Page 58 - Accounting Principles (A Business Perspective)

1. Accounting and its use in business decisions

2010 2010
Assets
Cash $56,400 $46,800
Land 163,200 144,000
Total assets $219,600 $190,800
Liabilities and Stockholders' Equity
Accounts payable $18,000 $27,600
Capital stock 144,000 144,000
Retained earnings 57,600 19,200
Total liabilities and stockholders' equity $219,600 $190,800
TARGET-LINE GOLF DRIVING RANGE
Income Statement
For the Month Ended 2010 May 31
Revenues:
Service revenue $64,000
Expenses:
Salaries expense $16,000
Equipment rental expense 9,600 25,600
Net income $38,400
All revenues earned are on account.
State the probable cause(s) of the change in each of the balance sheet accounts from April 30 to 2010 May 31.

Alternate problems
Alternate problem A Preston Auto Paint Company had the temporary free use of an old building and
completed the following transactions in September 2010:
Sept. 1 The company was organized and received USD 100,000 cash from the issuance of capital stock.

5 The company bought painting and sanding equipment for cash at a cost of USD 25,000.
7 The company painted the auto fleet of a customer who agreed to pay USD 8,000 in one week. The customer
furnished the special paint.
14 The company received the USD 8,000 from the transaction of September 7.
20 Additional sanding equipment that cost USD 2,800 was acquired today; payment was postponed until
September 28.
28 USD 2,400 was paid on the liability incurred on September 20.
30 Employee salaries for the month, USD 2,200, were paid.
30 Placed an order for additional painting equipment advertised at USD 20,000.

Prepare a summary of transactions (see Part A of Exhibit 4) for the company for these transactions. Use money
columns headed Cash, Accounts Receivable, Equipment, Accounts Payable, Capital Stock, and Retained Earnings.
Determine balances after each transaction to show that the basic accounting equation balances.
Alternate problem B Quick-Start Home Repair Company completed the following transactions in June 2010:
June 1 The company was organized and received USD 200,000 cash from the issuance of capital stock.
4 The company paid USD 48,000 cash for a truck.
7 The company borrowed USD 10,000 from its bank on a note.

9 Cash received for repair services performed was USD 4,500.
12 Expenses of operating the business so far this month were paid in cash, USD 3,400.
18 Repair services performed for a customer who agreed to pay within a month amounted to USD 5,400.
25 The company paid USD 4,065 on its loan from the bank, including USD 4,050 of principal and USD 15 of
interest. (The principal is the amount of the loan. Interest is an expense, which reduces retained earnings.)

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