Concept explainers
Case 1-75 CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT
Cam and Anna met during their freshman year of college as they were standing in line to buy tickets to a concert. While waiting in line, the two shared various aspects of their lives) Cam, whose father was an executive at a major record label. was raised in New York Some of his favorite memories were meeting popular musical artists-from the Rolling Stones to the Black Eyed Peas-as he accompanied his father on business trips. Anna. on the other hand. was born and raised in a small. rural town in southern Georgia. Her fondest childhood memories involved singing with her family. who often performed at county fairs and other small events, Even though they had different backgrounds, they felt an instant bond through their shared passion for music. Over the next couple of years, this friendship strengthened as they attended numerous concerts and other events together.
While on a road trip to see a new hand during their senior year, Cam and Anna started discussing their future career plans. Both had an entrepreneurial spirit and were seeking a way to combine their majors in business with their passion for music. Cam had recently overheard his father discussing how many artists were unhappy with the current concert promoters. Anna had heard similar complaints from her cousin. whose band recently had their first top 25 hit. When Cam suggested that he and Anna form a concert promotion business. they both knew they had found the perfect careers.
Concert promoters sign artists, usually through the artists’ agents. to contracts in which the promoter is responsible for organizing live concert tours. Typically. this includes booking the venue, pricing the tour. advertising the tour. and negotiating other services from local vendors. In general. the barriers to entry in the concert promotion industry are relatively low. with one of the more important items being forming a relationship with the various artists. Through their industry contacts (Cam’s father. Anna’s cousin]. they felt that they could develop a client list relatively easily. A second major barrier would be to obtain the up-front cash necessary to promote the tour properly.
Since their friendship had started many years ago as they were trying to get front row seats. they decided to name their business Front Row Entertainment. With their first big decision made, it was time to get to work.
Required:
Cam and Anna will need to prepare financial statements to report company performance. What type of information does each financial statement provide? Be sure to describe the insights that each financial statement provides to users.
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Cornerstones of Financial Accounting
- Case 2-69 CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT After much consideration, Cam and Anna decide to organize their company as a corporation. On January 11 2019, Front Row Entertainment Inc begins operations. Due to Cams family connections in the entertainment industry, Cam assumes the major responsibility for signing artists to a promotion contract. Meanwhile. Anna assumes the financial accounting and reporting responsibilities. The following business activities occurred during January: Jan. 1 Cam and Anna invest $8,000 each in the company in exchange for common stock. 1 The company obtains a $25,000 loan from a local bank. Front Row Entertainment agreed to pay annual interest of 9% each January I, starting in 202.0. It will repeat the amount borrowed in 5 years. 1 The company paid $1,200 in legal fees associated with incorporation. 1 Office equipment was purchased with $1000 in cash. 1 The company pays $800 to rent office space for January. 3 A 1-year insurance policy was purchased for $3,600. 3 Office supplies of $2,500 were purchased from Equipment Supply Services. Equipment Supply Services agreed to accept $1,000 in 15 days with the remainder due in 30 days. 5 The company signs Charm City, a local band with a growing cult following, to a four-city tour that starts on February 15. 8 Venues for all four Charm City concerts were reserved by paying $10,000 cash. 12 Advertising costs of $4,500 were paid to promote the concert tour. 18 Paid $1,000 to Equipment Supply Services for office supplies purchased on January 3. 25 To aid in the promotion of the upcoming tour, Front Row Entertainment arranged for Charm City to perform a 20-minute set at a local festival. Front Row Entertainment received $1,000 for Charm Citys appearance. Of this total amount. $400 was received immediate with the remainder due in 15 days. The festive] took place on January 23. 25 Paid Charm City $800 for performing at the festival. Note: Front Row Entertainment records the fees paid to the artist in an operating expense account called Artist Fee Expense. 23 Due to the success of the marketing efforts, Front Row Entertainment received $3300 in advance ticket sales for the upcoming tour. 30 The company collected $200 of the amount due from the January 25 festival. 30 Paid salaries of S1,200 each to Cam and Anna for the month of January. Required: 2. Post the transactions to the general ledger.arrow_forwardCase 2-69 CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT After much consideration, Cam and Anna decide to organize their company as a corporation. On January 11 2019, Front Row Entertainment Inc begins operations. Due to Cams family connections in the entertainment industry, Cam assumes the major responsibility for signing artists to a promotion contract. Meanwhile. Anna assumes the financial accounting and reporting responsibilities. The following business activities occurred during January: Jan. 1 Cam and Anna invest $8,000 each in the company in exchange for common stock. 