UNIVERSITY OF THE WEST INDIES

Mona School of Business & Management

ACCT 1005 - FINANCIAL ACCOUNTING

Worksheet 1 – Accounting & the Business Environment
Lecture Problems
Question 1
Jake’s Roasted Peanuts, a proprietorship, supplies snack foods. The business experienced the following
events. State whether each event (1) increased, (2) decreased, or (3) had no effect on the total assets of the
business. Identify any specific asset affected.
a) Jake’s roasted Peanuts received a cash investment from the owner.
b) Cash purchase of land for a building site.
c) Paid cash on accounts payable
d) Purchased equipment; signed a note payable in payment.
e) Performed service for a customer on account.
f) The owner withdrew cash from the business for personal use.
g) Received cash from a customer on account receivable.
h) Borrowed money from the bank.

Question 2
Bob Grayson owns and operates an architectural firm called Grayson Architecture. The following
amounts summarize the financial position of his business on April 30, 20X7.

ASSETS = LIABILITIES + OWNER’S EQUITY

Accounts = Accounts + Bob Grayson,
Cash + Receivable + Supplies + Land Payable Capital
Bal. 1,720 3,240 24,100 5,400 23,660

During May 20X7 the following events occurred.

a. Grayson received $12,000 as a gift and deposited the cash in the business bank
account.
b. Paid off the beginning balance on accounts payable.
c. Performed services for a client and received cash of $1,100,
d. Collected cash from a customer on account, $750.
e. Purchased supplies on account, $720.
f. Consulted on the interior design of a building and billed the client for services
rendered, $5,000 on account.
g. Invested personal cash of $1,700 in the business.
h. Recorded the following business expenses for the month:
i. Paid office rent, $1,200
ii. Paid advertising, $600
i. Sold supplies to another interior designer for $80 cash, which was the cost of the
supplies.
j. Withdrew cash of $2,400 for personal use.

Required:
Analyze the effects of the preceding transactions on the accounting equation of Grayson
Architecture.

Mona School of Business & Management (MSBM), University of the West Indies, Mona. -1-
Lecture Case Study
Matthew is a first year financial accounting student at UWI, Mona who decided to open an apartment-location
business near the campus. He is the sole owner of the business, which he names Campus Apartment Locators. With
regards to preparing his financial statements, Matthew secured the services of a first year accounting student Sheila
to take him through the elements of the accounting cycle and all that he will need to learn about basic accounting.
Sheila explained an expanded version of the cycle as follows:

1. Analyze business transactions

9. Prepare a post closing trial 2. Journalize the transactions

balance

3. Post to the ledger accounts

4. Prepare an unadjusted trial

8. Journalize and post closing balance
entries

5. Journalize and post adjusting

entries
Worksheet
7. Prepare financial statements Optional

6. Prepare an adjusted trial balance

Having explained this, she further went on to demonstrate how his events/activities of his business will affect his
investment of capital in the business (owner’s equity/capital).

Matthew’s owner’s equity increases Matthew’s owner’s equity decreases

Matthew’s investments in Matthew’s withdrawals from

business business
Owner’s Equity

Revenues Expenses

Refer to Question 2 Grayson Architecture.

i) Assuming that there are no adjusting entries, use the explanation given by Sheila to complete steps 2,
3, 4 an 7 of the cycle for Grayson Architecture.
ii) Prepare the income statement of Grayson Architecture for the month ended May 31, 20X7. List
expenses in decreasing order by amount.
iii) Prepare the statement of owner’s equity for Grayson Architecture for the month ended May 31, 20X7.
iv) Prepare the balance sheet for Grayson Architecture at May 31, 20X7.

Mona School of Business & Management (MSBM), University of the West Indies, Mona. -2-
Tutorial Questions
Question 1
Abraham Woody practiced accounting with a partnership for 5 years. Recently he opened his own
accounting firm, which he operates as a proprietorship. The name of the entity is Abraham Woody, CPA.
Woody experienced the following events during the organizing phase of his new business and its first
month of operations. Some of the events were personal and did not affect the business.

Feb. 4 Received $75,000 cash from former accounting partners.

5 Deposited $60,000 cash in a new business bank account titled Abraham Woody, CPA

6 Paid $300 cash for letterhead stationery for the new office.

7 Purchased office furniture for the office. Woody agreed to pay the account payable, $7,000,
within three months.

10 Sold personal investment in Amazon.com stock, which he had owned for several years,
receiving $50,000.

11 Deposited the $50,000 cash from sale of the Amazon stock in his personal bank account.

12 A representative of a large company telephoned Woody and told him of the company’s
intention to transfer its accounting business to Woody.

18 Finished tax hearing on behalf of a client and submitted a bill for accounting services, $5,000.
Woody expected to collect from this client within two weeks.

