Identifying Accounting Principles And Assumptions

QS 1-6 (Algo) Identifying accounting principles and assumptions LO C2 Identify the accounting principle or assumption that best explains each situation. 1. Green Cleaners Inc. purchased bleach for an upcoming job. Green Cleaners does not record the expense until it performs the cleaning job. Expense recognition/Matching principle 2. If $51,000 cash is paid to buy land, the land is reported on the buyer's balance sheet at $51,000. Measurement (cost) principle 3. Cruz Consulting performs services for a client. Cruz records revenue this period even though the client is not billed until next period. Revenue recognition principle Exercise 1-7 (Algo) Identifying accounting principles and assumptions LO C2 Identify the accounting principle or assumption that best reflects each situation. Situation Principle or Assumption 1. Financial statements reflect the assumption that the business continues operating. Going-concern assumption 2. Information is based on actual costs incurred in transactions. Measurement (cost) principle 3. Transactions and events are shown in monetary units. Monetary unit assumption 4. Revenue is recorded when products and services are delivered. Revenue recognition principle 5. The life of a company can be divided into time periods, and useful reports can be prepared for those periods. Time period assumption 6. Each business is accounted for separately from its owner or owners. Business entity assumption QS 1-11 (Static) Identifying effects of transactions using accounting equation—Assets and Liabilities LO P1 The following transactions were completed by the company: a. b. c. d. e. The owner invested $15,000 cash in the company in exchange for its common stock. The company purchased supplies for $500 cash. The owner invested $10,000 of equipment in the company in exchange for more common stock. The company purchased $200 of additional supplies on credit. The company purchased land for $9,000 cash. Required: Enter the impact of each transaction on individual items of the accounting equation. (Enter decreases to account balances with a minus sign.) Transactions Number Assets Cash = Liabilities + Equity + Supplies + Equipment + Land = Accts Pay. + Common Stock − Dividends + Revenue a. $15,000 + + + = + $15,000 − + b. (500) + $500 + + = + − + 14,500 + + 14,500 + + 14,500 + (9,000) + $5,500 + 500 + + 500 + 200 + 700 + + $700 + 0 + 0 = $10,000 + = 10,000 + 0 = + = 10,000 + 0 = + $9,000 = $10,000 + $9,000 = 0 + + 0 + $200 + 200 + + $200 + 15,000 − 10,000 − 25,000 − − 25,000 − − $25,000 − 0 + + 0 + + 0 + + $0 + Balance after a and b c. Balance after c d. Balance after d e. Balance after e 0 0 0 $0 Problem 1-9A (Algo) Analyzing transactions and preparing financial statements LO P1, P2 [The following information applies to the questions displayed below.] Sanyu Sony started a new business and completed these transactions during December. December 1 December 2 December 3 December 5 December 6 December 8 December 15 December 18 December 20 December 24 December 28 December 29 December 30 December 31 Sanyu Sony transferred $68,200 cash from a personal savings account to a checking account in the name of Sony Electric in exchange for its common stock. The company paid $1,300 cash for the December rent. The company purchased $14,000 of electrical equipment by paying $5,800 cash and agreeing to pay the $8,200 balance in 30 days. The company purchased supplies by paying $800 cash. The company completed electrical work and immediately collected $1,600 cash for these services. The company purchased $2,710 of