1 The company obtains a $25,000 loan from a local bank. Front Row Entertainment agreed to pay annual interest of 9% each January I, starting in 202.0. It will repeat the amount borrowed in 5 years. 1 The company paid $1,200 in legal fees associated with incorporation. 1 Office equipment was purchased with $1000 in cash. 1 The company pays $800 to rent office space for January. 3 A 1-year insurance policy was purchased for $3,600. 3 Office supplies of $2,500 were purchased from Equipment Supply Services. Equipment Supply Services agreed to accept $1,000 in 15 days with the remainder due in 30 days. 5 The company signs Charm City, a local band with a growing cult following, to a four-city tour that starts on February 15. 8 Venues for all four Charm City concerts were reserved by paying $10,000 cash. 12 Advertising costs of $4,500 were paid to promote the concert tour. 18 Paid $1,000 to Equipment Supply Services for office supplies purchased on January 3. 25 To aid in the promotion of the upcoming tour, Front Row Entertainment arranged for Charm City to perform a 20-minute set at a local festival. Front Row Entertainment received $1,000 for Charm Citys appearance. Of this total amount. $400 was received immediate with the remainder due in 15 days. The festive] took place on January 23. 25 Paid Charm City $800 for performing at the festival. Note: Front Row Entertainment records the fees paid to the artist in an operating expense account called Artist Fee Expense. 23 Due to the success of the marketing efforts, Front Row Entertainment received $3300 in advance ticket sales for the upcoming tour. 30 The company collected $200 of the amount due from the January 25 festival. 30 Paid salaries of S1,200 each to Cam and Anna for the month of January. Required: Prepare a trial balance at January 31, 2019.arrow_forwardProblem 2-56A Analyzing Transactions Luis Madero, after working for several years with a large public accounting firm decided to open his own accounting service. The business is operated as a corporation under the name Madero Accounting Services. The following captions and amounts summarize Maderos balance sheet at July 31, 2019. The following events occurred during August 2019. Issued common stock to Ms. Garriz in exchange for $15,000 cash. Paid $850 for first months rent on office space. Purchased supplies of $2,250 on credit. Borrowed $8,000 from the bank. Paid $1,080 on account for supplies purchased earlier on credit. Paid secretarys salary for August of $2,150. Performed amounting services for clients who paid cash upon completion of the service in the total amount of $4,700. Used $3,180 of the supplies on hand. Perfumed accounting services for clients on credit in the total amount of $1,920. Purchased $500 in supplies for cash. Collected $1,290 cash from clients for whom services were performed on credit. Paid $1,000 dividend to stockholders. Required: Record the effects of the transactions listed above on the accounting equation. Use the format given in the problem, starting with the totals at July 31, 20l9. Prepare the trial balance at August 31, 2019.arrow_forward
- Comprehensive Problem 1Part 1: The following is a comprehensive problem which encompasses all of the elements learned in previous chapters. You can refer to the objectives for each chapter covered as a review of the concepts. Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 2018. The chart of accounts for Kelly Consulting is shown below: 11 Cash 32 Retained Earnings 12 Accounts Receivable 33 Dividends 14 Supplies 34 Income Summary 15 Prepaid Rent 41 Fees Earned 16 Prepaid Insurance 51 Salary Expense 18 Office Equipment 52 Rent Expense 19 Accumulated Depreciation 53 Supplies Expense 21 Accounts Payable 54 Depreciation Expense 22 Salaries Payable 55 Insurance Expense 23 Unearned Fees 59 Miscellaneous Expense 31 Common Stock The post-closing trial balance as of April 30, 2018, is shown below: Kelly ConsultingPost-Closing Trial BalanceApril 30, 2018 Account No. Debit Credit Cash 11 22,100 Accounts Receivable 12 3,400…arrow_forwardComprehensive Problem 1Part 1: The following is a comprehensive problem which encompasses all of the elements learned in previous chapters. You can refer to the objectives for each chapter covered as a review of the concepts. Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 20Y8. The chart of accounts for Kelly Consulting is shown below: 11 Cash 32 Retained Earnings 12 Accounts Receivable 33 Dividends 14 Supplies 41 Fees Earned 15 Prepaid Rent 51 Salary Expense 16 Prepaid Insurance 52 Rent Expense 18 Office Equipment 53 Supplies Expense 19 Accumulated Depreciation 54 Depreciation Expense 21 Accounts Payable 55 Insurance Expense 22 Salaries Payable 59 Miscellaneous Expense 23 Unearned Fees 31 Common Stock The post-closing trial balance as of April 30, 20Y8, is shown below: Kelly ConsultingPost-Closing Trial BalanceApril 30, 20Y8 Account No. Debit Credit Cash 11 22,100 Accounts Receivable 12 3,400 Supplies 14…arrow_forwardAnswers for question 1 parts d & e and Question 2 part A (Journal entries) Matthew Mulatto and his brother John Mulatto plans to open a business. The major