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Mastery Problem: The Accounting

An information system that provides reports to stakeholders about the economic activities and condition of a business.

Information System

Transactions

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Principles and Assumptions

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Transactions

Consider the following transactions for Thomas Company and their effect on the accounting equation. Click 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 The owners invested $17,160 cash into the business in exchange for shares of common stock in Thomas Company.
2. Borrow cash The company borrows $7,740 cash from the local bank.
3. Purchase equipment The company pays cash for a piece of equipment. The list price was $9,100, but after negotiation, the final purchase price was $8,700.
4. Provided services During the year, Thomas Company provided services to customers totaling $298,400. The cash has been collected from the customers for all revenue earned this year.
5. Expenses incurred Thomas Company incurred expenses totaling $211,700 during that same year. All of the expenses incurred this year were paid in cash.
You are in Column Transaction6. Dividends At the end of each quarter, Thomas Company distributed cash to its stockholders. The sum of those quarterly distributions was $15,400.	You are in Column Assets =	You are in Column Liabilities +	You are in Column Stockholders' Equity

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Principles and Assumptions

1. Match each of the following scenarios with the accounting principle

Along with accounting assumptions, provide the framework upon which accounting standards are constructed.

or accounting assumption

Along with accounting principles, provide the framework upon which accounting standards are constructed.

that it best illustrates.

Scenario	Accounting Principle or Assumption
Thomas records expenses incurred to produce the sales The total amount charged customers for goods sold, including cash sales and sales on account. for the month.	selector 1 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption
Thomas Company provides earnings information to investors at the end of every quarter.	selector 2 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption
Despite several years of falling sales, Thomas Company continues to forecast sales and make strategic plans to raise revenues and cut expenses.	selector 3 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption
The accounting records of Thomas Company are in dollars, not euros, although the Ohio-based company is owned by a German firm.	selector 4 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption
Several years after Thomas Company purchased new office equipment, the companys accounting records still show the original purchase price.	selector 5 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption
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.	selector 6 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption
The home of Rob Elliot, the owner of GGE Enterprises Inc., is not listed among the companys assets.	selector 7 Economic entity assumption Expense recognition principle Going concern assumption Historical cost principle Monetary unit assumption Revenue recognition principle Time period assumption

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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?

The average selling price of similar vehicles in the area.

The manufacturers suggested retail price (MSRP).

The price negotiated with the dealer.

The amount of the loan with the bank.

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