BUA111: Chp. 1 Dr. K. Moon Lab 1: Week 2

Lab 1: Problem 1 PE 1-1A Cost concept On June 10, Easy Repair Service extended an offer of $95,000 for land that had been priced or sale at $118,500. On August 2, Easy Repair Service accepted the seller’s counteroffer of $105,000. On August 27, the land was assessed at a value of $80,000 for property tax purposes. On April 1, Easy Repair Service was offered $125,000 for the land by a national retail chain. At what value should the land be recorded in Easy Repair Service’s records? Dr. K. Moon

Solution: Problem 1 SOLUTION $105,000. Under the cost concept, the land should be recorded at the cost to Easy Repair Service. Dr. K. Moon

Lab 1: Problem 2 Transactions Queens Delivery Service is owned and operated by Lisa Dewar. The following selected transactions were completed by Queens Delivery Service during June: 1. Received cash from owner as additional investment, $18,000. 2. Paid creditors on account, $1,800. 3. Billed customers for delivery services on account, $12,500. 4. Received cash from customers on account, $6,900. 5. Paid cash to owner for personal use, $4,000. Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense). Also, indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below. (1) Asset (Cash) increases by $18,000; Owner’s Equity (Lisa Dewar, Capital) increases by $18,000. Dr. K. Moon

Solution: Problem 2 Solution (2) Asset (Cash) decreases by $1,800; Liability (Accounts Payable) decreases by $1,800. (3) Asset (Accounts Receivable) increases by $12,500; Revenue (Delivery Service Fees) increases by $12,500. (4) Asset (Cash) increases by $6,900; Asset (Accounts Receivable) decreases by $6,900. (5) Asset (Cash) decreases by $4,000; Drawing (Lisa Dewar, Drawing) increases by $4,000. Dr. K. Moon

Lab 1: Problem 3 Income statement The revenues and expenses of Dynasty Travel Service for the year ended June 30, 2012, are listed below. Fees earned $950,000 Office expense 222,000 Miscellaneous expense 16,000 Wages expense 478,000 Prepare an income statement for the current year ended June 30, 2012. Dr. K. Moon

Solution: Problem 3 SOLUTION DYNASTY TRAVEL SERVICE Income Statement For the Year Ended June 30, 2012 Fees earned $950,000 Expenses: Wages expense $478,000 Office expense 222,000 Miscellaneous expense 16,000 Total expenses 716,000 Net income $234,000 Dr. K. Moon

Lab 1: Problem 4 Statement of owner’s equity Using the income statement for Dynasty Travel Service shown in Lab Problem 3 Solution, prepare a statement of owner’s equity for the current year ended June 30, 2012. Nancy Coleman, the owner, invested an additional $60,000 in the business during the year and withdrew cash of $36,000 for personal use. Nancy Coleman, capital as of July 1, 2011, was $250,000. Dr. K. Moon

Solution: Problem 4 DYNASTY TRAVEL SERVICE Statement of Owner’s Equity For the Year Ended June 30, 2012 Nancy Coleman, capital, July 1, 2011 $250,000 Add’l investment by owner during year $60,000 Net income for the year 234,000 $294,000 Less withdrawals 36,000 Increase in owner’s equity 258,000 Nancy Coleman, capital, June 30, 2012 $508,000 Dr. K. Moon