What is the accounting equation why is this important to


Question: Part 1:

Exercise 1-9A: Components of the accounting equation:

Jones Enterprises was started when it acquired $6,000 cash from creditors and $10,000 from owners. The company immediately purchased land that cost $12, 000,

Required: a. Record the events under an accounting equation.

b. After all events have been recorded, Jones obligation to creditors represent what percent of total assets?

c. After all events have been recorded, Jones's stockholders' equity represents what percent of total assets?

d. Assume the debt is due. Given that Jones has $10,000 in stockholder's equity, can the company repay the creditors at this point? Why or why not?

Exercise 1-10A: Components of the accounting equation

 

Assets

=

Liabilities

+

Common Stock

+

Retained Earnings

Allen

$10,000

=

$7,500

+

2,000

+

$500

White

$12,000

=

$3,000

+

$7,200

+

$1,800

 

 

 

 

 

 

 

 

Required: a. Based on this information alone, can you determine whether White can pay a $2,000 cash dividend? Why or why not?

b. Reconstruct the accounting equation or each company using percentages on the right side of the equation instead of dollar values. Which company is more financially stable? Why?

c. Assume Allen incurs a $3,500 operating loss. The remaining assets are sold for the value shown on the book, and the cash proceeds are distributed to the creditors and investor. How much money will be paid to creditor and how much will be paid to investors?

d. Assume White incurs a $3,500 operating loss. The remaining assets are sold for the value shown on the books, and the cash proceeds are distributed to the creditors and investors. How much money will be paid to creditors and how much will be paid to investors?

Exercise 1-4A: Missing information in the accounting equation

 

 

 

Stockholder's Equity

 

 

Company

Assets

=

Liabilities

+

Company Stock

+

Retained Earnings

A

$?

 

$25,000

 

48,000

 

50,000

B

40,000

 

?

 

7,000

 

30,000

C

75,000

 

15,000

 

?

 

42,000

D

125,000

 

45,000

 

60,000

 

?

Required: Calculate the missing amounts in the following table.

Exercise 1-7A: Missing information and recording events

As of December 31, 2016, Moss Company had total cash of $195,000, notes payable of $90,500, and common stock of $84,500. During 2017, Moss earned $42,000 of cash revenue, paid $24,000 for cash expenses, and paid a $3,000 cash dividend to the stockholders.

Required: a. Determine the amount of retained earnings as of December 31, 2016.

b. Create an accounting equation and record the beginning balances under the appropriate elements.

c. Record the revenue, expense, and dividend events under the appropriate elements of the accounting in Requirement b.

d. Prove the equality of the accounting equation as of December 31, 2017.

e. Identify the beginning and ending balances in the Cash and Common Stock accounts. Explain why the beginning and ending balances in the cash account are different but the beginning and ending balances in the Common Stock account remain the same.

Exercise 1-6A: Effect of transaction on general ledger accounts

 

 

 

Better Corp.

Accounting Equation

 

 

 

Event

Assets

=

Liabilities

+

Stockholders' Equity

Acct. Titles for RE

 

Cash

Land

 

Notes Payable

 

Common Stock

Retained Earnings

 

Balance

1/1/2016

10,000

20.000

 

12,000

 

7,000

11,000

 

At the beginning of 2016, Better Corp's accounting records had the following general ledger accounts and balances. Better Corp, completed the following transaction during 2016

1. Purchased land for $5,000 cash.

2. Acquired $25,000 cash from the issue of common stock.

3. Received $75,000 cash for providing services to customers

4. Paid cash operating expenses of $42,000.

5. Borrowed $10,000 cash form the bank

6. Paid a $5,000 cash dividend to the stockholders.

7. Determined that the market value of the land purchased in event 1 is $35,000.

Required: a. Record the transaction in the appropriate general ledger accounts. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table.

b. As of December 31, 2016, determine the total amount of assets, liabilities, and stockholders' equity and present this information in the form of an accounting equation.

c. What is the amount of total assets, liabilities, and stockholder's equity as of January 1, 2017?

Exercise 1-8A: Account titles and the accounting equation

The following account titles were drawn from the general ledger of Holt Food Supplies, Incorporated (HFSI): Computers, Operating Expenses, Rent Revenue, Building, Cash, Notes Payable, Land, Utilities Payable, Utilities Expense, Trucks, Gasoline Expense, Retained Earnings, Supplies, Accounts Payable, office Furniture, Salaries Expense, Common Stock, Service Revenue, Interest Expense, Dividends, Supplies Expense.

Required: a. Create an accounting equation using the elements assets, liabilities, and stockholders' equity. List each account title under the element of the accounting equation to which it belongs.

b. Will all businesses have the same number of accounts? Explain your answer.

Part 2:

Question 1: What is the accounting equation? Why is this important to the practice of accounting? Please provide an example of how the accounting equation works with recording transactions within a business.

Question 2: Is there a difference between bookkeeping and accounting? Discuss.

Question 3: Accounting reports past performance. How can this be useful when planning future operations?

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