Question Number One

Part a: One Mark for Each Statement Max owns and operates a minimart. Which of Maxs actions described below are business transactions? Explain why any other actions are not considered transactions.

a. Max reduces the price of a gallon of milk in order to match the price offered by a competitor.

b. Max pays a high school student cash for cleaning up the driveway behind the market.

c. Max fills his sons car with gasoline in payment for his sons restocking the vending machines and the snack food shelves.

d. Max pays interest to himself on a loan he made to the business three years ago.

Part b: The total assets and liabilities at the beginning and end of the year for Luther Company follow. Assets Liabilities Beginning of the Year $175,000 $ 68,750 End of the Year 275,000 162,500 Requirement: One Mark for Each alternative.

Determine Luther Companys net income or loss for the year under each of the following alternatives:

a. The owner made no investments in or withdrawals from the business during the year.

b. The owner made no investments in the business but withdrew $27,500 during the year.

c. The owner invested $16,250 in the business but made no withdrawals during the year.

d. The owner invested $12,500 in the business and withdrew $27,500 during the year.