Sale of common stock to investors account classification

ACCT&201 Connect HWK chapter 1.

1. Select whether the definition provided is true or false.

Accounting can be defined as:

1.

The language of business.

True

2.

A measurement/communication process.

True

3.

A mathematics course.

False

2. The following provides a list of transactions and a list of business activities.

Required:

Select the business activity that corresponds to the transaction.

Transactions

Business Activities

1.

Borrow from the bank.

Financing

2.

Provide services to customers.

Operating

3.

Issue common stock to investors.

Financing

4.

Purchase land.

Investing

5.

Pay rent for the current period.

Operating

6.

Pay dividends to stockholders.

Financing

7.

Purchase building.

Investing

3. Falcon Incorporated has the following transactions with Wildcat Corporation.

Required: 1. & 2. For each transaction, indicate whether Falcon would classify the related account as an asset, liability, or stockholders' equity to be reported in the balance sheet; a revenue or expense to be reported in the income statement; or a dividend to be reported in the statement of stockholders’ equity and the type of activity as financing, investing, or operating.

Transactions

Falcon's Related Account

Account

Activity

1.

Falcon purchases common stock of Wildcat.

Investment

2.

Falcon borrows from Wildcat by signing a note.

Notes payable

3.

Wildcat pays dividends to Falcon.

Dividend revenue

4.

Falcon provides services to Wildcat.

Service revenue

Operating

5.

Falcon pays interest to Wildcat on borrowing.

Interest expense

Operating

4. Wildcat Corporation has the following transactions with Falcon Incorporated.

Required:

1. & 2. For each transaction, indicate whether Wildcat would classify the related account as an asset, liability, or stockholders' equity to be reported in the balance sheet; a revenue or expense to be reported in the income statement; or a dividend to be reported in the statement of stockholders’ equity and the type of activity as financing, investing, or operating.

Transactions

Wildcat's Related Account

Account

Activity

1.

Falcon purchases common stock of Wildcat.

Common stock

2.

Falcon borrows from Wildcat by signing a note.

Notes receivable

3.

Wildcat pays dividends to Falcon.

Dividend

4.

Falcon provides services to Wildcat.

Service fee expense

5.

Falcon pays interest to Wildcat on borrowing.

Interest revenue

5. Cougar’s Accounting Services provides low-cost tax advice and preparation to those with financial need. At the end of the current period, the company reports the following amounts: Assets = $19,000; Liabilities = $15,000; Revenues = $28,000; Expenses = $33,000.

Required:

1. Calculate net loss.

2. Calculate stockholders' equity at the end of the period.

6.Select the business organization that matches with the description: corporation, partnership, sole proprietorship

Descriptions

Business Organizations

a.

Business owned by two or more persons.

b.

Entity legally separate from its owners.

c.

Business owned by a single person.

7. Select the account classification that matches with the description. assets, liabilities, stockholders equity, dividends, expenses, revenues,

Descriptions

Account Classifications

a.

Sales of products or services.

b.

Owners’ claims to resources.

c.

Distributions to stockholders.

d.

Costs of selling products or services.

e.

Resources of a company.

f.

Amounts owed.

8. Below are typical transactions for Hewlett-Packard.

Required:

Select the type of business activity as financing, investing, or operating for each transaction of Hewlett-Packard. Financing, investing, operating

Transactions

Type of Business Activity

1.

Pay amount owed to the bank for previous borrowing.

2.

Pay utility costs.

3.

Purchase equipment to be used in operations.

4.

Provide services to customers.

5.

Purchase office supplies.

6.

Purchase a building.

7.

Pay workers’ salaries.

8.

Pay for research and development costs.

9.

Pay taxes to the IRS.

10.

Sell common stock to investors.

9. Below are the account balances for Cowboy Law Firm at the end of December.

Accounts

Balances

Cash

$

5,400

Salaries expense

2,200

Accounts payable

3,400

Retained earnings

3,900

Utilities expense

1,200

Supplies

13,800

Service revenue

9,300

Common stock

6,000

Required:

Use only the appropriate accounts to prepare an income statement.

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10. Account classifications include assets, liabilities, stockholders’ equity, dividends, revenues, and expenses.

Required:

For each transaction, select whether the related account would be classified in the balance sheet as an asset, a liability, or stockholders’ equity; in the income statement as a revenue or an expense; or in the statement of stockholders’ equity as a dividend.

Accounts

Related Transactions

Account Classifications

1.

Common stock

Sale of common stock to investors.

2.

Equipment

Equipment used for operations.

3.

Salaries payable

Amounts owed to employees.

4.

Service revenue

Sales of services to customers.

5.

Utilities expense

Cost of utilities.

6.

Supplies

Purchase of office supplies.

7.

Research and development expense

Cost of research and development.

8.

Land

Property used for operations.

9.

Income tax payable

Amounts owed to the IRS for taxes.

10.

Interest payable

Amount of interest owed on borrowing.