Discussion Forum 1.1_1900 words

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Nov 24, 2024

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Discussion Forum 1.1 DQ1.1 Student Name: Exercise 1.6A (a) Craig's vehicles: Craig's Vehicles has Assets of $4,550 and net Assets of $3,200. They want to track how many commits and cases. Assets = Liabilities + Equity $4,550 = Accounts Payable + $3,200 To find out how many liabilities, you subtract net Assets from absolute Assets: Liabilities = Assets - Equity Accounts Payable = $4,550 - $3,200 Accounts Payable = $1,350 Currently, you can basically use the net resource Equity to calculate the number of cases: Claims = Equity Claims = $3,200 In this way, Craig's Vehicles has payables of $1,350 and cases of $3,200. b) Heavenly Bakery Heavenly Bakery has liabilities of $4,800 and assets of $5,400. We really want to track how many Assets and net Assets. Assets = Liabilities + Equity Assets = $4,800 + $5,400 Assets = $10,200 Currently, to find out how much net Assets, you subtract the liabilities from the Equity: Net Assets = Equity - liabilities Net Assets = $5,400 - $4,800

Net Assets = $600 So Heavenly Bakery has $10,200 in Assets and $600 in net Assets. c) Bel's Candy Co Bel's Candy Co. has $28,200 in liabilities and $49,200 in assets. They truly wish to monitor our net assets and equity. Liabilities - Assets equals equity. $49,200 - $28,200 is the equity. $21,000 is equity. Currently, to find out how many net Assets you can use a similar Equity: Net Assets = Equity Net Assets = $21,000 In this way, Bel's Sweets Co. Equity of $21,000 and net Assets of $21,000. Exercise 1-10A Here's how each event affects the accounting equation: Stockholders' Equity (Common Stock): I (Increase) Assets: I (Increase) Explanation: When the company issues common stock, it increases the common stock component of stockholders' equity, and cash is received, which increases the assets. Paid cash to reduce the principal on a bank note. Liabilities: D (Decrease) Assets: D (Decrease) Explanation: Paying down the principal on a bank note reduces the company's liabilities (the amount owed on the note) and the cash (an asset) used to make the payment decreases. Sold land for cash at an amount equal to its cost. Assets: I (Increase) NA (Stockholders' Equity remains the same)

Explanation: Selling land for cash increases the cash (an asset) on the balance sheet. Since the land is sold at its cost, there is no change in stockholders' equity (common stock remains the same), so it does not affect stockholders' equity. Provided services to clients for cash Assets: I (Increase) NA (Stockholders' Equity remains the same) Explanation: Providing services for cash increases the cash (an asset) on the balance sheet. Since there's no mention of revenue or earnings, it does not affect stockholders' equity. Paid utilities expenses with cash. Assets: D (Decrease) NA (Stockholders' Equity remains the same) Explanation: Paying utilities expenses with cash decreases the cash (an asset) on the balance sheet. Since this is an expense payment and not related to revenue or earnings, it does not affect stockholders' equity. Paid a cash dividend to the stockholders. Stockholders' Equity (Retained Earnings): D (Decrease) Assets: D (Decrease) Explanation: Paying cash dividends to stockholders reduces retained earnings, which is a component of stockholders' equity. The cash used for the dividend payment decreases the assets. In summary, the events affect the accounting equation as follows: Event 1 and Event 3 increase assets and common stock. Event 2 and Event 6 decrease liabilities and assets. Events 4 and 5 affect assets but do not impact the stockholders' equity components. It's important to note that these are simplified effects and that in a complete accounting system, additional accounts and entries may be needed to fully reflect the financial impact of these events. Exercise 1 – 12A

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Marcum Company's financial transaction of borrowing $6,200 cash in 2011 can be recorded and explained using the accounting equation and appropriate general ledger accounts. The accounting equation is: Assets = Liabilities + Equity In this case, when Marcum Company borrows $6,200 cash, it increases its assets (cash) while also incurring a liability (the note payable). Here's how the transaction is recorded under the appropriate general ledger account headings: Cash Account: Debit (Increase) - $6,200 Explanation: The company debits the Cash account to show an increase in its cash assets by $6,200, representing the cash received from the borrowing. Notes Payable Account: Credit (Increase) - $6,200 Explanation: The company credits the Notes Payable account to represent the liability it has incurred by borrowing $6,200. This acknowledges the obligation to repay the borrowed amount in the future. Exercise 18 – A a) To determine the balance in the Retained Earnings account as of January 31, 2021, you need to consider the net income for the month. Net income is calculated as revenue minus expenses. In this case: Net Income = Revenue - Expenses Net Income = $4,600 - $3,000 Net Income = $1,600 The commencing retained earnings amount on January 1, 2021, plus the net income for the month, would equal the retained earnings balance as of January 31, 2021. Since the business always closes its books on December 31 (assuming it's a new corporation), you may assume that the retained earnings are zero at the start of the year. Therefore: Retained Earnings (as of January 31, 2021) = Beginning Retained Earnings + Net Income Retained Earnings (as of January 31, 2021) = $0 + $1,600 Retained Earnings (as of January 31, 2021) = $1,600

