Joe Sephume, the owner of a small business, Joe's Car Shop, that sells and repairs cars, has recently received a copy of the financial statements for the current year. Joe is confused about some of the items in the financial statements and has asked you to answer a few questions that he has. You have agreed to do this. Joe's questions are as follows: a) What does the term "asset" mean? My knowledge and skill are assets to my business. I would like these assets to be recognised on the financial statements but I do not see these assets disclosed in the financial statements. Can you explain this omission to me? b) Why is the "bank" balance on the statement of financial position different from the profit amount in the statement of comprehensive income? c) You are required to: Answer each of Joe's questions, using full explanations of any terms and concepts outlined in the Conceptual Framework.
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- The owner of a small business selling and repairing cars which you patronise has just received a copy of his financial accounts for the current year. He is rather baffled by some of the items and as he regards you as a financial expert, he has asked you to explain certain points of difficulty to him. This you have readily agreed to do. His questions are as follows: a) ‘Describe why amounts for "vehicles" appear under both fixed asset and current asset headings.’ b) ‘Explain why the "bank and cash" figure on the balance sheet is different from the profit for the year shown on the profit and loss account’. (c) ‘I see the profit and loss account has been charged with depreciation on equipment etc. I bought all these things several years ago and paid for them in cash. Does this mean that I am being charged for them again?’Valerina is a restaurant owner in Burwood, VIC. The business prepaid the insurance premium a year in advance. At the time of payment, she thought of recording the prepayment of $14,000 as an asset on the business’ balance sheet. Required: (i) Using the definition of the term “asset” as stated in the Conceptual Framework, explain whether the advance payment of $14,000 can be considered an asset to Valerina. (ii) Explain if the advance payment of $14,000 meets the recognition criteria of an asset. (iii) Given your answers in part (i) and part (ii), state whether or not the prepayment can appear on the the business’ balance sheet.At a recent luncheon, you were seated next to Mr. Fogle, the president of a local company that manufactures food processors. He heard that you were in a financial accounting class and asked:“Why is it that I’m forced to record depreciation expense on my property when I could sell it for more than I originally paid? I thought that the purpose of the balance sheet is to reflect the value of my business and that the purpose of the income statement is to report the net change in value or wealth of a company. It just doesn’t make sense to penalize my profits when the building hasn’t lost any value.”At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices.Required:Prepare a memo to Mr. Fogle. Explain the accounting concept of depreciation and contrast this with the dictionary definition of depreciation.
- At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you: Why is it that I am forced to recognize depreciation expense in my company’s income statement when I know that I could sell many of my assets for more than I paid for them? I thought that the purpose of the balance sheet was to reflect the value of my business and that the purpose of the income statement was to report the net change in value or wealth of a company. It just doesn’t make sense to penalize my profits when there hasn’t been any loss in value from using the assets. At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices. Required: Prepare a letter to Mr. Hopkins. Explain the accounting concept of depreciation and include a brief example in your explanation showing that over the life of the asset the change in…Listed below are several statements that relate to financial accounting and reporting. Identify the accounting concept that applies to each statement.1. Jim Marley is the sole owner of Marley’s Appliances. Jim borrowed $100,000 to buy a new home to be usedas his personal residence. This liability was not recorded in the records of Marley’s Appliances.Listed below are several statements that relate to financial accounting and reporting. Identify the accounting concept that applies to each statement. 1. Jenna Asare is the sole owner of Asare Appliances. Jenna borrowed $100,000 to buy a new home to be used as their personal residence. This liability was not recorded in the records of Asare Appliances. 2. Apple Inc. distributes an annual report to its shareholders. 3. Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives. 4. Crosby Company lists land on its balance sheet at $120,000, its original purchase price, even though the land has a current fair value of $200,000. 5. Honeywell International Inc. records revenue when products are delivered to customers, even though the cash has not yet been received. 6. Liquidation values are not normally reported in financial statements even though many companies do go out of business. 7. IBM Corporation, a multibillion-dollar company, purchased some small tools…
