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

   Accounting Equation
   AssetsExpenseLiabilitiesRevenueStockholders' Equity	=	AssetsExpenseLiabilitiesRevenueStockholders' Equity	+	AssetsExpenseLiabilitiesRevenueStockholders' Equity

   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	YesNo	YesNo	YesNo
   Accounts Receivable	YesNo	YesNo	YesNo
   Auto Expense	YesNo	YesNo	YesNo
   Common Stock	YesNo	YesNo	YesNo
   Cash	YesNo	YesNo	YesNo
   Dividends	YesNo	YesNo	YesNo
   Fees Earned	YesNo	YesNo	YesNo
   Land	YesNo	YesNo	YesNo
   Miscellaneous Expense	YesNo	YesNo	YesNo
   Supplies	YesNo	YesNo	YesNo
   Supplies Expense	YesNo	YesNo	YesNo
   Wages Expense	YesNo	YesNo	YesNo

   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 0f0711fdf042067_1		$fill in the blank 0f0711fdf042067_2		$fill in the blank 0f0711fdf042067_3
   2. Borrow cash	$fill in the blank 0f0711fdf042067_4		$fill in the blank 0f0711fdf042067_5		$fill in the blank 0f0711fdf042067_6
   3. Purchase equipment	$fill in the blank 0f0711fdf042067_7		$fill in the blank 0f0711fdf042067_8		$fill in the blank 0f0711fdf042067_9
   4. Revenues earned	$fill in the blank 0f0711fdf042067_10		$fill in the blank 0f0711fdf042067_11		$fill in the blank 0f0711fdf042067_12
   5. Expenses incurred	$fill in the blank 0f0711fdf042067_13		$fill in the blank 0f0711fdf042067_14		$fill in the blank 0f0711fdf042067_15
   6. Dividends	$fill in the blank 0f0711fdf042067_16		$fill in the blank 0f0711fdf042067_17		$fill in the blank 0f0711fdf042067_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.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption
   Thomas Company records sales for the month along with the expenses incurred to produce the sales.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime 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 customer’s payment is recorded.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption
   Several years after Thomas Company purchased new office equipment, the company’s accounting records still show the original purchase price.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption
   The accounting records of Thomas Company are in dollars, not euros, although the Ohio-based company is owned by a German firm.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption
   The home of Rob Elliot, the owner of GGE Enterprises Inc., is not listed among the company’s assets.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption
   Thomas Company provides earnings information to investors at the end of every quarter.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption
   Despite several years of falling sales, Thomas Company continues to forecast sales and make strategic plans to raise revenues and cut expenses.	Business entity assumptionExpense recognition principleGoing concern assumptionHistorical cost principleMeasurement principleMonetary unit assumptionRevenue recognition principleTime period assumption

   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 amount of the loan with the bank.The average selling price of similar vehicles in the area.The manufacturer’s suggested retail price (MSRP).The price negotiated with the dealer.

   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?

   Net income is the beginning retained earnings amount.Net income is part of the computation for ending retained earnings.Retained earnings are computed on the income statement.Retained earnings is really an asset.

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

   Common stock and retained earnings are really assets.Common stock and ending retained earnings must be computed for the balance sheet.Retained earnings feeds into revenues and expenses.Revenues end up in the Assets section.

   GGE Enterprises Inc.

   On November 1 of the current year, Rob Elliot invested $29,000 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 $53,900 and total stockholders' equity of $38,150.

   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

   $5,250

   $27,250

   $6,300

   ?

   $4,600

   $1,235

   $415

   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?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_4
   2. What is the retained earnings amount reported on December 31?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_8
   3. How much does GGE Enterprises Inc. owe to its creditors?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_12
   4. How much cash is being held by GGE Enterprises Inc.?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_16
   5. By what amount did retained earnings increase or decrease during the period?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_20
   6. What is the amount of profit or loss during December?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_24
   7. What were the total expenses for December?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_28
   8. How much was paid for rent?	YesNo	YesNo	YesNo	$fill in the blank 6d23aafc9050062_32

Answer rating: 100% (QA)

Accounting Equation Transactions 1Principles and Assumptions Explanation AHistorical cost ... View the full answer