Chapter 1 - Libby, Libby, and Short - Financial Accounting, Chapter 2 - Libby, Libby and Short - Financial Accounting, Chapter 3 - Libby, Libby & Short - Financial Accounting, Chapter 4 - Libby, Libby & Short - Financial Accounting

During the fiscal year ended 2014, a company had revenues of $400,000, operating expenses of $280,000 and an income tax rate of 30 percent on income before income taxes. What was the company's 2014 net income?

84,000; Revenue $400,000 minus operating expenses of $280,000 equals pretax income of $120,000 times 30% tax rate equals income tax expense of $36,000. Pretax income $120,000 minus income tax expense of $36,000 equals of $84,000.

What accounts would be affected by a deferred revenue adjustment?

A deferred revenue adjustment would require a reduction to an unearned revenue (liability account) by a debit for the portion now earned of the cash previously received and a credit to a revenue account to increase that account.

Which events would cause retained earnings to decrease?

A net loss caused by expenses exceeding revenue and by dividends declared.

When would a company report a net loss on the income statement?

A net loss would be reported on the income statement when expenses (losses) are greater than or exceed revenues (gains).

Describe what the accrual basis of accounting is?

Accrual basis of accounting means that revenue is recorded as earned when goods or services are provided to customers regardless of whether cash is collected and expenses are recorded when the goods/services are used up in operating the company (incurred); therefore, net income reflects accrual timing on the income statement.

what is the effect on the financial statements when a company fails to accrue revenue earned at fiscal year end?

Accrued revenue adjustments increase an asset, some type of "receivable" and would increase revenue which would cause net income and stockholders' equity to increase. Failure to record this adjustment would understate assets and understate revenue, net income and stockholders' equity.

What would be the adjusting entry for accrued rent expense owed to the landlord but not paid at the end of the accounting period?

An accrued expense for rent would increase rent expense by a debit (causing stockholders' equity to decrease) and would increase rent payable (or accrued expense payable) a liability by a credit.

Define an external exchange and give an example.

An external exchange involves transfer between our company and another entity. Examples would be selling product to a customer, purchasing supplies from a vendor, paying wages to our employees.

In what order are assets listed on the balance sheet?

Assets are listed in order of liquidity or their ability to be converted to cash or in which they are used up. Current assets are those that will be used, liquidated, or sold within one year and non-current assets are those with a useful life extending beyond a year.

How are creditor and investor claims reported on the balance sheet?

Both creditor and investor claims represent the right side of the accounting equation; creditor claims are called liabilities and investor claims are called stockholders' equity.

Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees for salaries totaled $32,100. Cash received from selling Husky common stock to stockholders totaled $41,000. Cash payments to banks for repayments of money borrowed totaled $7,500. Cash paid to suppliers totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders' totaled $3,300. How much was cash flow from operating activities?

Cash flow from operations would be cash collected from customers $89,300 minus cash paid to employees, ($32,100), minus cash paid to suppliers ($9,600) equals $47,600. Note bracketed amounts are cash outflows.

Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees for salaries totaled $32,100. Cash received from selling Husky common stock to stockholders totaled $41,000. Cash payments to banks for repayments of money borrowed totaled $7,500. Cash paid to suppliers totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders' totaled $3,300. How much was cash flow from financing activities?

Cash inflow from financing activities would be $61,900 which is cash from bank borrowing $31,700, plus cash from issuance of Husky's common stock $41,000 minus cash repayment of borrowed money ($7,500) minus cash paid for dividends ($3,300). Note bracketed amounts are cash outflows.

Husky Company has provided the following information for its most recent year of operation: Cash collected from customers totaled $89,300. Cash borrowed from banks totaled $31,700. Cash paid to employees for salaries totaled $32,100. Cash received from selling Husky common stock to stockholders totaled $41,000. Cash payments to banks for repayments of money borrowed totaled $7,500. Cash paid to suppliers totaled $9,600. Land costing $25,000 was sold for $25,000 cash. Cash paid for dividends to stockholders' totaled $3,300. How much was cash flow from investing activities?

Cash outflow for investing activities would be the cash paid to purchase land ($25,000). Note bracketed amounts are cash outflows.

What is the effect on the balance sheet of paying a note payable with cash?

Cash which is an asset decreases on the left side of the equation while notes payable which is a liability decreases on the right side of the equation.

When cash is received from a customer prior to delivery of the goods or services, what journal entry would be recorded?

Cash which is an asset increases by a debit and unearned revenue which is a liability increases by a credit.