- Josh Reily is the owner of Dispatch Delivery Sevice. Recently josh paid intrest of $4,500 on a personal loan of $75,000 that he used to begin the business. Should Dispatch Delivery Service record the intrest payment? Explain. A) Land with an assessed value of $750,000 for property tax purposes is acquired by a business for $900,000. Ten years later, the plot of land has an assessed value of $1,200,000 and the business receives an offer of $2,000,000 for it. Should the monetary amount assigned to the land in the business records now be increased. B) Assuming that the land acquired in (A) was sold for $2,125,000 how would the various elements of the accounting equation be affected.How would i compute if she had a net income or net loss? Connie Young , an architect, opened a office on October 1, 2019. During the month, she completed the following transactions connected with her personal practice: a. Transferred cash from a personal bank account to an account to be used for the business, $36,000. b. Paid October rent for the office and workroom, $2,400. c. Purchased used automobile for $32,800 and, paying $7,800 cash and giving a note payable for the remainder. d. Purchased office and computer equipment on account, $9,000. e. Paid cash for supplies, $2,150. f. Paid cash for annual insurance policies, $4,000. g. Received cash from client for plans delivered, $12,200. h. Paid cash for miscellaneous expenses, $815. i. Paid cash to creditors on account, $4,500/ j. Paid $5,000 on note payable. k. Received invoice for blueprint services, due in Novembre, $2,890. l. Recorded fees earned on plans delivered, payment to be received in November, $18,300. m. Paid salary of…2. Mary owns and operates a fabric shop. Mary needs to borrow money to expand; therefore, she prepared financial statements to present to her banker. Mary recorded the assets of her store at the cost she paid for them 2 years ago rather than when she transferred them to her business this year. Mary has violated which ofthe following principles or concepts? A. Reliability principle B. Separate Entity Assumption C. Going-concern principle D. Stable-monetary-unit concept I'm very confused with the answer to this question, please also explain why the other options are wrong.
- On July 1, 2020, Arabi Sheikh established an interior decorating business. During the month, Arabi Sheikh completed the following transactions related to the business: July 1: Arabi transferred cash from his personal account and invested it for business use, $23000. July 10: Purchased a truck for $14400, paying $7400 cash and the remainder will be paid in the future. July 12: Paid annual premiums on property and casualty insurance (advance), $2570. July 17: Paid creditor a portion of the amount owed for truck purchased on July 10, $4510. July 20: Completed services on account and billed the customer, $7780 July 25: Received cash from customers on account, $2640. July 31: Paid salaries expense of $400 and utilities expense of $320. (a) Journalize the above transactions for the month of July (b) Prepare ledger accounts in running balance format (c) Prepare trial balance at 31 July 2020Ralph Collins founded Collins Consignment Sales Company and the company was operated from his home. As of September 1, 2021, Collins decided to move to rented quarters and to operate the business on a full-time basis. He wishes to know how much net income the business has earned but has no prior knowledge of accounting and has approached your group for advice. The company entered the following transactions during September: Sept 1. The following assets were received from Ralph in exchange for capital of Collins Consignment Sales Company: cash - $19,000, accounts receivable - $2,800, supplies - $2,050, and office equipment - $15,000. There were no liabilities received. Paid three (3) months rent on a lease rental contract, $6,000. Paid the premiums on the property and peril insurance policies, $3,000. Received cash from clients as an advance payment for services to be provided in the coming months, $5,900. Purchased additional office equipment on account from…Ralph Collins founded Collins Consignment Sales Company and the company was operated from his home. As of September 1, 2021, Collins decided to move to rented quarters and to operate the business on a full-time basis. He wishes to know how much net income the business has earned but has no prior knowledge of accounting and has approached your group for advice. The company entered the following transactions during September: Sept 1. The following assets were received from Ralph in exchange for capital of Collins Consignment Sales Company: cash - $19,000, accounts receivable - $2,800, supplies - $2,050, and office equipment - $15,000. There were no liabilities received. Paid three (3) months rent on a lease rental contract, $6,000. Paid the premiums on the property and peril insurance policies, $3,000. Received cash from clients as an advance payment for services to be provided in the coming months, $5,900. Purchased additional office equipment on account from…