Wunderkind Photography entered into the following transactions during February 2022. Stockholders invested $5,000 in the business. Bought photography equipment for a cash payment of $1,000. Bought more photography equipment by signing a $500 note payable. Performed photography services for $400 cash. Performed photography services, and billed the customer $900 on account. Collected $900 from the customer in transaction 5. Paid for February developing and printing, $150. Advertised the business in the Platteville Journal. The $100 cost will be billed to Wunderkind. Paid the advertising bill from transaction 8. Paid $200 for photography supplies. Received $300 cash advance payment from a customer for a photography job to be performed in April. Paid $250 dividend to the stockholders. Instructions: Indicate whether each transaction increases or decreases assets, liabilities, or stockholders’ equity. As an example, item one would be: increase assets and increase stockholders’ equity. Ignoring dollar amounts, explain what transactions 4 and 5 have in common, and how they differ. Ignoring dollar amounts, explain what transactions 7 and 8 have in common, and how they differ.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Chapter One
Challenge Exercise 1
Expands on: E1-7
LO: 4
Wunderkind Photography entered into the following transactions during February 2022.
- Stockholders invested $5,000 in the business.
- Bought photography equipment for a cash payment of $1,000.
- Bought more photography equipment by signing a $500 note payable.
- Performed photography services for $400 cash.
- Performed photography services, and billed the customer $900 on account.
- Collected $900 from the customer in transaction 5.
- Paid for February developing and printing, $150.
- Advertised the business in the Platteville Journal. The $100 cost will be billed to Wunderkind.
- Paid the advertising bill from transaction 8.
- Paid $200 for photography supplies.
- Received $300 cash advance payment from a customer for a photography job to be performed in April.
- Paid $250 dividend to the stockholders.
Instructions:
- Indicate whether each transaction increases or decreases assets, liabilities, or
stockholders’ equity. As an example, item one would be: increase assets and increase stockholders’ equity. - Ignoring dollar amounts, explain what transactions 4 and 5 have in common, and how they differ.
- Ignoring dollar amounts, explain what transactions 7 and 8 have in common, and how they differ.
- Ignoring dollar amounts, explain what transactions 4 and 11 have in common, and how they differ.
Challenge Exercise 2
Expands on: E1-10
LO: 4
The total assets and liabilities of Robot Company at January 1 and December 31, 2022 are presented here.
January 1 December 31
Assets $76,000 $112,000
Liabilities 26,000 28,800
Instructions:
- Assume dividends of $10,800 were paid and no additional stock was issued during the year. Revenues were $110,000. Compute (a) net income, and (b) expenses.
- Assume additional stock was issued for $4,800 and no dividends were paid during the year. Expenses were $42,000. Compute (a) net income, and (b) revenues.
- Assume additional stock was issued for $62,000 and dividends of $15,600 were paid during the year. Compute net income.
- Assume additional stock was issued for $6,000, and net income was $51,000. Compute dividends paid.
Challenge Exercise 3
Expands on: E1-12, E1-14
LO: 5
Seattle Service had the following financial information at the end of 2022:
1/1/22 2022 12/31/22
Accounts Payable $15,000
Advertising Expense $ 1,000
Cash 11,000
Common Stock 15,000
Dividends 9,000
Equipment 33,000
Notes Payable 20,000
Rent Expense 3,500
Salaries and Wages Expense 16,000
Service Revenue 40,000
Utilities Expense 2,500
Instructions:
Prepare a 2022 income statement, 2022 statement of retained earnings, and a 12/31/22
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