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3. Greenstreet CPAs collected $100,000 from shareholders in exchange for stock Introduction to Financial Accounting Week 5 Lab Chapters 2-3 Part 1: Transaction Analysis and
3. Greenstreet CPAs collected $100,000 from shareholders in exchange for stock Introduction to Financial Accounting Week 5 Lab Chapters 2-3 Part 1: Transaction Analysis and Financial Statement Impacts Greenstreet CPAs is an accounting firm that provides audit, tax, and consulting services to clients. Greenstreet CPAs encountered the following business transactions during 2020. For each transaction, identify which accounts are involved then summarize the impact on the financial statements. The first transaction has been completed for you as an example. To assist in preparing for the upcoming exam, a multiple choice question is provided below each transaction. This will help you see how the transactions we have been recording may be tested in a multiple choice format. Stmt. of Cash Flows Income Statement + Balance Sheet Assets Liabilities Acct. Acct. Salaries Receiv, + Supplies Supplies - Equip. Pay. Stockholders' Equity Common Retained Stock + Earnings Cash Pay. Net Revenue - Expenses = Income + Cash Flow 1. Greenstreet CPAs borrowed $65,000 from Kansas City Bank on January 31, 2020 at 4% interest. The loan is due on January 31, 2021. Stmt. of Cash Flows Income Statement How does this transaction impact the income statement? A) Common stock increases. B) Net income increases. C) There is no impact to the income statement. D) Net income decreases. Balance Sheet Assets Liabilities Acct. Acct. Notes Receiv. + Supplies + Equip. Pay. + Payable 65,000 + Stockholders' Equity Common Retained Stock + Earnings Net Income Cash + + Revenue - Expenses = Cash Flow 65,000 FA 65,000 4. Yacht Corporation paid $11,500 to Greenstreet CPAs for the services performed in #2 above. Stmt. of Cash Flows Income Statement How does this transaction reflected on the statement of cash flows? A) Cash inflow in the operating section B) Cash inflow in the investing section C) Cash inflow in the financing section D) There is no impact to the statement of cash flows. + Balance Sheet Assets Liabilities Acct. Acct. Salaries Receiv, + Supplies - Equip. Pay. Pay Stockholders' Equity Common Retained Stock + Earnings Net Income Cash + + Revenue - Expenses = Cash Flow 2. Greenstreet CPAs provided tax services totaling $24,500 to Yacht Corporation on account. Stmt. of Cash Flows Balance Sheet Income Statement Assets + Acct. Receiv. + Supplies - Equip. Liabilities Acct. . Salaries Pay. + Pay. What is the impact to Greenstreet CPAs' net income? A) Net income increases. B) Net income decreases. C) Cash increases. D) There is no impact to net income. Stockholders' Equity Common Retained Stock + Earnings Net Expenses -Income Cash + + Revenue Cash Flow How does this transaction impact the assets of Greenstreet CPAs? A) Cash increases. B) Revenue increases. C) Accounts receivable increases. D) Retained earnings increases. 1 2 7. Greenstreet CPAs purchased $1,300 of office supplies on account from Supply Warehouse. Stmt. of Cash Flows Income Statement 5. Greenstreet CPAs agreed to perform an audit for Computer Company later in the year. + Stmt. of Cash Flows Balance Sheet Assets Liabilities Acct. Acct. Salaries Receiv. + Supplies - Equip. Pay. Stockholders' Equity Common Retained Stock + Earnings Income Statement Cash Net Revenue - Expenses = Income = + Pay. Cash Flow + Balance Sheet Assets Liabilities Acct. Acct. Salaries Receix, Supplies - Equip. Equip. = Pay. + Pay. Stockholders' Equity Common Retained Stock + Earnings Net Income Cash Revenue Expenses Cash Flow Which financial statement(s) of Greenstreet CPAs are impacted by this transaction? A) Balance sheet B) Balance sheet and income statement C) Balance sheet, income statement, and statement of stockholders' equity D) Balance sheet, income statement, statement of stockholders' equity, and statement of cash flows When should Greenstreet CPAs recognize revenue for this audit? A) When Greenstreet CPAs agrees to perform the audit. B) When Computer Company pre-pays a deposit to Greenstreet CPAS. c) When Greenstreet CPAs performs the audit. D) Greenstreet CPAs will not record revenue for the audit since the audit is a service and not a tangible product. 8 Greenstreet CPAs paid Supply Warehouse for the office supplies purchased in #7 above. 