Jones Enterprise 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's obligations to creditors represent what percent of total assets?
c. After all events have been recorded, Jones's stockholders' equity represent what percent of total assets?
d. Assume the debt is due. Given that Jones has $10,000 in stockholders' equity, can the company repay the creditors at this pay? Why or why not?
Exercise 1-10A Components of the accounting equation
Common Retained
Assets 5 Liabilities 1 Stock 1 Earnings
Allen $10,000 5 $7,500 1 $2,000 1 $ 500
White $12,000 5 $3,000 1 $7,200 1 $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 for 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 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?
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 1-7A 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 account balances under the appropriate elements.
c. Record the revenue, expense, and dividend events under the appropriate elements of the accounting equation created 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 1-8A on page 39
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, AccountsPayable, 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.