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Solutions to Lecture 2 – Tutorial Questions Tutorial List: 2-1, 2-2, 2-3, 2-4, 2-5, 2-6 2-1. Presented below is selected information related to Santos Company at December 31, 2011. Santos reports financial information monthly. Accounts Payable R$ 3,000 Salaries Expenses R$ 16,500 Cash 7,000 Note Payable 25,000 Advertising Expense 6,000 Rent Expense 10,500 Service Revenue 54,000 Accounts Receivable 13,500 Equipment 29,000 Dividends 7,500 (a) The total assets are R$49,500, comprised of Cash R$7,000, Accounts Receivable R$13,500, and Equipment R$29,000. Net income is R$21,000, computed as follows: Revenues Service revenue .......................................... Expenses Salaries expense .......................................... Rent expense............................................... Advertising expense .................................... Total expenses Net income (c)

(b)

R$54,000 R$16,500 10,500 6,000 33,000 R$21,000

The ending equity balance of Santos Company is R$21,500. By rewriting the accounting equation, we can compute R$ Equity as Assets minus Liabilities, as follows: Total assets [as computed in (a)] Less: Liabilities Notes payable Accounts payable Equity R$49,500 R$25,000 3,000 R$21,500

28,000

Note that it is not possible to determine the company’s equity in any other way, because the beginning balance of equity is not provided.

Lecture02-Solutions-A

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2-2. (From TQ 1-6) On August 31, the statement of financial position of Nashville Veterinary Clinic showed Cash $9,000. Accounts Receivable $1,700, Supplies $600, Office Equipment $6,000, Accounts Payable $3,600, Share Capital $13,000, and Retained Earnings $700. During September the following transactions occurred. 1. Paid $2,900 cash for accounts payable due. 2. Collected $1,300 of accounts receivable. 3. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on account. 4. Earned revenue of $8,000, of which $2,500 is paid in cash and the balance is due in October. 5. Declared and paid a $1,000 cash dividend. 6. Paid Salaries $1,700, rent for September $900, and advertising expense $300. 7. Incurred utilities expense for month on account $170. Received $10,000 from Capital Bank on a 6-month note payable. 8. Instructions Prepare an income statement for September, a retained earnings statement for September, and a statement of financial position at September 30.

Lecture02-Solutions-A

Page 2

2-2. (Continued) 1-6. Assets Accounts Office

NASHVILLE VETERINARY CLINIC Liabilities Notes Accounts Share Retained

Equity

Cash + Receivable +Supplies + Equipment = Payable + Payable + Capital + Earnings + Revenues – Expenses – Dividends Bal. $ 9,000 + 1. –2,900 6,100 + 2. 3. +1,300 7,400 + –800 6,600 + 4. 5. +2,500 9,100 + –1,000 8,100 + $1,700 + $600 00,000 1,700 + –1,300 400 + 00,000 400 + +5,500 5,900 + 00,000 5,900 + 0000 600 0000 600 0000 600 0000 600 0000 600 + + + + + + $ 6,000 = 000,000 6,000 = 000,000 6,000 = +2,100 8,100 = 000,000 8,100 = 000,000 8,100 = + + + + + + + + $3,600 + $13,000 + –2,900 0 700 700 + 13,000 + 00,000 700 + 13,000 + 1,300 2,000 + 13,000 + 00,000 2,000 + 13,000 + 00,000 2,000 + 13,000 + 700 + 8,000 6. 7. –2,900 5,200 + 000,00 0 5,200 + 8. +10,000 $15,200 + $5,900 + $600 $29,800 Lecture01-Solutions-A + 00,000 5,900 + 00,000 5,900 + 0000 600 0000 600 + + 000,000 8,100 = 000,000 8,100 = $10,000 $ 8,100 = $10,000 + $2,170 + $13,000 + $700 $29,800 Page 3 + $8,000 – $ 3,070 – $1,000 + + + 00,000 2,000 + 13,000 + 170 2,170 + 13,000 + 700 + 700 + 8,000 8,000 $1,700 900 300 2,900 – 170 3,070 – 1,000 1,000 (f) 700 700 + + $8,000 8,000 – – $1,000 1,000 (c) (d) (e) (b) (a) 700 $700

2-2. (Continued) Ans. NASHVILLE VETERINARY CLINIC Income Statement For the Month Ended September 30, 2011 Revenues Service revenue ....................................................... Expenses Salaries expense ...................................................... Rent expense...
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