6. Greenstreet CPAs paid employees $9,500 for salaries. Stmt. of Cash Flows Income Statement Stmt. of Cash Flows + Balance Sheet Income Statement Balance Sheet Assets Liabilities Acct. Acct. Salaries + Receiv. + Supplies - Equip. Pay. Pay. Stockholders' Equity ' Common Retained Stock + Earnings Assets Net Income + Cash = Revenue - Expenses = Cash Flow Acct. + Receiv. Liabilities Acct. Salaries Pay. Pay. Stockholders' Equity Common Retained Stock + Earnings Net Income Cash + Supplies - Equip. + + Revenue Expenses Cash Flow Describe the impact of this transaction to the liabilities of Greenstreet CPAs. A) There is no impact to Greenstreet's liabilities. B) Liabilities increase. C) Liabilities decrease. When will Greenstreet CPAs recognize supplies expense? A) When the supplies are purchased on account B) When Greenstreet pays Supply Warehouse c) Companies do not recognize supplies expense. D) When the supplies are used 3 4 9. A count revealed $300 of supplies on hand. 11. Employees of Greenstreet CPAs earned $5,600 in salaries during the last week of July. Paychecks will be issued next month. Stmt. of Cash Flows Income Statement Stmt. of Cash Flows Income Statement + Balance Sheet Assets Liabilities Acct. Acct. Salaries # Receiv. + Supplies - Equip. Pay. Pay. Stockholders' Equity Common Retained Stock + Earnings + Net Income Balance Sheet Assets Liabilities Acct. Acct. Salaries Receiv. + Supplies - Equip. Cash + + Revenue Expenses Cash Flow Stockholders' Equity Common Retained Stock + Earnings Cash Net Revenue - Expenses = Income Pay. + Pay. + Cash Flow What amount of supplies will be shown on the December 31, 2020 balance sheet of Greenstreet CPAS? A) $300 B) $1,300 C) $1,000 D) $1,600 How do expenses impact the stockholders' equity of a company? A) Expenses decrease stockholders' equity. B) Expenses increase stockholders' equity C) Expenses do not impact stockholders' equity. 10. Greenstreet CPAs received a $3,500 deposit from Computer Company for an audit to be performed later in the year. 12. Greenstreet CPAs paid its employees for the hours worked in #11 above. Stmt. of Cash Flows Income Statement Stmt. of Cash Flows + Income Statement Balance Sheet Assets Liabilities Acct. Acct. Unearned Receiv, Supplies - Equip. Pay. + Revenue Stockholders' Equity Common Retained Stock + Earnings Net + Balance Sheet Assets Liabilities Acct. Acct. Salaries Receiv. + Supplies - Equip. Pay. Pay. Cash + Revenue Expenses = Income Cash Flow Stockholders' Equity Common Retained Stock + Earnings Net - Expenses = Income Cash = + + Revenue Cash Flow Which account increases when a client pays Greenstreet CPAs in advance of Greenstreet providing the service? A) Accounts receivable B) Revenue C) Retained earnings D) Unearned revenue This transaction decreases which account in Greenstreet CPAs' accounting records? A) Salaries expense B) Retained earnings C) Accounts receivable D) Salaries payable 5 6 15. Greenstreet CPAs completed an audit and collected $4,350 from Train Inc. Stmt. of Cash Flows Income Statement 13. Greenstreet CPAs completed the audit for Computer Company from transaction #10 above. + Stmt. of Cash Flows Balance Sheet Assets Liabilities Acct. Acct. Salaries Receiv. + Supplies - Equip. Pay. Pay. Stockholders' Equity Common Retained Stock + Earnings Income Statement Net Income Cash + Revenue - Expenses Cash Flow + Balance Sheet Assets Liabilities Acct. Acct. Unearned Receiv, + Supplies - Equip. Pay. + Revenue + Stockholders' Equity Common Retained Stock + Earnings Net Income Cash Revenue Expenses = Cash Flow Which account on the balance sheet increases when Greenstreet CPAs provides accounting services to a client? A) Retained earnings B) Accounts payable C) Revenue D) Common stock On which financial statement will unearned revenue appear? A) Income statement B) Statement of stockholders' equity C) Balance sheet D) Statement of cash flows 16. Greenstreet CPAs received a $525 electric bill and plans to pay the bill next month. Stmt. of Cash Flows Income Statement 14. Greenstreet CPAs paid $2,000 for a copy machine. Stmt. of Cash Flows Balance Sheet Assets Liabilities Acct. Acct. Utilities + Receiv. + Supplies - Equip. Pay. Pay. Stockholders' Equity Common Retained Stock + Earnings Income Statement Net Income Cash + Revenue - Expenses = Cash Flow + Balance Sheet Assets Liabilities Acct. Acct. Salaries + Receiv, + Supplies - Equip. Pay. Pay. Stockholders' Equity Common Retained Stock + Earnings Net Income Cash + + Revenue Expenses = Cash Flow The balance in the utilities payable account represents: A) the amount that the utility company owes to Greenstreet CPAs. B) the amount that Greenstreet CPAs currently owes to the utility company. c) the total of all utility bills Greenstreet CPAs received this year. D) the amount that Greenstreet CPAs paid to the utility company last month. How does this transaction impact the income statement of Greenstreet CPAs? A) Expenses increase. B) Revenue decreases. C) Cash decreases. D) There is no impact to the income statement. 