Acc107 Financial Accounting: Week 1 Assignment - Accounting Basics Worksheet

ACC107 Financial Accounting: Week 1 Assignment
Accounting Basics Worksheet

Part 1. Accounting in Business
Discuss the role of accounting in business by listing 5 different uses for accounting in the space below. Use this week’s content, readings, and your LIRN resources or the Internet, as needed, to support your answer.

Part 2. Financial Statements
Listed below are questions posed by various users of a company’s financial statements. Fill in the blank with the financial statement(s) the user would most likely use to find this information. Your choices are the income statement, balance sheet, statement of retained earnings, and/or the statement of cash flows.

Enter your answer into the shaded boxes in the table below (6 answers).
User Question Financial Statement(s)
Stockholder How did this year’s sales figures compare with last year’s sales figures?
Banker How much in borrowings does the company currently owe?
Supplier How much does the company owe its suppliers in total?
Stockholder Did the company have any dividends in the prior year?
Advertising agent How much advertising did the company incur in order to generate sales?
Banker What was the company’s total interest cost last year?x

Part 3. Net Income and Retained Earnings
Nova Corporation reports the following as of December 31:
Revenues 10,000
Beginning retained earnings 20,000
Expenses 8,000
Dividends 1,000

Calculate net income and ending retained earnings for the year ending December 31. Refer to your text and lesson for the calculations. Enter your answers in the shaded boxes below (2 answers).

Part 4. Links Between Financial Statements
The following are incomplete financial statements for Sterling Inc. Calculate the missing amounts and enter your answers into the shaded boxes for each statement (5 answers).
TIP: Work this problem in reverse, starting with the Statement of Retained Earnings. Using your knowledge of the accounting equation and the interrelationship among the financial statements, you can solve for the missing amounts by making it a simple math problem.
Balance Sheet
Assets
Cash 8,000
Inventory 22,000
Building 40,000
Total Assets $70,000
Liabilities
Accounts payable 7,000
Equity
Contributed capital
Retained earnings
Total liabilities & equity

Income Statement
Service revenue 90,000
Salaries expense
Utilities expense 20,000
Net income

Statement of Retained Earnings
Retained earnings, beginning balance 20,000
Net income
Dividends 10,000
Retained earnings, ending balance 60,000

Part 5. Prepare Financial Statements
The following items are available from the records of Honky Tonk Records Inc. at the end of the year:
Accounts payable 27,000
Accounts receivable 21,000
Advertising expense 6,000
Buildings 76,000
Contributed capital 30,000
Cash 6,320
Notes payable 70,000
Salaries expense 9,500
Service revenue 16,820
Equipment 25,000

Prepare Honky Tonk’s income statement and statement of retained earnings for the year and its balance sheet at the end of the year. Enter your information into the shaded boxes of the statements below.
TIP: Net income is the difference between revenue and expenses. The ending balance of retained earnings is not provided. You can solve for it by using the accounting equation or using the “BIDE” formula (Beginning retained earnings plus net Income (or less net loss), less Dividends equals Ending retained earnings). Remember that the beginning balance of retained earnings is $0 and no dividends were paid.
a. Income Statement (7 answers)
b. Statement of Retained Earnings (4 answers)
c. Balance Sheet (20 answers)
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