Demonstration Examples PDF

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Professor Trone...

Description

Longhorn Corporation provides low-cost food delivery services to senior citizens. At the end of the year on December 31, 2021, the company reports the following amounts: Cash Equipment Accounts payable Delivery expense Salaries expense

$ 1,200 Service revenue Cost of goods sold (food 29,000 expense) 4,400 Buildings 2,600 Supplies 5,500 Salaries payable

$67,700 53,400 40,000 3,400 800

In addition, the company had common stock of $40,000 at the beginning of the year and issued an additional $4,000 during the year. The company also had retained earnings of $18,200 at the beginning of the year. Required: 1. Prepare the income statement for Longhorn Corporation. 2. Prepare the statement of stockholders’ equity for Longhorn Corporation. 3. Prepare the balance sheet for Longhorn Corporation.

For an income sheet you need revenues and expenses. Example: Example Corporation Year Ending Dec. 31, 2021 Revenues Expenses: Cost of Goods Sold Salary Expense Delivery Expense TOTAL EXPENSES NET INCOME

$ 67,700 $ 53,400 $ 5,500 $ 2,600 $ 61,500 $ 6,200

For a statement of Stockholders’ Equity you use Common stock and Retained Earnings Example: Example Corporation Statement of Stockholders’ Equity For the year ended Dec. 31, 2021 Common Stock

Beginning balance Issuance of common stock Add: Net Income Ending balance

$ 40,000 4,000 $ 44,000

Retained Earnings

$ 18,200 6,200 $ 24,400

Total Stockholders’ Equity

$ 58,200 4,000 6,200 $ 68,400

For a Balance Sheet you will need assets, liabilities, and Stockholders’ Equity  Balance Sheet equation: Assets = Equity + Liabilities  Liabilities and Stockholders’ Equity must Equal Example: Example Corporation Balance Sheet Dec. 31, 2021 Assets Cash Supplies Equipment Buildings

Liabilities $ 1,200 3,900 29,000 40,000

Accounts payable Salaries payable

$ 4,400 800

Total liabilities

5,200 Stockholders’ Equity

Total assets

$ 73,600

Common stock Retained earnings

44,000 24,400

Total stockholders’ equity Total liabilities and stockholders’ equity

68,400 $ 73,600

Calculate the balance of retained earnings at the end of each year. Note that retained earnings will always equal $0 at the beginning of year 1. Year 1 2 3 4 5

Net Income $

1,700 2,200 3,100 4,200 5,400

Dividends $

600 600 1,500 1,500 1,500

Retained Earnings 1,100 2,700 4,300 7,000 10,900

Ex: Add the year RE before to the next year’s NI and then subtract the dividends 1,100 + 2,200 – 600 = 2,700

Example: Select the type of business activity as financing, investing, or operating for each transaction of Hewlett-Packard.

Transactions

Type of Business Activity

1. Pay amount owed to the bank for previous borrowing. Financing 2. Pay utility costs.

Operating

3. Purchase equipment to be used in operations.

Investing

4. Provide services to customers.

Operating

5. Purchase office supplies.

Operating

6. Purchase a building.

Investing

7. Pay workers’ salaries.

Operating

8. Pay for research and development costs.

Operating

9. Pay taxes to the IRS.

Operating

10. Sell common stock to investors.

Financing

Match the following descriptions with the concepts associated with the role of the auditor in financial reporting.

Description Phrase meaning to present the accounting records in an altered a. format. b. Auditors are not employees of the company they audit. Responsible for applying generally accepted accounting c. principles (GAAP). Regulatory body that requires audits of all publicly traded d. companies. Separation of management from those who own the business or e. finance operations. Party that reports on whether a company’s financial statements f. are in accordance with GAAP. View expressed by an auditor as to the accuracy of a company’s g. financial statements.

Concept Cooking the books Independent Management Securities and Exchange Commission Need for auditing Auditor Opinion...