E1-1: Financial Accounting Paper

E1-1 Urlacher Company performs the following accounting tasks during the year.
Communicates__Analyzing and interpreting information.
Records__Classifying economic events.
Communicates__Explaining uses, meaning, and limitations of data.
Records__Keeping a systematic chronological diary of events.
Records__Measuring events in dollars and cents.
Communicates__Preparing accounting reports.
Communicates__Reporting information in a standard format.
Identifies Identifies_Selecting economic activities relevant to the company.
Records__Summarizing economic events.
Accounting is “an information system that identifies, records, and communicates the economic events of an organization to interested

E1-5 Meredith Cleaners has the following
balance sheet items.
Liability-Accounts payable
Asset-Accounts receivable
Asset-Cash
Liability-Notes payable
Asset-Cleaning equipment
Liability-Salaries payable
Asset-Cleaning supplies
Stockholders’ equity-Common Stock

Classify each item as an asset, liability, or stockholders’ equity.ommon stock

E1-12 The following information relates to Linda Stanley Co. for the year 2008.

Retained earnings, January 1, 2008 $ 48,000
Advertising expense $ 1,800
Dividends during 2008 6,000
Rent expense 10,400
Service revenue 62,500
Utilities expense 3,100
Salaries expense 30,000
Instructions
After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2008.

Linda Stanley Co.
Income Statement
Year Ending December 31, 2008

Revenues
Service Revenues $62,500

Expenses
Advertising Expense $1,800
Rent Expense $10,400
Utilities Expense $3,100
Salaries Expense $30,000 $45,300
Net Income $17,200

Linda Stanley Co.
Retained Earnings Statement
Year Ending Dec 31, 2008

Retained Earning $48,000
Add: Net Income $17,200

Less: Dividends $6,000
Retained Earnings 01/31 $59,200

E1-13 Mary Close is the bookkeeper for Mendez Company. Mary has been trying to get the balance sheet of Mendez Company to balance. Mendez’s balance sheet is shown on page 37.

MENDEZ COMPANY
Balance Sheet
December 31, 2008
Assets Liabilities
Cash $15,000 Accounts payable $20,000
Supplies 8,000 Accounts receivable (8,500)
Equipment 46,000 Common stock 50,000
Dividends 10,000 Retained earnings 17,500
Total assets $79,000 Total liabilities and stockholders’ equity $79,000

Mendez Company
Balance Sheet
December 31, 2008
Assets
A/R -8,500
Cash $15,000
Supplies $8,000
Equipment $46,000
Total Assets $71,000

Liabilities
Accounts Payable $20,000
Common Stock $50,000 $70,000

E2-2 Selected transactions for D.
Reyes, Inc., an interior decorating firm, in its first month of business, are as follows.
Jan. 2 Invested $10,000 cash in the business in exchange for common stock.
a. Asset Credited/ Stock Holders Equity Debited
b. Debit cash / Credit Common Stock
c. Cash increased/
3 Purchased used car for $4,000 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $1,800 for services performed.
16 Paid $200 cash for advertising.
20 Received $700 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.

Instructions
For each transaction indicate the following.
(a) The basic type of account debited and credited (asset, liability, stockholders’ equity).
(b) The specific account debited and credited (cash, rent expense, service revenue,
etc.).
(c) Whether the specific account is increased or decreased.
(d) The normal balance of the specific account.

E2-3

Date Account Titles and Explanation Debit Credit
Jan 2 Cash 10,000 Common Stock 10,000 3 Office Equipment 4,000 Cash 4,000 9 Supplies 500 A/P 500 11 Accounts Receivables 1800 Service Revenue 1800 16 Advertising Expense 200 Cash 200 20 Cash 700 Accounts Receivable 700 23 Notes Payable 300 Cash 300

E7-3 Presented below are the assumptions, principles, and constraints discussed in this chapter.
B1. Economic entity assumption E6. Matching principle
A2. Going concern assumption C7. Full disclosure principle
D3. Monetary unit assumption G8. Revenue recognition principle
F4. Time period assumption 9.
Materiality
5. Cost principle 10. Conservatism
Instructions
Identify by number the accounting assumption, principle, or constraint on page 323 that describes each situation below. Do not use a number more than once.
(a) Is the rationale for why plant assets are not reported at liquidation value. (Do not use historical cost principle.)
(b) Indicates that personal and business record-keeping should be separately maintained.
(c) Ensures that all relevant financial information is reported.
(d) Assumes that the dollar is the “measuring stick” used to report on financial performance.
(e) Requires that the operational guidelines be followed for all significant items.
(f ) Separates financial information into time periods for reporting purpose.
(g) Requires recognition of expenses in the same period as related revenues.
(h) Indicates that market value changes subsequent to purchase are not recorded in the accounts.