Cuts 90,000 ? 48,000
Your Basket 101,000 68,000 ?
Assets equals: $72,000
Liabilities: $42,000
Equity: $33,000
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Explain the role of the International Accounting Standards Board (IASB) in relation to International Financial Reporting Standards (IFRS).
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
Let鈥檚 examine a case using Greg鈥檚 Tunes and Sal鈥檚 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鈥檚 Tunes: Sal鈥檚 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 2. Which business owes more to creditors?
Meg McIntyre opened a public relations firm called Pop Chart on August 1, 2018. The following amounts summarize her business on August 31, 2018During September 2018, the business completed the following transactions: a. Received contribution of \(14,000 cash from Meg McIntyre in exchange for common stock. b. Performed service for a client and received cash of \)1,600. c. Paid off the beginning balance of accounts payable. d. Purchased office supplies from OfficeMax on account, \(1,200. e. Collected cash from a customer on account, \)2,300. f. Cash dividends of \(1,500 were paid to stockholders. g. Consulted for a new band and billed the client for services rendered, \)4,000. h. Recorded the following business expenses for the month: Paid office rent: \(900. Paid advertising: \)450. Analyze the effects of the transactions on the accounting equation of Pop Chart using the format presented above.:
Amos Sharp recently opened his own accounting firm on October 1, which he operates as a corporation. The name of the new entity is Amos Sharp, CPA. Sharp experienced the following events during the organizing phase of the new business and its first month of operations in 2018. Oct. 5 Sharp deposited \(45,000 in a new business bank account titled Amos Sharp, CPA. The business issued common stock to Sharp. 6 Paid \)300 cash for letterhead stationery for new office. 7 Purchased office furniture for the office on account, \(6,500. 10 Consulted with tax client and received \)3,300 for services rendered. 11 Paid utilities, \(340. 12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, \)16,000. 18 Paid office rent, \(1,800. 25 Received amount due from client that was billed on October 12. 27 Paid full amount of Accounts Payable created on October 7. 31 Cash dividends of \)3,800 were paid to stockholders. Requirements 1. Analyze the effects of the events on the accounting equation of Amos Sharp, CPA. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet.
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