Week 2 Topic Tutorial Question
Week 2 Topic Tutorial Question
2. Purchase land for $19,000. A note payable is signed for the full amount.
Required:
For each transaction, describe the dual effect on the accounting equation. For example, in the first
transaction, (1) assets increase and (2) stockholders' equity increases.
E2–10 Sun Devil Hair Design has the following transactions during the month of February.
Required:
Record each transaction. Sun Devil uses the following accounts: Cash, Accounts Receivable, Supplies,
Accounts Payable, Service Revenue, Advertising Expense, Salaries Expense, and Utilities Expense
Take-home questions (E2-4, E2-8, E2-11, AP2-5)
E2–4 Boilermaker House Painting Company incurs the following transactions for September.
8. Receive cash of $5,000 in advance from a customer who plans to have his house painted in the
following month.
Required:
For each transaction, describe the dual effect on the accounting equation. For example, for the first
transaction, (1) assets increase and (2) stockholders' equity increases.
E2–8 Terapin Company engages in the following external transactions for November.
Required:
Record the transactions. Terapin uses the following accounts: Cash, Supplies, Equipment, Accounts
Payable, Service Revenue, Rent Expense, and Salaries Expense.
E2–11 Bearcat Construction begins operations in March and has the following transactions.
March 15 Purchase advertising for the current month for $1,100 cash.
Required:
Record each transaction. Bearcat uses the following accounts: Cash, Accounts Receivable, Equipment,
Notes Payable, Common Stock, Service Revenue, Advertising Expense, and Salaries Expense.
Ethics
AP2–5 Larry has been the chief financial officer (CFO) of Maxima Auto Service for the past 10 years. The
company has reported profits each year it's been in business. However, this year has been a tough one.
Increased competition and the rising costs of labor have reduced the company's profits. On December
30, Larry informs Robert, the company's president and Larry's closest friend for the past 10 years, that it
looks like the company will report a net loss (total expenses will be greater than total revenues) of about
$50,000 this year.
The next day, December 31, while Larry is preparing the year-end reports, Robert stops by Larry's office
to tell him that an additional $75,000 of revenues needs to be reported and that the company can now
report a profit. When Larry asks about the source of the $75,000, Robert tells him, “Earlier in the month
some customers paid for auto services with cash, and with this cash I bought additional assets for the
company. That's why the $75,000 never showed up in the bank statement. I just forgot to tell you about
this earlier.” When Larry asks for more specifics about these transactions, Robert mumbles, “I can't
recall where I placed the customer sales invoices or the purchase receipts for the assets, but don't
worry; I know they're here somewhere. We've been friends for a lot of years and you can trust me.
Now, let's hurry and finish those reports and I'll treat you to dinner tonight at the restaurant of your
choice.”
Required:
1. Understand the reporting effect: What effect does reporting additional revenue have on reported
profit?
2. Specify the options: If the additional revenue is not reported, do both Robert and Larry potentially
lose benefits?
3. Identify the impact: Does reporting the additional revenue stregthen the company's financial
appearance to those outside the company?
4. Make a decision: Should Larry report the additional revenue without source documents?