Financial Accounting Tools for Business Decision Making, Sixth Edition
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. ( 2010). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.
ACC/300 PRINCIPLES OF ACCOUNTING
Complete the following problem sets in Ch. 1 & 3 of Financial Accounting:
due by the 27th.
Problems: Set A
Presented below are five independent situations.
(a) Three physics professors at MIT have formed a business to improve the speed of information
transfer over the Internet for stock exchange transactions. Each has contributed
an equal amount of cash and knowledge to the venture. Although their approach
looks promising, they are concerned about the legal liabilities that their
business might confront.
(b) Ed Toth, a college student looking for summer employment, opened a bait shop in
a small shed at a local marina.
(c) Joan Stuebben and Ron Klinke each owned separate shoe manufacturing businesses.
They have decided to combine their businesses. They expect that within the coming
year they will need significant funds to expand their operations.
(d) Crystal, Allie, and Harry recently graduated with marketing degrees. They have been
friends since childhood. They have decided to start a consulting business focused on
marketing sporting goods over the Internet.
(e) Mark Willis wants to rent CD players and CDs in airports across the country. His
idea is that customers will be able to rent equipment and CDs at one airport, listen
to the CDs on their flights, and return the equipment and CDs at their destination
airport. Of course, this will require a substantial investment in equipment and CDs,
as well as employees and locations in each airport. Mark has no savings or personal
assets. He wants to maintain control over the business.
In each case, explain what form of organization the business is likely to take—sole proprietorship,
partnership, or corporation. Give reasons for your choice.
Financial decisions often place heavier emphasis on one type of financial statement
over the others. Consider each of the following hypothetical situations independently.
(a) The North Face, Inc. is considering extending credit to a new customer. The terms
of the credit would require the customer to pay within 30 days of receipt of goods.
(b) An investor is considering purchasing common stock of Amazon.com. The investor
plans to hold the investment for at least 5 years.
(c) Chase Manhattan is considering extending a loan to a small company. The company
would be required to make interest payments at the end of each year for 5 years, and
to repay the loan at the end of the fifth year.
(d) The president of Campbell Soup is trying to determine whether the company is generating
enough cash to increase the amount of dividends paid to investors in this and
future years, and still have enough cash to buy equipment as it is needed.
In each situation, state whether the decision maker would be most likely to place primary
emphasis on information provided by the income statement, balance sheet, or statement
of cash flows. In each case provide a brief justification for your choice. Choose only
one financial statement in each case.
Determine forms of business
Identify users and uses of
(SO 2, 4, 5),
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On June 1, Beardsley Service Co. was started with an initial investment in the
company of $22,100 cash. Here are the assets and liabilities of the company at June 30,
and the revenues and expenses for the month of June, its first month of operations:
Cash $ 4,600 Notes payable $12,000
Accounts receivable 4,000 Accounts payable 500
Service revenue 7,500 Supplies expense 1,000
Supplies 2,400 Maintenance and repairs expense 600
Advertising expense 400 Utilities expense 300
Equipment 26,000 Salaries and wages expense 1,400
In June, the company issued no additional stock, but paid dividends of $1,400.
(a) Prepare an income statement and a retained earnings statement for the month of
June and a balance sheet at June 30, 2012.
(b) Briefly discuss whether the company’s first month of operations was a success.
(c) Discuss the company’s decision to distribute a dividend.
Presented below is selected financial information for Yvonne Corporation for
December 31, 2012.
Inventory $ 25,000 Cash paid to purchase equipment $ 12,000
Cash paid to suppliers 104,000 Equipment 40,000
Building 200,000 Revenues 100,000
Common stock 50,000 Cash received from customers 132,000
Cash dividends paid 7,000 Cash received from issuing
common stock 22,000
(a) Determine which items should be included in a statement of cash flows and then
prepare the statement for Yvonne Corporation.
(b) Comment on the adequacy of net cash provided by operating activities to fund the
company’s investing activities and dividend payments.
Gabelli Corporation was formed on January 1, 2012. At December 31, 2012, John
Paulus, the president and sole stockholder, decided to prepare a balance sheet, which appeared
December 31, 2012
Assets Liabilities and Stockholders’ Equity
Cash $20,000 Accounts payable $30,000
Accounts receivable 50,000 Notes payable 15,000
Inventory 36,000 Boat loan 22,000
Boat 24,000 Stockholders’ equity 64,000
John willingly admits that he is not an accountant by training. He is concerned that his
balance sheet might not be correct. He has provided you with the following additional
1. The boat actually belongs to Paulus, not to Gabelli Corporation. However, because
he thinks he might take customers out on the boat occasionally, he decided to list it
as an asset of the company. To be consistent, he also listed as a liability of the corporation
his personal loan that he took out at the bank to buy the boat.
2. The inventory was originally purchased for $25,000, but due to a surge in demand
John now thinks he could sell it for $36,000. He thought it would be best to record
it at $36,000.
3. Included in the accounts receivable balance is $10,000 that John loaned to his brother
5 years ago. John included this in the receivables of Gabelli Corporation so he
wouldn’t forget that his brother owes him money.
(a) Comment on the proper accounting treatment of the three items above.
(b) Provide a corrected balance sheet for Gabelli Corporation. (
Hint: To get the balance
sheet to balance, adjust stockholders’ equity.)
(a) Net increase $31,000
Prepare an income
statement, retained earnings
statement, and balance sheet;
(SO 4, 5),
Determine items included in
a statement of cash flows,
prepare the statement, and
Comment on proper
accounting treatment and
prepare a corrected balance
Marginal check figures
(in blue) provide a key
number to let you know
you are on the right track.
(a) Net income $3,800
Ret. earnings $2,400
Tot. assets $37,000
Tot. assets $85,000
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Please try to reply to the question by tomorrow morning, if you need something else please respond before 9 PM tonight. Thank You.
Just questions P1-3A and P3-5A only.
Towne Architects incorporated as licensed architects on April 1, 2012. During
the first month of the operation of the business, these events and transactions occurred:
Apr. 1 Stockholders invested $18,000 cash in exchange for common
stock of the corporation.
1 Hired a secretary-receptionist at a salary of $375 per week,
2 Paid office rent for the month $900.
3 Purchased architectural supplies on account from Spring Green
10 Completed blueprints on a carport and billed client $1,900 for
11 Received $700 cash advance from J. Madison to design a new
20 Received $2,800 cash for services completed and delivered to
30 Paid secretary-receptionist for the month $1,500.
30 Paid $300 to Spring Green Company for accounts payable due.
The company uses these accounts: Cash, Accounts Receivable, Supplies, Accounts Payable,
Unearned Service Revenue, Common Stock, Service Revenue, Salaries and Wages Expense,
and Rent Expense.