The Three Basic Forms of Business Organizations Are Sole Proprietorship, Partnership and Corporation.

Gerber, Kathleen

ACCT 652

January 19, 2017

HW1

CHAPTER 1

Q 1,2,3,7 BE 5,6,8,10 E 4,8,10(a&b only)

(recommended – not required) Q8,14;BE11;E 5(a only)

QUESTIONS

1.        The three basic forms of business organizations are Sole Proprietorship, Partnership and Corporation.

2.        The advantages of being formed as a corporation are: it is easier to raise funds, there is no personal legal liability, and it is easier to transfer ownership . The disadvantage of being formed as a corporation is primarily less favorable tax treatment.

3.        The advantages of being formed as a partnership or sole proprietor are: sole proprietorships are easy to establish and owner controlled and comes with tax advantages; partnerships are also simple to establish, economic resources can be shared and combined and each partner can bring a unique set of skills. There are tax advantages to partnerships as well, The disadvantages of being formed as a partnership or sole proprietor are primarily that sole proprietors and partners are legally liable for all debts and legal obligations. Outside financing can also be more difficult to obtain.

7.         The three main types of business activity are financing, investing, and operating activities. Financing activities include borrowing money (debt financing) or issuing shares of stock (equity financing). Investing activities involve the purchase of the resources a company needs in order to operate. For example, a film production company might purchase digital cameras. Operating activities include selling goods (such as candy), performing services (singing candy-gram), and purchasing inventory (buying ingredients to make the candy).

8.         For the financial statements of Finzelberg: (income, earnings, balance sheet, statement of cash flows)

1. Service revenue - income statement
2. Equipment - balance sheet
3. Advertising expense - income statement
4. Accounts receivable - balance sheet
5. Common stock - balance sheet
6. Interest payable - balance sheet

14.         The basic accounting equation is assets = liabilities + stockholders equity

BRIEF EXERCISES

5.          Please see excel sheet, tab BE5

6.         Eskimo Pie Corporation Income Statement and Balance sheet items

1. Income tax expense - IS

1. Inventory - BS
2. Accounts payable - BS
3. Retained earnings - BS
4. Equipment - BS
5. Sales revenue - IS
6. COGS - IS
7. Common stock - BS
8. Accounts receivable - BS
9. Interest expense - IS

8.          Using assets = liabilities + stockholders equity to answer questions

1. Jantz: A = $90,000 + $230,000 - assets equal $320,000
2. Foley: $170,000 = L + $80,000 - liabilities equal $90,000
3. Sunberg: $800,000 = .25(800,000) + .75(800,000) - assets equal $200,000 and stockholders equity equal $600,000.

10.         Identify each item (Asset, Liability, Stockholders’ Equity)

1. Accounts receivable - A
2. Salaries and wages payable - L
3. Equipment - A
4. Supplies - A
5. Common stock - SE
6. Notes payable - L

11.         All of the following are required in an annual report of a publicly traded company: statement of cash flows, notes to the financial statements, and management discussion and analysis.

EXERCISES

4.         Please see excel sheet, tab E4

5 (a).        Please see excel sheet, tab E5

8.        Motte, Inc

1. Identify the following items as Asset, Liability, Stockholders’ Equity, Revenue, or Expense

• Cash - A
• Retained earnings - SE
• COGS - E
• Salaries and wage expense - E
• Prepaid insurance - A
• Inventory - A
• Accounts receivable - A
• Sales revenue - A
• Notes payable - L
• Accounts payable - L
• Service revenue - A
• Interest expense - E (“interest” payable would be a liability)

1. Please see excel sheet, tab E8, for the Motte income statement.

10.         Flint Hills Park’s

1. Net Income for 2014 was
2. Retained earnings statements and balance sheets, please see excel sheet, tab E10
3. Should they get rid of the general store? We are not given much information in terms of how much it costs to staff the general store, or what the COGS are, however, I would be inclined to keep the store. People visiting the park know they will have a place to get small items they may forget to pack for the day or trip (bottled water, diapers, aspirin). Knowing there is a small retail space gives peace of mind and encourages spontaneous and worry-free visitors, increasing overall attendance, and service based revenues.

CHAPTER 2

Q 2,4,5

BE 1,3,6

DI 4

E 1,3,8(a,b&c only)

(recommended – not required) E 6, P 2

QUESTIONS

2.         Operating cycle  (to go from cash to cash) is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods.

4.         Current liabilities differ from long term liabilities in that current liabilities are obligations a company expects to pay in the next year or operating cycle (whichever is longer, and long term liabilities are expected to take longer than a year.

5.         The two parts of stockholders’ equity in a corporation are common stock and retained earnings. Common stock are the investments of assets in the business by stockholders, a security that represents ownership in a corporation. Retained earnings are used by the company to be reinvested in its core business, or to pay debt. Retained earnings are not paid out as dividends.

BRIEF EXERCISES

1.         Balance sheet classifications: Current assets (CA) Long-term investments (LTI) Property, plant, and equipment (PPE) Intangible assets (IA) Current liabilities (CL) Long-term liabilities (LTL) Common stock (CS) Retained earnings (RE).