office equipment on credit. The company completed electrical work on credit in the amount of $6,600. The company purchased $500 of supplies on credit. The company paid $2,710 cash for the office equipment purchased on December 8. The company billed a client $1,000 for electrical work completed; the balance is due in 30 days. The company received $6,600 cash for the work completed on December 15. The company paid the assistant’s salary of $1,900 cash for this month. The company paid $530 cash for this month’s utility bill. The company paid $980 cash in dividends to the owner (sole shareholder). Assets Date Cash Liabiliti + = es + Accou nts Receiv able + 68200 + + 2-Dec -1,300 + + + 0 + Balanc 66900 e after Decem ber 1 and Decem ber 2 3-Dec -5,800 Balanc 61100 e after Decem ber 3 5-Dec -800 Balanc e after Decem 60300 + Reven ues – Expen ses + 68,200 – + – – = + + – 1,300 + 0 = 0 + 68200 – 0 + 0 – 1300 + + 14,000 = 8,200 + + – 0 + 0 + 14000 = 8200 + 68200 – 0 + 0 – 1300 800 + + = + + – 800 + 0 + 14000 = 8200 + 68200 – 0 + 0 – 1300 Suppl ies 1-Dec 0 + + + 0 + + + + 0 + Equity + Office + Electric = Accou Equipm al nts ent Equipm Payabl ent e + Com mon Stock + + = + + + 0 – Divide nds – – – ber 5 6-Dec 1,600 + + + + = + – + 1,600 – Balanc e after Decem ber 6 8-Dec 61900 Balanc e after Decem ber 8 15-Dec 61900 Balanc e after Decem ber 15 18-Dec 61900 + 0 + 800 + + + 0 + + 0 + 14000 = 8200 + 68200 – 0 + 1600 – 1300 + 2,710 + = 2,710 + + – + 2710 + 14000 = 10910 + 68200 – 0 + 1600 – 1300 + + = + + 6,600 – 800 + 2710 + 14000 = 10910 + 68200 – 0 + 8200 – 1300 500 + + = 500 + + – 1300 + 2710 + 14000 = 11410 + 68200 – 0 + 8200 – 1300 + + = -2,710 + + – + 2710 + 14000 = 8700 + 68200 – 0 + 8200 – 1300 + + = + + 1,000 – + 2710 + 14000 = 8700 + 68200 – 0 + 9200 – 1300 800 Balanc 61900 e after Decem ber 18 20-Dec -2,710 Balanc e after Decem ber 20 24-Dec 59190 Balanc e after Decem ber 24 59190 + 6,600 + + 6600 + + + + 6600 + + + + 6600 + 1300 + 1,000 + + 7600 + 1300 – – – – – 28-Dec 6,600 + -6,600 + Balanc 65790 + 1000 + 1300 + + = + – + 2710 + 14000 = 8700 + 68200 – 0 + – + 9200 – 1300 e after Decem ber 28 29-Dec -1,900 Balanc 63890 e after Decem ber 29 30-Dec -530 Balanc 63360 e after Decem ber 30 31-Dec -980 Balanc e after Decem ber 31 62380 + + + 1000 + 1300 + + + 1000 + 1300 + + + 1000 + 1300 Assets Date Cash + + = + + 2710 + 14000 = 8700 + + + 2710 – + – 1,900 + 68200 – 0 + 9200 – 3200 = + + – 530 + 14000 = 8700 + 68200 – 0 + 9200 – 3730 + + = + + – + 2710 + 14000 = 8700 + 68200 – 980 + 9200 – 3730 + Reven ues – Expen ses – – 980 Liabiliti + Equity = es + Accou nts Receiv able + Suppl ies SONY ELECTRIC Income Statement + Office + Electric = Accou Equipm al nts ent Equipm Payabl ent e + Com mon Stock – Divide nds For Month Ended December 31 Revenues Electrical services $9,200 revenue Total Revenues 9,200 Expenses Rent expense 1,300 Salaries expense 1,900 Utilities expense 530 Total expenses 3,730 Net income $5,470 Prepare the statement of retained earnings for the current month. SONY ELECTRIC Statement of Retained Earnings For Month Ended December 31 Retained earnings, December 1 Add: Net income Less: Dividends Retained earnings, December 31 $0 5,470 980 $4,490 Prepare the balance sheet as of the end of the month. SONY ELECTRIC Balance Sheet December 31 Assets Cash Accounts receivable Supplies Office equipment Electrical equipment Total assets No need to do cash flow Liabilities $62,380 Accounts payable 1,000 1,300 Total liabilities 2,710 Equity 14,000 Common stock Retained earnings 68,200 4,490 Total equity $81,390 Total liabilities and equity 72,690 $81,390 $8,700 8,700