Problem 1: Listed below are transactions or items that are frequently reported in financial statements.
1. Income effect due to changing from the double-declining-balance method to the straight-line method of depreciation.
2. Collection of accounts receivable.
3. Purchase of an insurance policy on December 31 that provides coverage for the following year.
4. Accrued wages earned by the employees.
5. Estimated un-collectible accounts receivable using the aging method.l
6. Recognized a gain on the sale of plant equipment.
7. Recognized a loss when the government expropriated land for a highway.
8. Declared a dividend valued at $100,000.
9. Under the requirements of a debt covenant, appropriated a portion of retained earnings.
10. Received dividends on stocks held as a short-term investment. The dividends were declared and paid on the same day.
11. Recognized the cost of inventory sold during the year under the periodic method.
12. Paid rent for the current year.
A) Indicate whether each item would be included on the company's income statement, statement of shareholders' equity, or nether, using the following codes:
IS Income Statement
SE Statement of shareholders' equity
N Nether
B) Indicate whether the items you coded IS would be considered (1) usual and frequent, (2) unusual or infrequent, (3) unusual and infrequent, or (4) other.
C) Provide a brief explanation of your choice in (b) of (1), (2), (3), or (4).
Problem 2: Transactions include the following:
1. Declaration of a stock dividend.
2. Purchase of 50 percent of the outstanding stock of another company.
3. Payment of previously accrued interest payable.
4. Accrual of interest expense.
5. purchase of machinery.
6. Recognition of depreciation on machinery.
7. Purchase of treasury stock.
8. Sale of treasury stock at a price less than its original cost.
9. Conversion of debt to common stock.
10. Receipt of cash on an outstanding receivable.
11. Sale of inventory on account.
12. Purchase of inventory on account.
13. Declaration of dividends.
14. Receipt of dividends on short-term marketable securities.
15. Early retirement of outstanding long-term debt.
A) Classify each transaction in one of the following categories:
(1) Exchanges with shareholders
(2) Exchanges of liabilities and shareholders' equity
(3) Issues and payments of debt
(4) Purchases, sales and exchanges of assets.
(5) Operating transactions.
B) Briefly explain why the transactions are considered increasingly operating (or decreasingly financing) as the categories move from (1) to (5).