decision they face is how to organize the business. They expect to generate a massive profit during the first year. Although they have enough to start the business now as a partnership, they believe cash flow may be an issue as they grow. They believe that the corporate form of operation will be best option. They have hired you as a consultant and seek your advice. Requirements: 1. Answer the following questions for the Mulatto brothers. a. How are paid-in-capital and retained earnings: Similar? Different? b. What are the main categories of paid-in capital? c. When does a company declare a cash dividend? d. Which characteristic of a corporation limits a stockholder's loss to the amount of his or her investment in the stock of the corporation? e. What does the term par value of stock mean? 2. The owners are desirous of…arrow_forward
- Case 3-72 Cash- or Accrual-Basis Accounting Karen Ragsdale owns a business that rents parking spots to students at the local university. Karens typical rental contract requires the student to pay the years rent of $450 ($50 per month) on September 1. When Karen prepares financial statements at the end of December, her accountant requires that Karen spread the $450 over the 9 months that each parking Spot is rented. Therefore, Karen can recognize only $200 of revenue (4 months) from each parking spot rental contract in the year the cash is collected and must defer (delay) recognition of the remaining $250 (5 months) to the next year. Karen argues that getting students to agree to rent the parking Spot is the most difficult part of the activity so she Ought to be able to recognize all $450 as revenue when the cash is received from a student. Required: Why do generally accepted accounting principles require the use of accrual accounting rather than cash-basis accounting for transactions like the one described here?arrow_forwardSERIES B PROBLEMS THE ACCOUNTING EQUATION Dr. Patricia Parsons is a dentist. As of January 31, Parsons owned the following property that related to her professional practice: REQUIRED 1. From the preceding information, compute the accounting elements and enter them in the accounting equation as shown below. 2. During February, the assets increase by 4,565, and the liabilities increase by 3,910. Compute the resulting accounting equation. 3. During March, the assets decrease by 2,190, and the liabilities increase by 1,650. Compute the resulting accounting equation.arrow_forwardComprehensive Problem 1 8 Net income. 31,425 Kelly Pitney began her consulting business. Kelly Consulting, on April 1, 20Y8. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter During May, Kelly Consulting entered into the following transactions: May 3.Received cash from clients as an advance payment for services to be provided and recorded it as unearned tree 4,500 5.Received cash from clients on account 2,450. 9.Paid cash for a newspaper advertisement 225. 13.Raid Office Station Co for part of the debt incurred on April , 640. 15.Recorded services provided on account for the period May 1-15, 9,180. 16 Paid part-time receptionist for two weeks salary including the amount owed on April 30, 750. 17.Recorded cash from cash clients for fees earned during the period May 116, 8,360. Record the following transactions on Page 6 of the Journal 20.Purchased support on account 735. 21.Recorded services provided on account for the period May 1620. 4,820 25.Recorded cash from cash clients for fees earned for the period May 1723, 7,900 27.Received cash from clients on account 9,520. 28.Paid part-time receptionist for two weeks salary. 7S0. 30.Raid telephone bill for May. 260 31.Paid electricity bill for May, 810. 31.Recorded cash from cash clients tor lees earned for the period May 2031. 3,300. 31.Recorded services provided on account for the remainder of May, 2,650. 31.Paid dividends 10,500 Instructions 1.The chart of accounts foe Kelly Consulting is shown us Exhibit 9. and the post-closing trial balance as of April 30, 20Y8, is shown in Exhibit 17. for each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1. 20Y8. and place a check mark () in the Posting Reference column. Journalize each of the May transactions in a two-column journal starting cm Page of the journal and using Kelly Consultings chart of accounts. (Do not insert the account numbers in the journal at this time.) 2.Post the journal to a ledger of four-column accounts. 5.Prepare an unadjusted trial balance. 4.At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6). (a)Insurance expired during May is 275. (b)Supplies on hand on May II are 715. (c)Depreciation of office equipment for May is 330. (d)Accrued receptionist salary on May 31 is 325. (e)Rent expired during May is 1600. (f)Unearned fees on May 31 are 3,210 5.(Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet 6.Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal. 7.Prepare an adjusted trial balance. 8.Prepare an income statement, a statement of stockholders equity, and a balance sheet. 9.Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. 10.Prepare a post-closing trial balance.arrow_forward
