1. Briefly explain the purpose of accounting.
2. List the users of accounting information. Describe the kinds of information needed by each user group. Explain why one set of accounting information is unlikely to satisfy the needs of all users.
3. Imagine you are trying to decide whether or not to invest in the shares of a large company. To help you make this decision you have obtained the company's financial statements for the last five years. i. What are the two main types of information that you would expect to find in these financial statements? ii. Do you think that the statements will provide you with all of the information you need? If not, why not?
4. What is meant by historical cost principle? (a) Land with an assessed value of $600,000 for property tax purposes is acquired by a business enterprise for $750,000. At what amount should the land be recorded by the purchaser? (b) Ten years later the plot of land in (a) has an assessed value of $1,100,000 and the business enterprise receives an offer of $1,500,000 for it. Should the monetary amount assigned to the land in the business records now be increased and, if so, by what amount. (c) Assuming that the land acquired in (a) was sold for $1,750,000, (1) how much would the profit & owner's equity increase, and (2) at what amount would the purchaser record the land?
5. Consider each of the following situations listed below. Identify the accounting conventions(s) which would be used to determine the appropriate accounting treatment of each situation. (a) A business has an excellent local reputation and enjoys the goodwill of many regular customers. (b) The owner of a business pays for a holiday out of her personal bank account. (c) The owner of a business pays for a holiday out of the business bank account. (d) In order to improve the financial results, the general manager is asking the accountant whether it is possible to include a contract worth $100,000 as fees earned even though the business has not started work on that contract.
6. Indicate whether each of the following represents (1) an asset, (2) a liability, or (3) owner's equity. If it falls under owner's equity, indicate whether it is a revenue, expense, etc. a) accounts payable/trade creditors g) land b) cash h) supplies c) fees earned i) wages expense d) advertisement j) plant & machinery e) interest Income k) inventory f) bank overdraft l) sales