7 8 17. Greenstreet CPAs paid the electric company for the bill received in #16 above. 19. Greenstreet CPAs recognized rent expense for rent incurred during 2020. Stmt. of Cash Flows Income Statement Stmt. of Cash Flows Income Statement + Balance Sheet Assets Liabilities Acct. Utilities + Receiv. + Supplies - Equip. Pay. Pay. . Acct. Stockholders' Equity Common Retained Stock + Earnings + Net = Income Balance Sheet Assets Liabilities Prepaid Acct. Salaries Rent + Supplies - Equip. . Cash + Revenue - Expenses Cash Flow Stockholders' Equity Common Retained Stock + Earnings Net Revenue - Expenses = Income Cash Pay. Pay. Cash Flow Which transaction would decrease the liabilities of Greenstreet CPAs? A) Greenstreet CPAs purchases supplies on account. B) Greenstreet CPAs provides accounting services for a customer on account. C) Greenstreet CPAs receives, but does not pay, a utility bill. D) Greenstreet CPAs pays a utility bill that was received and recorded last month. How much rent expense will appear in Greenstreet CPAs' income statement for the year ended December 31, 2020? A) $14,500 B) $4,833 C) $9,667 D) $1,208 18. On September 1, Greenstreet CPAs paid $14,500 for one year of rent (September 2020 through August 2021) for its office space. 20. Greenstreet CPAs paid a $12,000 dividend to its shareholders. Stmt. of Cash Flows Stmt. of Cash Flows Income Statement Income Statement + + Balance Sheet Assets Liabilities Prepaid Acct. Salaries Rent Supplies - Equip. Pay. + Pay. Stockholders' Equity Common Retained Stock + Earnings Balance Sheet Assets Liabilities Acct. Acct. Salaries + Receiv, Supplies - Equip. Pay. Pay. Net = Income Stockholders' Equity Common Retained Stock + Earnings Net Income Cash + Revenue Expenses Cash Flow Cash + + Revenue Expenses = Cash Flow Which account increases when Greenstreet CPAs pays rent in advance? A) Rent expense B) Cash C) Prepaid rent D) Accounts receivable Which financial statements are impacted by this transaction? A) Balance sheet and statement of cash flows B) Balance sheet and income statement C) Balance sheet, statement of stockholders' equity, and statement of cash flows D) Balance sheet, income statement, statement of stockholders' equity, and statement of cash flows 9 10 23. Greenstreet CPAs recognized insurance expense for coverage utilized during 2020. Stmt. of Cash Flows Income Statement Assets 21. On November 30, Greenstreet CPAs paid $2,000 for a two-month insurance policy for December 2020 and January 2021. (Hint: Insurance is recorded similarly to rent.) Stmt. of Balance Sheet Income Statement Cash Flows Assets Liabilities Stockholders' Equity Prepaid Acct. Salaries Common Retained Net Cash Insur. + Supplies + Supplies - Equip. Equip. Pay. Pay. Stock + Earnings Revenue Expenses - Income Cash Flow Balance Sheet Liabilities Acct. Salaries Equip. = Pay. Pay. Stockholders' Equity Common Retained Stock + Earnings Prepaid Insur. Supplies Net Income + Cash + + + Revenue Expenses Cash Flow + + + How will this transaction impact the 2020 financial statements of Greenstreet CPAS? A) Net income decreases on the income statement B) Retained earnings decreases on the balance sheet. C) Cash decreases on the balance sheet. D) All of the above are true. . How does this transaction impact the accounting equation of Greenstreet CPAS? A) Assets increase and decrease. B) Assets and stockholders' equity decrease. C) Assets and liabilities decrease. D) Liabilities increase and stockholders' equity decrease. 24. Greenstreet CPAs accrued 2020 interest on the Kansas City Bank loan from transaction #1 above. Stmt. of Cash Flows Income Statement 22. Greenstreet CPAs paid $900 for an advertisement that appeared in the Kansas City Star this week. + Stmt. of Cash Flows Balance Sheet Assets Liabilities Acct. Acct. Interest + Receiv. + Supplies - Equip. Pay. + Pay. Income Statement Stockholders' Equity ' Common Retained Stock + Earnings Cash Net Revenue - Expenses = | Income = + Cash Flow + Balance Sheet Assets Liabilities Acct. Acct. Salaries + Receiv, Supplies - Equip. - Pay. + Pay. Stockholders' Equity Common Retained Stock + Earnings Net Cash + + Revenue Expenses Income Cash Flow Which account increases when Greenstreet CPAs records accrued interest? A) Retained earnings B) Interest payable C) Cash D) Notes payable Under U.S. Generally Accepted Accounting Principles (GAAP), what does a company record when it utilizes a resource? A) Revenue B) Expense C) Liability D) Dividend 11 12
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