Harvard - Chapter 1 - The Accounting Equation

Henry's Consulting LLP recently purchased a new office building to house their operations. They paid $500,000, all through a bank loan (mortgage) which was supplied at the closing. How will this purchase impact the accounting equation? Select all that apply.

Assets = Up Liabilities = Up

Simon's Shoe Store (SSS) purchased 500 pairs of shoes from their sports shoe supplier, Feet of Endurance (FOE), for $20,000. SSS is a good customer of FOE so they were given 30 days to pay for the shoes. The 30 days expired and SSS paid FOE for the shoes. How will this payment impact the accounting equation on the books of SSS? Select all that apply.

Assets = down 20k Liabilities = down 20k

Charlie Longbottom is excited to get his new web storage site up and running. He purchased two new servers for $5,000 each that he will install in his server room. Charlie was given 30 days credit terms for the servers. How will this purchase impact the accounting equation? Select all that apply.

Assets = up 10k Liabilities = up 10k

Rebuilt Rods purchased 200 gallons of premium auto paint to be used in its auto restoration service. The total cost of the paint was $10,000. Rebuilt Rods bought the paint on credit, with payment due within thirty days. How will the accounting equation be affected at the time of the purchase? Select all that apply.

Assets = up 10k Liabilities up 10k

Tom's T.V.'s sold one of their premium products, a new 60" flat screen 3D T.V. to a customer who paid $2,000 in cash. How would the receipt of payment from this sale impact the accounting equation? Select all that apply

Assets = up 20K Equity = up 20k

P&P Accountants, an audit firm, bills $35,000 to AQG Industries for audit work performed related to the annual audit. P&P requests payment in 15 days. How would this impact the accounting equation of P&P? Select all that apply.

Assets = up 35k Equity = up 35k

Qingji Corp., an oil separator manufacturer, received an advance payment of $50,000 on Aug. 1 for an order of five oil separators. Qingji Corp. delivered the five oil separators on Nov 1. How will the accounting equation be impacted when this advance payment was recorded on Aug. 1? Select all that apply.

Assets = up 50k Liabilities = up 50k

Kevin owns a food truck that sells only items that contain bacon. Kevin leased the grill that he uses on his truck to cook his products. He paid $1,200 on January 1, which allows him to use the grill for an entire year. Using the accrual accounting method, how would the transaction impact the accounting equation? Select all that apply.

Assets = up and down

Jarvard University Bookstore paid $67,000 for books purchased on credit in the previous month. How would this payment impact the accounting equation?

Assets down Liabilities down

Breeze Inc. receives payment of $800,000 for 4 wind turbines that were delivered and invoiced on credit in the previous month. How would this receipt impact the accounting equation of Breeze Inc.? Select all that apply.

Assets up and Down

Universal Graphics has used straight-line depreciation on all its copiers and printers since its inception in 1943. This year, the CFO wants to change the method to double declining balance for all machinery because she believes it more accurately reflects how the machines are used up. From the options given below, which accounting principle is most important to consider before possibly making this change?

Consistency The principle of Consistency requires that the accounting methods be consistently applied by the company over time in recording and reporting unless there is a sound reason to change them. If the motivation is to more accurately match expenses to revenues, the company may find this reason more compelling than consistency and decide to make the change.

In a multi-national company or a large company with several subsidiaries, the company's financial management must know the legal structure of the company so that the financial records can be kept at the correct levels and financial reporting can be done properly. This relates to which of the following accounting principles?

Entity Concept The Entity Concept relates to defining what an entity is for the purpose of financial reporting.

A packaged foods distribution company owns several warehouses in Indiana. Because of a new highway being built that will improve transportation throughout the Midwest, real estate in the area has increased significantly. The CEO approaches the CFO to ask if the company can update the books to reflect the higher value of the land and buildings. In explaining why the company cannot do that, the CFO's answer should refer to which accounting principle?

Historical Cost The Historical Cost principle means that transactions are recorded at the actual price or cost that existed at the time the transaction occurred.

A microfinance institution has been relying on government collateral subsidies to finance start-ups in rural areas. However, the government has cut the program recently. The company reports this situation in its financial statements as this might affect the decisions of stakeholders.

Materiality

Party Planners, an event planner and producer, records and tracks every cost in detail and provides an itemized invoice for $150,000 to Ivy University for their services at the commencement ceremony. However, Ivy University simply records the entire amount of the invoice as part of their overall Event Expenses account. The reason for the different levels of detail between the two entities is related to the accounting principle of:

Materiality The decision about the level of detail in grouping transactions into financial accounts is related to how significant, or material, the transactions are. This often means large and small companies group transactions differently.

Victory Inc. sells custom trophies, medallions, and ribbons. For over 20 years, Victory, Inc. has had a special relationship with the city's Parks and Recreation Department and is the exclusive supplier of trophies for all their youth sports leagues. The founder of the company estimates this relationship is worth $100,000 in revenue each year and would like to record that amount as expected revenue for the coming year. The controller argues that such a relationship cannot be valued in dollars. This debate relates to which of the following principles?

Money Measurement The Money Measurement principle refers to the fact that only values that can be measured in monetary terms get recorded in the financial statements. A relationship is not something whose value can be measured in monetary terms.

Is an expense a liability?

No