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Module 1, Chapter 1 Handout Introduction To Financial Statements

This document provides examples and instructions for classifying various accounts into categories like assets, liabilities, equity, revenues and expenses. It also includes examples of incomplete financial statements and asks the reader to fill in missing values. Finally, it discusses different business organization structures and asks the reader to determine the best structure for several sample business situations.

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440 views

Module 1, Chapter 1 Handout Introduction To Financial Statements

This document provides examples and instructions for classifying various accounts into categories like assets, liabilities, equity, revenues and expenses. It also includes examples of incomplete financial statements and asks the reader to fill in missing values. Finally, it discusses different business organization structures and asks the reader to determine the best structure for several sample business situations.

Uploaded by

sdfsdfuignbcbbdfb
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

Module 1, Chapter 1 Handout

Introduction to Financial Statements

E1.4  (You Do) The Bonita Vista Golf & Country Club details the following accounts in its financial
statements.
Accounts payable Inventory
Accounts receivable Mortgage payable
Equipment Supplies expense
Sales revenue Rent expense
Service revenue Salaries and wages expense

Instructions: Classify each of the accounts as an asset (A), liability (L), stockholders’ equity (SE),
revenue (R), or expense (E) item.

E1.8  The following information is available for Randall Inc.


Accounts receivable $ 2,400 Cash $ 6,250
Accounts payable 3,700 Supplies 3,760
Interest payable 580 Unearned service revenue 850
Salaries and wages expense 4,500 Service revenue 40,920
Notes payable 31,500 Salaries and wages payable 745
Common stock 50,700 Depreciation expense 670
Inventory 2,840 Equipment (net) 108,200

Instructions: Using the information above, prepare a balance sheet as of December 31, 2022.

Randall, Inc.
Balance Sheet
As of December 31, 2022

Assets

Total Assets
Liabilities

Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Page 1 of 5
Module 1, Chapter 1 Handout
Introduction to Financial Statements

E1.10 The following items and amounts were taken from Lonyear Inc.'s 2022 income statement and
balance sheet.
______ Cash $ 84,700 ______ Accounts receivable $ 88,419
______ Retained earnings 123,192 ______ Sales revenue 584,951
______ Cost of goods sold 438,458 ______ Notes payable 6,499
______ Salaries and wages expense 115,131 ______ Accounts payable 49,384
______ Prepaid insurance 7,818 ______ Service revenue 4,806
______ Inventory 64,618 ______ Interest expense 1,882

Instructions
a) In each, case, identify on the blank line whether the item is an asset (A), liability (L), stockholders'
equity (SE), revenue (R), or expense (E) item.
b) Prepare an income statement for Lonyear Inc. for the year ended December 31, 2022.

Revenues

Total Revenues
Expenses

Total Expenses
Net Income

Page 2 of 5
Module 1, Chapter 1 Handout
Introduction to Financial Statements

E1.12  Here are incomplete financial statements for Donavan, Inc.

Donavan, Inc.
Balance Sheet

Assets Liabilities and Stockholders’ Equity


Cash $ 7,000 Liabilities  
Inventory 10,000 Accounts payable $ 5,000
Buildings (net) 45,000 Stockholders’ equity  
Total assets $62,000 Common stock (a)
    Retained earnings (b)
    Total liabilities and  
    stockholders’ equity $62,000
Income Statement
 
  Revenues $85,000    
  Cost of goods sold (c)     
  Salaries and wages expense 10,000    
  Net income $ (d)    
 
Retained Earnings Statement
 
  Beginning retained earnings $12,000    
  Add: Net income (e)     
  Less: Dividends 5,000    
  Ending retained earnings $27,000    

Instructions: Calculate the missing amounts.

Page 3 of 5
Module 1, Chapter 1 Handout
Introduction to Financial Statements

P1-3 (You Do) On June 1, 2022, Elite Service Co. was started with an initial investment in the company of
$22,100 cash. Here are the assets, liabilities, and common stock of the company at June 30, 2022, and
the revenues and expenses for the month of June, its first month of operations:

Cash $ 4,600 Notes payable $12,000


Accounts receivable 4,000 Accounts payable 500
Service revenue 7,500 Supplies expense 1,000
Supplies 2,400 Maintenance and repairs expense 600
Advertising expense 400 Utilities expense 300
Equipment 26,000 Salaries and wages expense 1,400
Common stock 22,100    

In June, the company issued no additional stock but paid dividends of $1,400.
Instructions
a) Prepare an income statement and a retained earnings statement for the month of June and a
balance sheet at June 30, 2022.

Income Statement for the month ending June 30, 2022


Revenues

Expenses

Total Expenses
Net Income

Statement of Retained Earnings for the month ending June 30, 2022
Retained Earnings, June 1
Add:

Less:
Retained Earnings, June 30

b) Briefly discuss whether the company's first month of operations was a success.

c) Discuss the company's decision to distribute a dividend.

Page 4 of 5
Module 1, Chapter 1 Handout
Introduction to Financial Statements

P1-1 (You Do) Presented below are five independent situations. In each case, explain what form of
organization the business is likely to take—sole proprietorship, partnership, or corporation. Give
reasons for your choice.

a) Three physics professors at MIT have formed a business to improve the speed of information
transfer over the Internet for stock exchange transactions. Each has contributed an equal amount
of cash and knowledge to the venture. Although their approach looks promising, they are
concerned about the legal liabilities that their business might confront.

b) Bob Colt, a college student looking for summer employment, opened a bait shop in a small shed
at a local marina.

c) Alma Ortiz and Jaime Falco each owned separate shoe manufacturing businesses. They have
decided to combine their businesses. They expect that within the coming year they will need
significant funds to expand their operations.

d) Alice, Donna, and Sam recently graduated with marketing degrees. They have been friends since
childhood. They have decided to start a consulting business focused on marketing sporting goods
over the Internet.

e) Don Rolls has developed a low-cost GPS device that can be implanted into pets so that they can
be easily located when lost. He would like to build a small manufacturing facility to make the
devices and then sell them to veterinarians across the country. Don has no savings or personal
assets. He wants to maintain control over the business.

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