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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Business entity concept

Ozark Sports sells hunting and fishing equipment and provides guided hunting and fishing trips. Ozark Sports is owned and operated by Eric Griffith, a well-known sports enthusiast and hunter. Eric’s wife, Linda, owns and operates Lake Boutique, a women’s clothing store. Eric and Linda have established a trust fund to finance their children’s college education. The trust fund is maintained by Missouri State Bank in the name of the children, Mark and Steffy.

a. For each of the following transactions, identify which of the entities listed should record the transaction in its records:

Entities
L Lake Boutique
M Missouri State Bank
O Ozark Sports
X None of the above
  1. 1. Linda authorized the trust fund to purchase mutual fund shares.
  2. 2. Linda purchased two dozen spring dresses from a St. Louis designer for a special spring sale.
  3. 3. Eric paid a breeder’s fee for an English springer spaniel to be used as a hunting guide dog.
  4. 4. Linda deposited a $2,000 personal check in the trust fund at Missouri State Bank.
  5. 5. Eric paid a local doctor for his annual physical, which was required by the workmen’s compensation insurance policy carried by Ozark Sports.
  6. 6. Eric received a cash advance from customers for a guided hunting trip.
  7. 7. Linda paid her dues to the YWCA.
  8. 8. Linda donated several dresses from inventory for a local charity auction for the benefit of a women’s abuse shelter.
  9. 9. Eric paid for dinner and a movie to celebrate their twelfth wedding anniversary.
  10. 10. Eric paid for an advertisement in a hunters’ magazine.

    b. What is a business transaction?

a)

To determine

Business Entity Concept:

Business Entity Concept emphasizes that the transactions related to a business needs to be recorded separately. It denotes that each business is a separate, individual unit, and all the transactions relating to that particular business should be recorded separately.

To Identify: The given transactions and their associated entities.

Explanation

Find below the Entity and the number of the transaction.

Entity Transaction number
L 2,8
M 1,4
O 3,5,6,10
X 7,9

Table (1)

Entity L: The following transactions are recorded under the Entity L, as both of these transactions have a financial impact in the business of Entity L.

  • Linda purchased two dozen spring dresses from a St. Louis designer for a special spring sale.
  • Linda donated several dresses from inventory for a local charity auction for the benefit of a women’s abuse shelter.

Entity M: The following transactions are recorded under the Entity M, as both of these transactions have a financial impact in the business of Entity M.

  • Linda deposited a $2,000 personal check in the trust fund at MS Bank...

b)

To determine

To Explain: The business transaction.

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