b) Although retained earnings are an account in a company's financial records, they are not a component of financial statements. It shows the total earnings or losses a business has experienced since its founding. On the balance sheet, retained earnings are shown as a part of stockholders' equity. It is an account that connects the balance sheet and the income statement rather than a financial statement in and of itself. The closure procedure makes sure that the balance sheet appropriately depicts the company's cumulative earnings or losses over time. It entails moving net income or loss to the retained earnings account. c) The Retained Earnings account plays a crucial role in the accounting process. When expenses are recognized, they reduce the net income for the period, and this reduction is reflected in the Retained Earnings account. Here's what happens: Recognition of Expenses: When expenses are incurred, they are recognized in the income statement. These expenses reduce the net income, as seen in your example with $3,000 in expenses. Effect on Retained Earnings: Net income or net loss for the period is moved to the Retained Earnings account at the conclusion of the accounting period (January 31, 2021 in this case). In your instance, the Retained Earnings account rises by $1,600 due to your net income. As a link between the income statement and the balance sheet, the company's earnings (or losses) are accumulated over time in the retained earnings account. It displays the total effect of all transactions that have an impact on the company's equity, including income, costs, dividends, and other events. The Retained Earnings account gradually sheds light on the business's financial performance and capacity to make and hold onto earnings. Exercise 23 – A a) The events are recorded in the horizontal statements model as follows: Event 1: Expo Co. acquired $11,000 cash from the issue of common stock. This is a financing activity because it involves raising capital by issuing common stock. It increases the Cash and Common Stock accounts. Event 2: Expo Co. earned $18,000 in cash revenue. This is an operating activity as it represents the company's core business operations. It increases the Cash and Revenue accounts. Event 3: Expo Co. paid $10,500 in cash expenses. This is also an operating activity because it pertains to day-to-day business expenses. It reduces the Cash and Net Income (indirectly) accounts. Event 4: Expo Co. paid a $1,000 cash dividend to the stockholders. This is a financing activity as it involves distributing profits to the stockholders. It reduces Cash and Retained Earnings.

b) Expo Co.'s income statement, which offers details about the profitability of the business, reveals that in 2011, the company brought in $18,000 in sales and spent $10,500 on expenses. The net income is $7,500 ($18,000 - $10,500), which is the difference between revenue and expenses. Although the income statement is primarily concerned with revenues and expenses, it does not directly address the assets of the business. Normally, you would look at the balance sheet to see how the income statement affects the company's assets. The balance sheet displays the assets, liabilities, and equity of the business and represents its financial situation at a certain point in time. The balance sheet's Retained Earnings account receives the net income that is computed from the income statement. Exercise 30 – A a. Accounting Equation and Recording Events: There start by recording the effects of each accounting event under the appropriate headings for each year. The accounting equation is: Assets = Liabilities + Equity Let's record the events for both 2011 and 2012. For year 2011 Event Cash Land Notes Payable Common Stock Service Revenue Expenses Dividend s 1 +$50,000 - - +$50,000 - + $100,000 - 2 + $100,000 - - - + $100,000 - - 3 +$15,000 - +$15,000 - - - - 4 - - - - - - - 5 - +$40,000 - - - - - For Year 2012 Event Cash Land Notes Payable Common Stock Service Revenue Expenses Dividend s 1 +$20,000 - - +$50,000 - - - 2 + $130,000 - -$10,000 - + $130,000 - - 3 - - - - - - - 4 - - - - - +$75,000 -$15,000 5 - +$50,000 - - - - - b)

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Financial Statement for each year Income Statement 2011 Category Amount Revenue $100,000 Expenses $60,000 Net Income $40,000 Income Statement 2012 Category Amount Revenue $130,000 Expenses $75,000 Net Income $55,000 c) The amount of cash in the retained earnings account at the end of 2011 is $40,000 (from the net income for 2011). The amount of cash in the retained earnings account at the end of 2012 is $55,000 (from the net income for 2012). d) Making the following comparison between the data from the income statement and the cash flow statement: Similarities: Revenue and expenses are reported in both the income statement and the statement of cash flows. The net cash flow from operating operations in the statement of cash flows is compared with the net income from the income statement. Differences: The income statement summarizes a company's financial performance over time by concentrating on revenue, expenses, and net income. The cash flow statement offers comprehensive details regarding the period's cash generation and utilization, encompassing financing, investing, and operating activities. e) To determine the balance in the Retained Earnings account immediately after Event 2 in 2011 and in 2012 are recorded: For 2011 - Before Event 2, the Retained Earnings account balance is $40,000 (from the net income). After Event 2, it remains the same because Event 2 represents the receipt of revenue, which increases cash but does not directly impact Retained Earnings.

For 2012 - Before Event 2, the Retained Earnings account balance is $40,000 (from the end of 2011). After Event 2, it increases by $130,000 (the revenue) and then decreases by $75,000 (expenses) to reach a balance of $95,000. The Retained Earnings account is dynamic, reflecting changes in net income from year to year.