What is the effect on the balance sheet of borrowing money by signing a note?

Cash which is an asset will increase on the left side of the equation while notes payable which is a liability increases on the right side of the equation.

For a retailer like Wal-Mart which is typically the largest expense on the income statement?

Cost of goods sold (cost of sales) is typically the largest expense for retailers as it represents the cost of the inventory purchased and then sold to customers. The difference between net sales and cost of goods sold is called gross profit or markup.

Define current assets.

Current assets are assets owned by the company that are expected to be used, liquidated, or sold within a year of the balance sheet date. These assets are considered to be liquid and are therefore providing coverage of current liabilities or obligations due within one year.

A landlord collected $5,000 cash from a tenant for December 2015's rent but the tenant's rent for December is $8,000. What amount would be recorded for December rent revenue?

December rent revenue would be $8,000 the amount earned by providing the tenant occupancy. To balance out the $8,000 credit to the rent revenue account there would be two debits, one for $5,000 for cash and the other for $3,000 rent revenue receivable.

List the correct order of the steps in the accounting cycle both during the period and at the end of the accounting period.

During the period: (1) Analyze transactions, (2) Record journal entries in the general journal and (3) Post amounts to the accounts in the general ledger. At the end of the period: (4) Prepare a trial balance to determine if debits equal credits-unadjusted trial balance, (5) Adjust revenues and expenses and related balance sheet accounts (record in a journal and post to the ledger), (6) Prepare a complete set of financial statements and disseminate it to users, (7) Close revenues, gains, expenses, and losses to Retained Earnings (record in journal and post to ledger).

When any adjusting entry is prepared what financial statements are affected?

Every adjusting entry affects a balance sheet account (either increasing or decreasing) an asset or liability account and the income statement by either increasing revenue or increasing an expense. When a revenue increases the effect comes back to the balance sheet as an increase in stockholders' equity but an increase in an expense causes stockholders' equity to decrease.

A company's January 1, 2014 balance sheet reported total assets of $120,000 and total liabilities of $40,000. During January 2014, the following transactions occurred: (A) the company issued stock and collected cash totaling $30,000; (B) the company paid an account payable of $6,000; (C) the company purchased supplies for $1,000 with cash; (D) the company purchased land for $60,000 paying $10,000 with cash and signing a note payable for the balance. What is total stockholders' equity after the transactions above?

First "beginning" stockholders' equity on January 1, 2014 equals $80,000 ($120,000 assets minus $40,000 in liabilities). Transaction (a) would increase assets and increase stockholders' equity by $30,000 so stockholders' equity would now be $110,000. Transaction (b) decreases an asset and liability so it has no effect on stockholders' equity. Transaction (c) increased and decreased assets so there is no effect on stockholders' equity. Transaction (d) increased assets by a net of $50,000 and increased a liability by $50,000 so there is no effect on stockholders' equity. So ending stockholders' equity equals $110,000.

On April 1, 2014, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2014 adjusting entry?

From April 1st through December 31st, nine months have gone by so 9/12s of the one year policy has now expired and would necessitate a debit to insurance expense for $2,250 ($3,000 X 9/12) and a credit prepaid insurance for the same amount. The effect is a decrease in an asset and an increase in an expense which would cause retained earnings to decrease.

Where would a gain on the sale of a stock investment be reported on the income statement?

Gains on sale or disposal of assets are considered peripheral activities and are not central, ongoing operating activities so they appear below income from operations under other revenues, gains, expenses, or losses (non-operating activities).

What would cause the total asset turnover which is calculated by dividing sales by average total assets to decrease?

If sales revenue decreases in the numerator, then the ratio would decrease. If average total assets increase in the denominator then the ratio would decrease.

What is the impact on the financial statement when a company "fails" to record depreciation expense at fiscal year end?

If the depreciation adjusting entry was not recorded would fail to increase depreciation expense so net income and stockholders' equity will be overstated. At the same time, the contra asset, accumulated depreciation would not be recorded; since the contra asset is deducted to get the book value of fixed assets, failure to record the adjustment would overstate the assets.

Earnings per share is calculated by dividing net income by the number of common shares outstanding. What would cause the EPS ratio to increase?

Increasing net income in the numerator will increase if revenue increases or if expenses are decreased as both increase net income. Reducing the number of common stock shares in the denominator by buying back shares of stock and removing them from the investors' hands would cause the ratio to increase.

Where would interest expense be reported on the income statement?

