Accounting 2000

Chapter 1 Class Problems

Chapter Objectives:

1. Identify the forms of business organization and the uses of accounting information.
2. Explain the three principal types of business activity.
3. Describe the four financial statements and how they are prepared.

Class Problems
Problem 1 Match each of the following types of evaluation with one of the listed users of
accounting information

1. Trying to determine whether the company complied with tax laws.

2. Trying to determine whether the company can pay its obligations.
3. Trying to determine whether a marketing proposal will be cost effective.
4. Trying to determine whether the company’s net income will result in a stock price
increase.
5. Trying to determine whether the company should employ debt or equity financing.

A. Inventors in common stock-

B. Marketing managers-
C. Creditors-
D. Chief Financial Officer-
E. Internal Revenue Service –

Problem 2 Eskimo Pie Corporation markets a broad range of frozen treats, including its
famous Eskimo Pie ice cream bars. The following items were taken from a recent income
statement and balance sheet. In each case, identify whether the item would appear on the
balance sheet (BS) or income statement (IS).

a. Income tax expense

b. Inventories
c. Accounts Payable
d. Retained Earnings
e. Property, Plant and Equipment
f. Net Sales
g. Cost of Goods Sold
h. Common Stock
i. Receivables
j. Interest Expense

Page 1 of 3
 Accounting 2000
Chapter 1 Class Problems

Problem Shaw’s Garden was started on May 1 with an investment of $45,000 cash. Following are the assets and liabilities
3   of the company on May 31, 2017, and the revenues and expenses for the month of May, its first month of
operations.
Accounts receivable $ 6,200 Notes payable $28,000
Service revenue 10,400 Salaries and wages expense 2,000
Advertising 800 Equipment 56,000
expense
Accounts payable 2,400 Maintenance and repairs 2,900
expense
Cash 15,800 Insurance expense 400
No additional common stock was issued in May, but a dividend of $1,700 in cash was paid.
Instructions
(a)  Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at
May 31, 2017.

Shaw’s Garden
Income Statement
For the Month Ended, May 31, 2017

Shaw’s Garden
Retained Earnings Statement
For the Month Ended, May 31, 2017

Page 2 of 3
 Accounting 2000
Chapter 1 Class Problems

Shaw’s Garden
Balance Sheet
May 31, 2017

Page 3 of 3