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Chapter 1: Q44PGA (page 45)

The bookkeeper of Outdoor Life 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 in this statement. Prepare a corrected balance sheet. OUTDOOR LIFE LANDSCAPING Balance Sheet Month Ended November 30, 2018 Office Supplies Salaries Expense Property Tax Expense Accounts Payable Retained Earnings Total Assets Total Liabilities Common Stock Assets Liabilities Stockholders鈥� Equity \( 4,600 \) 72,850 600 34,100 2,700 Office Furniture 5,800 24,600 Rent Expense Notes Payable 450 \( 2,000 Dividends Service Revenue 11,000 35,000 \) 72,850 3,000 2,700 11,150 8,000

Short Answer

Expert verified

OUTDOOR LIFE LANDSCAPING

Balance Sheet

December 31, 2018

Assets
Liabilities

Cash

$4,600

Accounts Payable

$2,700

Land

34,100

Notes Payable

24,600

Office Supplies

600

Total Liabilities

27,300

Office Furniture

5,800

Stockholders鈥� Equity

Accounts Receivable

2,000

Common Stock

8,000

Retained Earnings

11,800

Total Stockholders鈥� Equity

19,800

Total Assets

$47,100

Total Liabilities and Stockholders鈥� Equity

$47,100

Step by step solution

01

Calculation of Retained Earnings

Retained earnings is calculated as follows:

Retained Earnings = Total Liabilities & Stockholders' Equity - Total Liabilities - Common stock

= $47,100 - $27.300 - $8.000

= $11,800

02

Explanation on Balance Sheet Items

As per the balance sheet, total assets equals $47,100, total liabilities equals $27,300 and total stockholders鈥� equity equals $19,800.

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Most popular questions from this chapter

Explain the purpose of Generally Accepted Accounting Principles (GAAP), including the organization currently responsible for the creation and governance of these standards

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?

Identifying users of accounting information

For each of the users of accounting information, identify whether the user is an external decision maker (E) or an internal decision maker (I):

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Canyon Canoe Company is a service-based company that rents canoes for use on local lakes and rivers. Amber and Zack Wilson graduated from college about 10 years ago. They both worked for one of the 鈥淏ig Four鈥� accounting firms and became CPAs. Because they both love the outdoors, they decided to begin a new business that will combine their love of outdoor activities with their business knowledge. Amber and Zack decide that they will create a new corporation, Canyon Canoe Company, or CCC for short. The business began operations on November 1, 2018. Nov. 1 Received \(16,000 cash to begin the company and issued common stock to Amber and Zack. 2 Signed a lease for a building and paid \)1,200 for the first month鈥檚 rent. 3 Purchased canoes for \(4,800 on account. 4 Purchased office supplies on account, \)750. 7 Earned \(1,400 cash for rental of canoes. 13 Paid \)1,500 cash for wages. 15 Paid \(50 dividends to stockholders. 16 Received a bill for \)150 for utilities. (Use separate payable account.) 20 Received a bill for \(175 for cell phone expenses. (Use separate payable account.) 22 Rented canoes to Early Start Daycare on account, \)3,000. 26 Paid \(1,000 on account related to the November 3, 2018, purchase. 28 Received \)750 from Early Start Daycare for canoe rental on November 22, 2018. 30 Paid $100 dividends to stockholders. Requirements 2. Prepare the income statement of Canyon Canoe Company for the month ended November 30, 2018.

Indicate the effects of the following business transactions on the accounting equation for Sam鈥檚 Snack Foods, a supplier of snack foods. Transaction (a) is answered as a guide. a. Sam鈥檚 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.
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