Interest expense is reported under other revenues, gains, expenses or losses (non-operating activities) with is reported below income from operations because interest is related to borrowing money and is not considered a central, ongoing operating activity but rather a peripheral activity.

What is the continuity assumption?

It is the assumption that the company will remain economically viable and continue to operate successfully for the forseeable future. This assumption allows businesses to measure the balance sheet elements using a mixed-attribute measurement model. Most elements are recorded at their cash-equivalent value on the date of the transaction which is called historical cost or just cost principle. There are conditions in which some values for assets and liabilities might be adjusted based on future conditions.

Describe liabilities and stockholders' equity.

Liabilities and stockholders' equity which are found on the balance sheet represent the sources of financing of a company's assets (economic resources) and are found on the right side of the accounting equation. Liabilities are amounts owed to creditors and stockholders' equity represents the owners' financing both invested and earned equity.

What is the difference between net income and net cash flow from operations?

Net income is measured under accrual timing on the income statement (revenues are recorded when earned not necessarily when cash is collected and expenses are recorded when incurred not necessarily when cash is paid). Net cash flow from operations is cash timing because it includes cash collected from revenue sources and cash paid for expenses.

Based on the following information for Lantz Company, compute income before income taxes? Cash sales totaled $255,000 Credit sales totaled $479,000 Cash collections from customers for services yet to be provided totaled $88,000 A $22,000 loss from the sale of property and equipment occurred Interest income was $7,700 Interest expense was $19,900 Cost of goods sold was $336,000 Rent expense was $36,000 Salaries expense was $49,000 Other operating expenses totaled $79,000 Unearned revenue was $4,000

Net sales $734,000 -Cost of goods sold 336,000 =Gross profit 398,000 -Operating expenses: Rent 36,000 Salaries 49,000 Other 79,000 -Total expenses 164,000 =Income from operations 234,000 Non-operating items: Loss on sale (22,000) Interest income 7,700 Interest exp. (19,900) -Total non-operating items (34,200) =Income before taxes $199,800

What is the effect on the balance sheet of purchasing supplies for cash?

No effect because one asset supplies will increase but another asset cash decreases so there is no change in total assets.

What is the effect on the balance sheet of purchasing stock of another company with cash?

No effect on total assets since one asset, investment in stock increases while another asset, cash decreases.

What effect does signing a contract for cleaning services have on the balance?

No effect since a contract to perform does not involve an exchange of value at the time the contract is signed.

Is recording interest revenue when the cash is collected but not yet earned proper application of the revenue realization principle?

No, revenue should only be recorded only when it is earned not necessarily when cash is received. The entry should have involved an increase to the asset, cash by a debit and a credit to the liability, unearned interest revenue to increase that account.

When a company received a $50,000 cash deposit from a customer on October 15 but will not deliver the goods until November 20 then the October 15th entry would involve a debit to the asset, cash and a credit to sales revenue.

No, there would be a debit to the asset cash but the credit should be to unearned revenue on October 15th. The November 20th entry would be a debit to unearned revenue and a credit to sales revenue.

Identify the types of transactions that can affect the balance sheet only but assure that is remains in balance.

One asset can decrease while another increases, an asset can increase and be offset by an increase in a liability or stockholders' equity, an asset can decrease and be offset by a decrease in a liability or stockholders' equity. A transaction can also cause a decrease in stockholders' equity and an increase in a liability.

How much is Colby Corporation's net income based on the following information: Operating revenues were $199,700 Operating expenses were $111,000 Interest expense was $9,200 Gain from sale of plant and equipment was $3,300 Dividend payments to Colby's stockholders were $7,700 Income tax expense was $36,000 Prepaid rent was $5,000

Operating revenue $199,700 -Operating expenses 111,000 = Income from operations 88,000 Non-operating items: Gain on sale 3,300 Interest exp. (9,200) -Non-operating expense (5,900) =Income before taxes 82,800 -Income tax expense 36,000 =Net income $46,800

When a company earns operating revenue, what is the effect of the revenue portion of the transaction?

Operating revenue increases a revenue account which is reported on the income statement which in turn increases net income; when net income increases, it will be closed into retained earnings so retained earnings under stockholders' equity on the balance sheet will increase.

What is operating revenue and where is is reported on the income statement?

Operating revenue which is connected to the central, ongoing operating activities such as sale of goods and services are reported at the very top of the income statement. For Lowe's, sales of their products and installation services are the source of their operating revenue.

