Tutorial 1 Questions - Business Decisions and Financial Accounting PDF

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tutorial 1 Business Decisions and Financial Accounting
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Tutorial 1 QUESTION 3. Briefly distinguish financial accounting from managerial accounting

M1-7 General Mills is a manufacturer of food products, such as Lucky Charms cereal, Pillsbury crescent rolls, and Green Giant vegetables. The following items were presented in the company’s financial statements. For each item, indicate (1) the type of account (A = asset, L = liability, SE = stockholders’ equity, R = revenue, E = expense) and (2) whether it is reported on the income statement (I/S) or balance sheet (B/S). 1. Accounts Payable 2. Common Stock 3. Equipment 4. Accounts Receivable 5. Notes Payable 6. Cash 7. Retained Earnings 8. Office Expenses 9. Sales Revenue 10. Supplies

S1-5 You are one of three stockholders who own and operate Mary’s Maid Service. The company has been operating for seven years. One of the other stockholders has prepared the company’s annual financial statements. Recently, you proposed the financial statements be audited each year because it would benefit the stockholders. The stockholder who prepares the statements proposed that his uncle, who has a lot of financial experience, can do the job at little cost. The third stockholder remained silent. Required: 1. What position would you take on the proposal? Justify your response in writing. 2. What would you recommend? Give the basis for your recommendation.

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E1-4* Ken Young and Kim Sherwood organized Reader Direct as a corporation; each contributed $49,000 cash to start the business and received 4,000 shares of stock. The store completed its first year of operations on December 31, 2017. On that date, the following financial items for the year were determined: cash on hand and in the bank, $47,500; amounts due from customers from sales of books, $26,900; equipment, $48,000; amounts owed to publishers for books purchased, $8,000; one-year notes payable to a local bank for $2,850. No dividends were declared or paid to the stockholders during the year.

Required: 1. Complete the following balance sheet at December 31, 2017.

Assets Cash

Liabilities and Stockholders’ Equity $

Liabilities

Accounts Receivable

Accounts Payable

Equipment

Notes Payable

$

Total Liabilities Stockholders’ Equity Common Stock Retained Earnings

13,550

Total Stockholders’ Equity Total Assets

$

Total Liabilities and Stockholders’ Equity $

2. Using the retained earnings equation and an opening balance of $0, work backwards to compute the amount of net income for the year ended December 31, 2017. 3. As of December 31, 2017, did most of the financing for assets come from creditors or stockholders? 4. Assuming that Reader Direct generates net income of $3,000 and pays dividends of $2,000 in 2018, what would be the ending Retained Earnings balance at December 31, 2018?

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