- Exercise 2-37 Events and Transactions Several events are listed below Common stock is issued to investors. An agreement is signed with a janitorial service to provide cleaning services over the next 12 months. Inventory is purchased. Inventory is sold to customers. Two investors sell their common stock to another investor. A 2-year insurance policy is purchased Required: CONCEPTUAL CONNECTION For each of the events1 identify which ones qualify for recognition in the financial statements. CONCEPTUAL CONNECTION For events that do not qualify for recognition, explain your reasoning.arrow_forwardKelly Pitney began her consulting business, Kelly Consulting, on April 1, 2016. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter. During May, Kelly Consulting entered into the following transactions: May 3. Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, 4,500. 5. Received cash from clients on account, 2,450. 9. Paid cash for a newspaper advertisement, 225. 13. Paid Office Station Co. for part of the debt incurred on April 5, 640. 15. Recorded services provided on account for the period May 115, 9,180. 16. Paid part-time receptionist for two weeks' salary including the amount owed on April 30, 750. 17. Recorded cash from cash clients for fees earned during the period May 116, 8,360. Record the following transactions on Page 6 of the journal: 20. Purchased supplies on account, 735. 21. Recorded services provided on account for the period May 1620, 4,820. 25. Recorded cash from cash clients for fees earned for the period May 1723, 7,900. 27. Received cash from clients on account, 9,520. 28. Paid part-time receptionist for two weeks' salary, 750. 30. Paid telephone bill for May, 260. 31. Paid electricity bill for May, 810. 31. Recorded cash from cash clients for fees earned for the period May 2631, 3,300. 31. Recorded services provided on account for the remainder of May, 2,650. 31. Kelly withdrew 10,500 for personal use. Instructions 1. The chart of accounts for Kelly Consulting is shown in Exhibit 9, and the post-closing trial balance as of April 30, 2016, is shown in Exhibit 17. For each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1, 2016, and place a check mark () in the Posting Reference column. Journalize each of the May transactions in a two-column journal starting on Page 5 of the journal and using Kelly Consultings chart of accounts. (Do not insert the account numbers in the journal at this time.) 2. Post the journal to a ledger of four-column accounts. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6). a. Insurance expired during May is 275. b. Supplies on hand on May 31 are 715. c. Depreciation of office equipment for May is 330. d. Accrued receptionist salary on May 31 is 325. e. Rent expired during May is 1,600. f. Unearned fees on May 31 are 3,210. 5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a statement of owners equity, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. 10. Prepare a post-closing trial balance.arrow_forwardComprehensive problem 1 Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 2016. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated in this chapter. During May, Kelly Consulting entered into the following transactions: May 3. Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, 4,500. 5. Received cash from clients on account, 2,450. 9. Paid cash for a newspaper advertisement. 225. 13. Paid Office Station Co. for part of the debt incurred on April 5, 640. 15. Recorded services provided on account for the period May 1-15; 9,180. 16. Paid part-time receptionist for two weeks salary including the amount owed on April 30, 750. 17. Recorded cash from cash clients for fees earned during the period May 1-16, 8,360. Record the following transactions on Page 6 of the journal: 20. Purchased supplies on account, 735. 21. Recorded services provided on account for the period May 16-20, 4,820. 25. Recorded cash from cash clients for fees earned for the period May 17-23, 7,900. 27. Received cash from clients on account, 9,520. 28. Paid part-time receptionist for two weeks salary, 750. 30. Paid telephone bill for May, 260. 31. Paid electricity bill for May, 810. 31. Recorded cash from cash clients for fees earned for the period May 26-31, 3,300. 31. Recorded services provided on account for the remainder of May, 2,650. 31. Paid dividends, 10,500. Instructions 1. The chart of accounts for Kelly Consulting is shown in Exhibit 9, and the post-closing trial balance as of April 30, 2016, is shown in Exhibit 17. For each account in the post-closing trial balance, enter the balance in the appropriate Balance column of a four-column account. Date the balances May 1, 2016, and place a check mark () in the Posting Reference column. Journalize each of the May transactions in a two- column journal starting on Page 5 of the journal and using Kelly Consultings chart of accounts. (Do not insert the account numbers in the journal at this time.) 2. Post the journal to a ledger of four-column accounts. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6). a. Insurance expired during May is 275. b. Supplies on hand on May 31 are 715. c. Depreciation of office equipment for May is 330. d. Accrued receptionist salary on May 31 is 325. e. Rent expired during May is 1,600. f. Unearned fees on May 31 are 3,210. 5. (Optional) Enter the unadjusted trial balance on an end-of-period spreadsheet and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 7 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a retained earnings statement, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 8 of the journal. (Income Summary is account 34 in the chart of accounts.) Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. 10. Prepare a post-closing trial balance.arrow_forward
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