What transactions cause changes in retained earnings

Retained earnings increase when revenue (gain) is earned which causes net income to increase and decreases when expenses (losses) are incurred causing net income to decrease. These effects fall through the income statement. Dividends declared which are reported on the statement of stockholders' equity causes retained earnings to decrease.

Which stockholders' equity account is affected by operations and how is it affected?

Retained earnings increases by the amount of net income or decreases by the net loss; income or loss is the difference between revenues minus expenses which result from operating activities.

Madrid Company has provided the following data (ignore income taxes): 2014 revenues were $77,500 2014 net income was $33,900 Dividends declared and paid during 2014 totaled $5,700 Total assets at December 31, 2014 were $217,000 Total stockholders' equity at December 31, 2014 was $123,000 Retained earnings at December 31, 2014 were $83,000 By how much as Madrid's retained earnings changed from January 1, 2014 to December 31, 2014?

Retained earnings increases by the amount of net income which is $33,900 for the year and decreases by the dividends declared which were $5,700 to derive the $83,000 ending retained earnings balance on December 31, 2014. Working backward to the beginning retained earnings on January 1, 2014 requires the mathematical functions be reversed. Start with ending retained earnings $83,000 minus net income $33,900 plus dividends $5,700 equals $54,800

When is revenue reported on the income statement? When are expenses reported on the income statement?

Revenue is reported on the income statement when goods or services are provided to customers regardless of whether cash is collected from the customer. Expenses are reported on the income statement when the goods or services have been used/sold by the company (such as supplies, prepaid insurance, inventory or wages) regardless of whether cash has been paid. Accrual timing is used to recognize revenue and expenses.

When employees have performed work for the company but they have not been paid by the company, what journal entry would be recorded.

Salaries or wages expense would be debited to increase (recognize an expense incurred) the account and a credit would be recorded under the liability salaries payable to increase the obligation.

Which of the following transactions would result in an increase in the current ratio? Collection of cash from an account receivable. Selling shares of stock to stockholders in exchange for cash. Purchasing a building with cash. Declaration of a cash dividend by the board of directors.

Selling shares of stock to stockholders in exchange for cash. The current ratio is computed by dividing current assets by current liabilities. Cash coming in from the issuance/sale of our stock increases current assets and there is no effect on current liabilities so there is an increase in the current ratio. Collection of cash from an accounts receivable increases on current asset and decreases another so there is no effect on the ratio. Purchasing a building with cash would cause current assets to decrease and therefore the ratio would decrease. Buildings are long-term assets not current assets. Declaration of a cash dividend would increase dividends payable which is a current liability which will decrease the ratio. The declaration would also cause a decrease to retained earnings which has no effect on the ratio.

During 2014, Rock Company's cash balance increased from $79,000 to $91,300. Rock's net cash flow from operating activities was $37,300 and its net cash flow from financing activities was $11,100. How much was Rock's net cash flow from investing activities?

Since cash flowed in from operating activities $37,300 and cash flowed in from financing was $11,100 (remember outflows would be bracketed amounts) so these would have caused cash to increase by $48,400. However, the cash balance only increased by $12,300 (beginning balance $91,300 minus ending balance $79,000). So taking the cash inflow of $48,400 from operating and financing minus the net increase in cash $12,300 would mean that cash outflow connected to investing activities must be ($36,100).

What journal entry would be recorded if on December 31, 2014, Avery Corporation paid $10,000 for next year's insurance policy?

Since the insurance still has economic utility to the company on December 31, 2014, there would be a debit to an asset, prepaid insurance (expense) and a credit to the asset, cash for $10,000. Each month that passes in 2015, a portion of the insurance expires and would be shifted from the asset, prepaid insurance into the expense account called insurance expense.

What is the journal entry to close a revenue account with a $280,000 balance and an expense account with a $160,000 balance?

Since the revenue account has a normal credit balance, revenue would be closed by a debit of $280,000. Since expenses have normal debit balances, expenses would be closed out by crediting the account for $160,000. Since the debit for $280,000 is greater than the credit of $160,000, we would need another credit to balance it out and that credit would be to transfer $120,000 of net income to the credit side of retained earnings.

Madrid Company has provided the following data (ignore income taxes): 2014 revenues were $77,500 2014 net income was $33,900 Dividends declared and paid during 2014 totaled $5,700 Total assets at December 31, 2014 were $217,000 Total stockholders' equity at December 31, 2014 was $123,000 Retained earnings at December 31, 2014 were $83,000 How much is contributed capital (common stock and additional paid in capital) at December 31, 2014?

