Big Screen Scripts is a service-type enterprise in the entertainment field, and its manager, William Pippin, has only a limited knowledge of accounting. Pippin prepared the following balance sheet, which, although arranged satisfactorily, contains certain errors with respect to such concepts as the business entity and asset valuation. Pippin owns all of the corporation’s outstanding stock. In discussion with Pippin and by inspection of the accounting records, you discover the following facts. The amount of cash, $5,150, includes $3,400 in the company’s bank account, $540 on hand in the company’s safe, and $1,210 in Pippin’s personal savings account. One of the notes receivable in the amount of $500 is an IOU that Pippin received in a poker game several years ago. The IOU is signed by “B.K.,” who Pippin met at the game but has not heard from since. Office furniture includes $2,900 for a Persian rug for the office purchased on November 20. The total cost of the rug was $9,400. The business paid $2,900 in cash and issued a note payable to Zoltan Carpet for the balance due ($6,500). As no payment on the note is due until January, this debt is not included in the liabilities given here. Also included in the amount for office furniture is a computer that cost $2,525 but is not on hand because Pippin donated it to a local charity. The “Other Assets” of $22,400 represent the total amount of income taxes Pippin has paid the federal government over a period of years. Pippin believes the income tax law to be unconstitutional, and a friend who attends law school has promised to help Pippin recover the taxes paid as soon as he passes the bar exam. The asset “Land” was acquired at a cost of $39,000 but was increased to a valuation of $70,000 when one of Pippin’s friends offered to pay that much for it if Pippin would move the building off the lot. The accounts payable include business debts of $32,700 and the $3,105 balance owed on Pippin’s personal MasterCard. Instructions: For each of the seven numbered items, use a separate numbered paragraph to explain whether the treatment followed by Pippin is in accordance with generally accepted accounting principles.

Big Screen Scripts is a service-type enterprise in the entertainment field, and its manager, William Pippin, has only a limited knowledge of accounting. Pippin prepared the following balance sheet, which, although arranged satisfactorily, contains certain errors with respect to such concepts as the business entity and asset valuation. Pippin owns all of the corporation’s outstanding stock. In discussion with Pippin and by inspection of the accounting records, you discover the following facts. The amount of cash, $5,150, includes $3,400 in the company’s bank account, $540 on hand in the company’s safe, and $1,210 in Pippin’s personal savings account. One of the notes receivable in the amount of $500 is an IOU that Pippin received in a poker game several years ago. The IOU is signed by “B.K.,” who Pippin met at the game but has not heard from since. Office furniture includes $2,900 for a Persian rug for the office purchased on November 20. The total cost of the rug was $9,400. The business paid $2,900 in cash and issued a note payable to Zoltan Carpet for the balance due ($6,500). As no payment on the note is due until January, this debt is not included in the liabilities given here. Also included in the amount for office furniture is a computer that cost $2,525 but is not on hand because Pippin donated it to a local charity. The “Other Assets” of $22,400 represent the total amount of income taxes Pippin has paid the federal government over a period of years. Pippin believes the income tax law to be unconstitutional, and a friend who attends law school has promised to help Pippin recover the taxes paid as soon as he passes the bar exam. The asset “Land” was acquired at a cost of $39,000 but was increased to a valuation of $70,000 when one of Pippin’s friends offered to pay that much for it if Pippin would move the building off the lot. The accounts payable include business debts of $32,700 and the $3,105 balance owed on Pippin’s personal MasterCard. Instructions: For each of the seven numbered items, use a separate numbered paragraph to explain whether the treatment followed by Pippin is in accordance with generally accepted accounting principles.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

In discussion with Pippin and by inspection of the accounting records, you discover the following facts.

The amount of cash, $5,150, includes $3,400 in the company’s bank account, $540 on hand in the company’s safe, and $1,210 in Pippin’s personal savings account.
One of the notes receivable in the amount of $500 is an IOU that Pippin received in a poker game several years ago. The IOU is signed by “B.K.,” who Pippin met at the game but has not heard from since.
Office furniture includes $2,900 for a Persian rug for the office purchased on November 20. The total cost of the rug was $9,400. The business paid $2,900 in cash and issued a note payable to Zoltan Carpet for the balance due ($6,500). As no payment on the note is due until January, this debt is not included in the liabilities given here.
Also included in the amount for office furniture is a computer that cost $2,525 but is not on hand because Pippin donated it to a local charity.
The “Other Assets” of $22,400 represent the total amount of income taxes Pippin has paid the federal government over a period of years. Pippin believes the income tax law to be unconstitutional, and a friend who attends law school has promised to help Pippin recover the taxes paid as soon as he passes the bar exam.
The asset “Land” was acquired at a cost of $39,000 but was increased to a valuation of $70,000 when one of Pippin’s friends offered to pay that much for it if Pippin would move the building off the lot.
The accounts payable include business debts of $32,700 and the $3,105 balance owed on Pippin’s personal MasterCard.

Instructions:

For each of the seven numbered items, use a separate numbered paragraph to explain whether the treatment followed by Pippin is in accordance with generally accepted accounting principles.

Assets
Cash.
Notes Receivable..
Accounts Receivable.
Land...
Building.
Office Furniture.
Other Assets
Total..
BIG SCREEN SCRIPTS
BALANCE SHEET
NOVEMBER 30, CURRENT YEAR
$ 5,150
2,700
2,450
70,000
54,320
8,850
22,400
$165,870
Liabilities & Owner's Equity
Liabilities:
Notes Payable.
Accounts Payable.
Total liabilities.
Owner's equity:
Capital Stock..
Retained Earnings.
Total.....
$ 67,000
35,805
$102,805
5,000
58,065
$165,870

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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