Basic Accounting: Concepts, Techniques and Conventions

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Southern New Hampshire University (SNHU)
School of Business – Graduate Programs – www.snhu.edu
Managerial Accounting - ACC 500

CHAPTER 15
COVERAGE OF LEARNING OBJECTIVES

LEARNING OBJECTIVE
FUNDAMENTAL
ASSIGNMENT
MATERIAL
ADDITIONAL ASSIGNMENT MATERIALEXCEL,
COLLAB., & INTERNET EXERCISES
LO1: Read and interpret the basic financial statements.19, 20, 25, 30 3643
LO2: Analyze typical business transactions using the balance sheet equation.A1, A2, B1, B222, 23, 26, 27 28, 29, 30, 31
36, 3741, 42
LO3: Distinguish between the accrual basis of accounting and the cash basis of accounting.A3, B321, 36 LO4: Relate the measurement of expenses to the expiration of assets.2742 LO5: Explain the nature of dividends and retained earnings.24, 39, 40 LO6: Select relevant items from a set of data and assemble them into a balance sheet, an income statement, and a statement of retained earnings.A2, B225, 28, 30, 38 39, 4041

LO7: Distinguish between the reporting of corporate owner’s equity and the reporting of owner’s equity for partnerships and sole proprietorships. LO8: Identify how the measurement conventions of recognition, matching and cost recovery, and stable monetary unit affect financial reporting.43

CHAPTER 15
Basic Accounting: Concepts, Techniques, and Conventions

15-A1(20-30 min.)

1.E = 150 - 120 = 30
D = 40 + 30 = 70
C = 15 because there were no additional investments by stockholders
A = 85 - 15 - 40 = 30; or 85 - (15 + 40) = 30
B = 95 - 15 - 70 = 10; or 95 - (15 + 70) = 10

2.K = 20 + 170 = 190
J = 50 + 20 - 5 = 65
H = 10 + 30 = 40
F = 50 + 10 + 100 = 160
G = 275 - 65 - 40 = 170

3.P = 300 - 270 = 30
Q = 100 + 30 - 110 = 20
N = 85 - 35 = 50
L = 105 + 50 + 100 = 255
M = 95 + 85 + 110 = 290

This problem was designed for an equation-type solution, but some students may find a different approach more helpful in understanding the solution and its steps. Such an approach can be easily developed on the board as follows, using Case 1 as an example:

Given:BeginningEndSteps:
LiabilitiesAB1.A = 85 - (40 + 15) = 30
Paid-in capital15C2.E = 150 - 120 = 30
Retained earnings 40 D3.D = 40 + 30 - 0 = 70
Total (equal to total
assets) 85954.C = 15 + 0 = 15
5.B = 95 - (70 + 15) = 10

Revenues150
Expenses120
Net earnings E

15-A2(40-55 min.)

1.See Exhibit 15-A2 on the following page.

2. SRINIVAS COMPANY
Income Statement
For the Month Ended April 30, 20X1

Sales (revenue)$100,000
Deduct expenses:
Cost of goods sold$40,000
Wages, salaries and commissions43,000
Rent, 2,000 + 10,00012,000
Depreciation 1,000
Total expenses 96,000
Net income$ 4,000

EXHIBIT 15-A2
SRINIVAS COMPANY
Analysis of Transactions for April 20X1
(in thousands of dollars)

Assets=Equities
Mer-Pre-Equip-LiabilitiesStockholders' Equity
Accountschandisepaidment and=NoteAccountsPaid-inRetained
DescriptionCash +Receivable +Inventory +Rent +Fixtures=Payable +Payable +Capital +Earnings a.Incorporation+120=+120
b.Purchased
merchandise-35+35=
c.Purchased
merchandise+25=+25
d1.Sales+30+70=+100(revenue)
d2.Cost of inventory sold-40=- 40(expense)
e.Collections+15-15=
f.Disbursements to
trade creditors-18=-18
g.Purchased equipment-12+36=+24
h.Prepaid rent- 6+6=
i.Rent expense-10=- 10(expense)
j.Wages, etc.-43=- 43(expense)
k.Depreciation- 1=- 1(expense)
l.Rent expense -2 = - 2(expense) Balances, April 30, 20X1+41+55+20+4+35=+24+ 7+120+ 4
__________________________________________________________________
155155

SRINIVAS COMPANY
Balance Sheet
April 30, 20X1

Liabilities and
AssetsStockholders' Equity...
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