Resources: Ch. 1, 2, & 7 of Financial Accounting

Prepare written answers for the following assignments from Ch. 1, 2, & 7 of Financial Accounting:

Chapter 1:

Exercise E1-1

Urlacher Company performs the following accounting tasks during the year.

  • ______Analyzing and interpreting information.
  • ______Classifying economic events.
  • ______Explaining uses, meaning, and limitations of data.
  • ______Keeping a systematic chronological diary of events.
  • ______Measuring events in dollars and cents.
  • ______Preparing accounting reports.

______Reporting information in a standard format.

  • ______Selecting economic activities relevant to the company.
  • ______Summarizing economic events.

Accounting is “an information system that identifies, records, and communicates the economic

events of an organization to interested users.”

Instructions

  • Categorize the accounting tasks performed by Urlacher as relating to either the identification

(I), recording (R), or communication (C) aspects of accounting.

  • Exercise E1-5

Meredith Cleaners has the following balance sheet items:

Accounts payable

Accounts receivable

Cash

Notes payable

Cleaning equipment

Salaries payable

Cleaning supplies

Common stock

Instructions

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

  • Exercise 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.

  • Exercise E1-13

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

Instructions

Prepare a correct balance sheet.

Chapter 2:

  • Exercise E2-3

Data for D. Reyes, Inc., interior decorating, are presented in E2-2.

Instructions

Journalize the transactions using journal page J1. (You may omit explanations.)

In case you needed:

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.

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.

28 Declared and paid a $1,000 cash dividend.

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.

Chapter 7:

oExercise E7-3

E7-3 Presented below are the assumptions, principles, and constraints discussed in this chapter.

1. Economic entity assumption 6. Matching principle

2. Going concern assumption 7. Full disclosure principle

3. Monetary unit assumption 8. Revenue recognition principle

4. 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.