Stockholders' equity at $123,000 on December 31, 2014 is comprised of retained earnings and contributed capital (common stock plus additional paid in capital). Since retained earnings is $83,000 on December 31, 2014, then contributed capital must be $40,000 ($123,000 minus $83,000).

Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000. The additional paid-in capital account balance increased $2,500 during the year. The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000. Net income was $26,000. How much did Superior sell its common stock for during the year?

Superior sold its stock for $7,500. When stock is issued for cash, that asset would increase $7,500. There would then be an increase to common stock for $5,000 (representing the par value for the shares issued) and then additional paid in capital would increase by $2,500 (for the excess of market price above par value).

Mama Luna Pizza Company determined that dough, sauce, cheese and other ingredients cost $8,700 were used to make pizzas during July. What effect would this have on the income statement?

The $8,700 would be considered cost of food and paper products (cost of sales) which is an expense on the income statement would be deducted from sales revenue to determine the gross profit of the company.

During 2014, Canton Company's assets increased $95,500 and the liabilities decreased $17,300. Canton Company's stockholders' equity at December 31, 2014 (the end of the year) was $211,500. What was the amount of stockholders' equity at January 1, 2014 (the beginning of the year).

The accounting equation shows that assets equal liabilities plus stockholders' equity. So if we start with ending stockholders' equity of $211,500 and want to back into beginning stockholders' equity, we would deduct the increase in assets $95,500 (because if assets increased then so would stockholders' equity to balance the equation. Since liabilities decreased by $17,300 so would stockholders' equity to balance the equation so to back into the beginning balance, the decrease in liabilities would be deducted from ending stockholders' equity. So $211,500 minus $95,500, minus $17,300 equals $98,700.

On December 31, 2014, Krug Company reported total liabilities of $180,000 prior to the following adjusting entries: Depreciation expense was $31,000 Accrued service revenues totaled $29,000 Accrued expenses totaled $12,000 Insurance used totaled $9,000 (previously recorded as prepaid insurance) Rent revenue earned totals $7,000 (the rent was initially prepaid by the tenant and credited to unearned rent revenue) How much was Krug's total liabilities after the adjusting entries?

The accrued expenses would cause a liability (payable) to increase by $12,000 so liabilities would be $192,000 ($180,000 + $12,000). The unearned rent revenue account for the deferred revenue adjustment would be reduced by $7,000 so liabilities would be $185,000. The other entries affected assets not a liability (see 14 above).

What type of adjusting entry involves a debit to supplies expense and credit to supplies?

The adjustment is a deferred expense adjustment to record a reduction in previously purchased supplies an asset when they were purchased for the portion now used up.

What type of adjusting entry would involve a debit to interest expense and a credit to interest payable?

The adjustment is an accrued expense adjustment to record an expense incurred but not yet paid.

What type of entry involves a debit to interest receivable and a credit to interest revenue?

The adjustment is an accrued revenue adjustment to record interest revenue earned with the passage of time as the company holds an investment asset but cash not yet received so the debit is to a receivable (asset) to show that cash will be collected in the future.

Describe what is found on a balance sheet.

The balance sheet contains three elements; assets represent the items owned by the business, liabilities represent obligations owed to creditors, and stockholders' equity represents the owners' claims against the assets at a moment in time. The balance sheet is said to show financial position.

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days?

The balance sheet would show cash on hand and other highly liquid assets (readily convertible to cash) and the amount of current liabilities which would be payable within a year. One of the major tests of liquidity which assesses the ability to pay current liabilities is the current ratio which divides current assets by current liabilities.

On December 31, 2014, Krug Company reported total assets of $390,000 prior to the following adjusting entries: Depreciation expense was $31,000 Accrued service revenues totaled $29,000 Accrued expenses totaled $12,000 Insurance used totaled $9,000 (previously recorded as prepaid insurance) Rent revenue earned totals $7,000 (the rent was initially prepaid by the tenant and credited to unearned rent revenue) How much was Krug's total assets after the adjusting entries?

The depreciation adjustment would increase the contra asset (accumulated depreciation) by $31,000 so assets decrease to $359,000 ($390,000 - $31,000). Accrued service revenue would increase a receivable so assets increase to $388,000 ($359,000 + 29,000). Accrued expenses have no effect on assets. The insurance adjustment reduced prepaid insurance (asset) by $9,000 so assets equal $379,000 ($388,000 - $9,000). The unearned rent adjustment has no effect on assets. So total assets would be $379,000.

