Mastery Problem: Introduction to Accounting and Business

The Accounting Equation

The foundation for the accounting system and the financial statements is the accounting equation. Select the terms that complete the accounting equation.

Accounting Equation
	=		+

For each of the following items, indicate the element of the accounting equation to which it belongs: Assets, Liabilities or Stockholders' Equity.

(Select "Yes" or "No" from the below dropdowns.)

	Assets	Liabilities	Stockholders' Equity
Accounts Payable
Accounts Receivable
Auto Expense
Common Stock
Cash
Dividends
Fees Earned
Land
Miscellaneous Expense
Supplies
Supplies Expense
Wages Expense

Transactions

Consider the following transactions for Thomas Company and their effect on the accounting equation. Place the cursor on each transaction for transaction details. Determine the new balance for each component of the accounting equation resulting from the transaction. (You will not need to enter the amount of each transaction, only the balance after the transaction.) If an amount box does not require an entry, leave it blank.

Transaction	Assets	=	Liabilities	+	Stockholders' Equity
Beginning	$0		$0		$0
1. Investment in the business	$fill in the blank e440cd0ac008fd0_1		$fill in the blank e440cd0ac008fd0_2		$fill in the blank e440cd0ac008fd0_3
2. Borrow cash	$fill in the blank e440cd0ac008fd0_4		$fill in the blank e440cd0ac008fd0_5		$fill in the blank e440cd0ac008fd0_6
3. Purchase equipment	$fill in the blank e440cd0ac008fd0_7		$fill in the blank e440cd0ac008fd0_8		$fill in the blank e440cd0ac008fd0_9
4. Revenues earned	$fill in the blank e440cd0ac008fd0_10		$fill in the blank e440cd0ac008fd0_11		$fill in the blank e440cd0ac008fd0_12
5. Expenses incurred	$fill in the blank e440cd0ac008fd0_13		$fill in the blank e440cd0ac008fd0_14		$fill in the blank e440cd0ac008fd0_15
6. Dividends	$fill in the blank e440cd0ac008fd0_16		$fill in the blank e440cd0ac008fd0_17		$fill in the blank e440cd0ac008fd0_18

Principles and Assumptions

1. Match each of the following scenarios with the accounting principle or accounting assumption that it best illustrates.

Scenario	Accounting Principle or Assumption
Although GGE Enterprises Inc. received a good deal on a used truck, the amount recorded in the accounting records is the amount the company paid, not the amount the truck was actually worth.
Thomas Company records sales for the month along with the expenses incurred to produce the sales.
GGE Enterprises records a deposit received from a customer for work to be performed later in the month. The customer is billed for the remaining amount after the work is complete, and the customers payment is recorded.
Several years after Thomas Company purchased new office equipment, the companys accounting records still show the original purchase price.
The accounting records of Thomas Company are in dollars, not euros, although the Ohio-based company is owned by a German firm.
The home of Rob Elliot, the owner of GGE Enterprises Inc., is not listed among the companys assets.
Thomas Company provides earnings information to investors at the end of every quarter.
Despite several years of falling sales, Thomas Company continues to forecast sales and make strategic plans to raise revenues and cut expenses.

2. Thomas Company has decided to purchase a company vehicle. The accountant was given all of the purchase details. Which should be used to record the vehicle in the accounting records?

Financial Statements

A business will construct its financial statements in a particular order because they are interrelated. This means that items formulated in an earlier statement feed into the subsequent statements, and changes to items on one financial statement can have compounding effects on the overall financial position of a company.

Which of the following is one reason the statement of stockholders' equity is prepared after the income statement?

Which of the following is one reason the statement of stockholders'equity is prepared before the balance sheet?

GGE Enterprises Inc.

On November 1 of the current year, Rob Elliot invested $31,000 of his cash to form a corporation, GGE Enterprises Inc., in exchange for shares of common stock. No other common stock was issued during November or December. After a very successful first month of operations, the retained earnings as of November 30 were reported at $5,000. After all transactions have been entered into the accounting equation for the month of December, the ending balances for selected items on December 31 follow. On that date, the financial statements were prepared. The balance sheet reported total assets of $52,400 and total stockholders' equity of $38,565.

Cash

Supplies

Land

Accounts Payable

Common Stock

Retained Earnings

Dividends

Fees Earned

Wages Expense

Rent Expense

Supplies Expense

Utilities Expense

Miscellaneous Expense

?

$7,350

$15,250

?

?

$5,000

$6,750

$27,250

$6,500

?

$4,525

$1,220

$340

Review the following questions. Indicate which financial statement(s) report the desired information. Enter the amount reported on the financial statement.

(Select "Yes" or "No" from the below dropdowns.)

	Balance Sheet	Income Statement	Statement of Stockholders' Equity	Amount
1. What is the amount reported for total liabilities and stockholders' equity on December 31?				$fill in the blank 86d728037fc2f9e_4
2. What is the retained earnings amount reported on December 31?				$fill in the blank 86d728037fc2f9e_8
3. How much does GGE Enterprises Inc. owe to its creditors?				$fill in the blank 86d728037fc2f9e_12
4. How much cash is being held by GGE Enterprises Inc.?				$fill in the blank 86d728037fc2f9e_16
5. By what amount did retained earnings increase or decrease during the period?				$fill in the blank 86d728037fc2f9e_20
6. What is the amount of profit or loss during December?				$fill in the blank 86d728037fc2f9e_24
7. What were the total expenses for December?				$fill in the blank 86d728037fc2f9e_28
8. How much was paid for rent?				$fill in the blank 86d728037fc2f9e_32