25 Paid office rent $1,000.

28 Withdrew $3,000 cash from the business for personal use.

Required:
1. Analyze the effects of the preceding events on the accounting equation of the
proprietorship of Abraham Woody, CPA.
2. At February 28, compute:
a) Total assets
b) Total liabilities
c) Total owner’s equity
d) Net income or net loss for February.
Question 2
i) Sherman Lawn Service has been opened for one year and Haig Sherman, the owner,
wants to know whether the business earned a net income or a net loss for the period.
First, he must identify the revenues earned and the expenses incurred during the year.
What are revenues and expenses?
ii) Compute the missing amount for Jupiter. You will need to prepare a statement of
owner’s equity.
Jupiter Company
Beginning:
Assets $50,000
Liabilities 20,000
Mona School of Business & Management (MSBM), University of the West Indies, Mona. -3-
 Ending:
Assets $70,000
Liabilities 30,000
Owner’s Equity:
Investments by owner $ 0
Withdrawals by owner 45,000
Income Statement:
Revenues $230,000
Expenses ?
Did Jupiter earn a net income or suffer a net loss for the year? Compute the amount.
Question 3
Presented here are (a) the assets and liabilities of Gotcha Covered Security Systems at December 31, 20X7,
and (b) the revenues and expenses of the business for the year ended on that date.
Land $60,000 Accounts payable $19,000
Note payable 35,000 Accounts receivable 12,000
Property tax expense 4,000 Advertising expense 13,000
Rent expense 23,000 Building 131,000
Salary expense 63,000 Cash 14,000
Salary payable 1,000 Equipment 20,000
Service revenue 189,000 Insurance expense 2,000
Supplies 3,000 Interest expense 9,000

The capital balance of Andrew Stryker, the owner, was $150,000 at December 31, 20X6. During 20X7,
Stryker withdrew $40,000 for personal use.
Required:
i) Prepare Gotcha Covered income statement for the year ended December 31, 20X7.
ii) Prepare the statement of owner’s equity for the year ended December 31, 20X7.
iii) Prepare the balance sheet as at December 31, 20X7.
iv) Answer these questions about the business.
a) Was the result of the operations for the year a profit or loss? How much?
b) How much in total economic resources does the business have as it moves into the New
Year? How much does the business owe? What is the dollar amount of Gotcha’s equity
interest in the business at the end of the year?

Practice Questions
Question 1 (E1-23)
The analysis of Roundtree TV Service’s first eight transactions follows. The owner of the business made
only one investment to start the business and made no withdrawals.
Cash + Accounts + Accounts Owner
Receivable Equipment = Payable + Capital
1. +25,000 +25,000
2. +2,400 +2,400
3. +10,000 +10,000
4. +150 -150
5. -400 +400
6. -8,000 -8,000
7. +900 +900
8. -2,000 -2,000

Mona School of Business & Management (MSBM), University of the West Indies, Mona. -4-
 a) Describe each transaction
b) If these transactions fully describe the operation of Roundtree TV Service during the month, what
was the amount of net income or net loss?

Question 2 (E1-25)

Selected assets, liabilities, owner’s equity, revenues and expenses of Ciliotta Design Studio at December
31, 20X7, the end of its first year of operation, have the following balances. During the year, J. Ciliotta, the
owner, invested $15,000 in the business.
Note payable $41,000 Office furniture $45,000
Rent expense 24,000 Utilities expense 6,800
Cash 3,600 Accounts payable 3,300
Office Supplies 4,800 J. Ciliotta, capital 27,100
Salary expense 60,000 Service revenue 158,100
Salaries payable 2,000 Accounts receivable 9,000
Property tax expense 1,200 Supplies expense 4,000
Required:
i) Prepare the income statement of Ciliotta Design Studio for the year ended December 31, 20X7
ii) What was the amount of the proprietor’s withdrawals during the year?
Question 3 (P1-32A)
The bookkeeper of Lone Star Landscaping prepared the balance sheet of the business while the
accountant was ill. The balance sheet contains numerous errors. In particular, the bookkeeper knew that
the balance sheet should balance, so he plugged in the owner’s equity amount needed to achieve this
balance. The owner’s equity amount, therefore, is incorrect. All other amounts are accurate, but some are
out of place.
LONE STAR LANDSCAPING
Balance Sheet
Month Ended July 31, 20X8
Assets Liabilities
Cash $4,000 Accounts Receivable $23,000
Office Supplies 1,000 Service Revenue 73,500
Land 50,000 Property Tax Expense 800
Salary Expense 2,500 Accounts Payable 8,000
Office Furniture 16,000
Note Payable 36,000 Owner’s Equity
Rent Expense 2,500
Owner’s equity 6,700
Total assets $112,000 Total Liabilities & OE $112,000

Required:
Prepare the corrected balance sheet and date it correctly. Compute total assets, total liabilities and
owner’s equity.

End of worksheet # 1

Mona School of Business & Management (MSBM), University of the West Indies, Mona. -5-