On December 31, 2014, Krug Company reported net income of $150,000 prior to the following adjusting entries: Depreciation expense was $31,000 Accrued service revenues totaled $29,000 Accrued expenses totaled $12,000 Insurance used totaled $9,000 (previously recorded as prepaid insurance) Rent revenue earned totals $7,000 (the rent was initially prepaid by the tenant and credited to unearned rent revenue) How much was Krug's net income after the adjusting entries?

The depreciation expense would reduce net income by $31,000 to $119,000 ($150,000 - $31,000). The accrued revenue would increase net income by $29,000 to $148,000 ($119,000 + $29,000). The accrued expense would decrease net income by $12,000 to $136,000 ($148,000 - $12,000). The deferred expense adjustment for insurance would reduce net income by $9,000 to $127,000 ($136,000 - $9,000). The deferred revenue adjustment would increase net income by $7,000 to $134,000 ($127,000 + $7,000). Note: All five adjustments affect net income; "every" adjustment affects either a revenue or an expense account.

When land which cost $20,000 at time of purchase is sold for $29,000, what is the effect on the income statement?

The entry to record the sale of land would involve a debit to the asset, cash for $29,000 and a credit to another asset, land for 20,000; the $9,000 difference would be recorded as a gain on sale of land and it is that gain which will increase net income on the income statement.

Which financial statement would you use to determine a company's earnings performance during an accounting period?

The income statement (also referred to as the statement of earnings or statement of operations) shows revenues that have been earned by central, ongoing operations, gains from peripheral sources, expenses that have been incurred by central, ongoing operations and losses from peripheral activities. Revenues plus gains minus expenses and losses equal net income or net earnings.

A company's retained earnings increased (changed from beginning to the end of the year) $375,000 last year and its assets increased $973,000. The company declared a $79,000 cash dividend during the year. What was last year's net income?

The net increase in retained earnings of $375,000 would have included the deduction for the dividend of $79,000 so adding these two numbers would equal the amount of net income which is $454,000 net income. An easy way to test this is to set the beginning retained earnings as equal to zero and ending balance equals $375,000. So beginning retained earnings of 0 plus $454,000 net income minus $79,000 dividends, equals ending retained earnings $375,000.

Describe the operating activities section of the statement of cash flows.

The operating activities section of the statement of cash flows includes revenues that were collected (cash inflows) and expenses that were paid (cash outflow) for the accounting period. Net cash flow from operating activities which is the operating inflows minus the outflows equals net income "cash timing".

What is the time period assumption?

The time period assumption divides the long life of a business into a series of shorter time periods (month, quarter or year) so that financial statements can be prepared and reported to provide timely information to external parties.

What is the journal entry (identify debits/credits) to record cash received $50,000 from the issuance of stock where 5,000 shares are issued with a $1 par value.

There is a debit to cash (increase) for $50,000 and two credits (increases) to common stock $5,000 ($1 par X 5,000 shares) and to additional paid in capital $45,000 ($50,000 market value minus $5,000 par value).

What is the journal entry if a delivery truck is purchased for $5,000 cash and by signing a note payable for $25,000.

There is a debit to the asset, equipment (increase) for $30,000 and two credits one to cash $5,000 (decrease) and notes payable $25,000 (increase).

When a customer pays an auto repair shop for work previously completed and for which the customer was billed, what journal entry would be recorded?

There would be a debit to the asset, cash to increase the account and the credit is to another asset, accounts receivable to decrease it.

What is the journal entry to record utilities incurred for energy used during the current fiscal period but the bill has not been paid?

This is an accrued expense adjustment where utilities expense is incurred but not paid. There would be a debit to increase utilities expense and a credit to increase the liability utilities payable.

What is the effect of accrued salaries that are not paid at the end of the fiscal period?

This is an accrued expense; the entry would be a debit to increase salaries expense (which will decrease stockholders' equity) and a credit to the liability, salaries payable.

What is the effect of a debit to the asset supplies and credit to another asset cash?

This records the purchase of supplies for cash so one asset increases and another asset decreases so total assets remain unchanged.

What is the primary objectives of financial reporting?

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Which of the following describes the primary objective of the balance sheet?

To report the financial position of the reporting entity at a particular point in time, because, the balance sheet shows the assets, liabilities and stockholders' claims against the assets (called financial position) at a moment in time

What is the effect of the "declaration" of a $5,000 dividend by JLH Company on its financial statements?

When a dividend is declared, retained earnings under stockholders' equity would decrease. Since the dividend is declared but not "paid", a liability called dividends payable would increase.