POVERTY

Definition and extent of poverty in the world

Poverty is a situation in which people lack enough money to maintain standard of health an decency.
Today almost 50% of the world population is poor. Even in the most prosperous countries, poverty
still survives.

Poverty

The people who are most likely to be poor

Many of them live at the margin of society, and many have mental, social, or physical handicap.
Woman, children, old and minorities make the large proportion of poor.

Poverty
How poverty affects basic human rights and needs?
Right to life and happiness: the inadequacy of financial resources deprive the poor of freedom to
pursuit of happiness, freedom from fear.
Right to healthy food, clean drinking water, health, and education.
Right to dignity as human being.

Poverty
How social institutions contribute to the problem of poverty?
Poverty continues in world because of the distribution of power. Those who control the wealth are
among the most powerful, while the poor are among the most powerless.
Government decisions typically reflect the interests of the well-to-do rather than of the poor.
Poverty
The economy works against the poor in three ways:
By allowing the concentration of wealth,
By entrapping the poor in vicious circle,
And by guaranteeing that a certain proportion of the population will be unable to find employment
or to find jobs that pay more than poverty-level wages.

Poverty
Attitude towards the poor and of the poor towards the perpetuation of poverty.
Poor are lazy: it’s a myth, it justifies the non-poor’s contempt and disavowal of personal and social
responsibility for dealing with poverty. No evidence support the myth, but its still prevalent, and it
robs the poor of human dignity.
Poor, historically are subjected to contempt and rejection.
Types of Poverty
Absolute Poverty: refers to having too little income to buy the necessities of food, clothing or health
care. Certain amount of goods and services is essential to an individual’s or family welfare. Those
who do not have this minimum amount are viewed as poor.
The problem with this approach is that there is no agreement as to what constitute “minimum”
needs.

Types of Poverty
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Relative Approach: a person is poor when his/her income is substantially less than the average
income of the population. This approach put more emphasis on the inequality of incomes. Poverty
will exist as long as income inequality exists. It tells us nothing about how badly, or how well the
people at the bottom of the income distribution actually live.
Poverty
The man who stores money is like a squirrel who stores acorns, both are trying to provide for basic
needs. But the squirrel is superior to the man in one respect-he seems to know when he has enough
acorns, while the man never seems to know when he has enough money.
Indeed majority of the people feel that they need more money, regardless of their income.
Even if most people do need more, some people are clearly far more needy than others.

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Transactions: 

1) Throughout the year, the company purchased parts and supplies inventory totaling $75,000. Of the
$75,000, $10,000 was cash paid at the time of purchase, and the remaining $65,000 was purchased on
account. 

2) Total sales of the year were $330,000. Of course, $110,000 were sales on account, $60,000 were cash
sales, and $160,000 were credit card sales. The credit card company charged Alice's a 2% fee for each
sale.

3) The original cost of the parts and supplies inventory used was $69,000.

4) Rent for the facility in which the company operated remained at $1,000 throughout the year. The
company had paid for the first two months’ rent during December of the prior year. It paid for the
remaining 10 months ‘rent during the current year.

5) The cost of insurance for the year was $1,200, paid in cash.

6) The company included $5,000 in employees’ paychecks in January for work done in the prior year.

7) Alice decided to write off three accounts during the year because those customers were not likely to
pay the combined $4,000 they owed to Alice’s.

8) During the year, employees, including Alice, earned $200,000 in salaries and wages, of which
$194,000 was included in the paychecks to the employees during the year, and the remaining $6,000
would be included in their January paychecks the following year.

9) Remaining operating expenses totaled $10,000, all paid in cash.

10) On April 15, the company paid its prior years’ taxes of $2,258.

11) On October 1, the company made an interest payment of $3,000 to the local bank. The payment was
related to the $25,000 loan to the company had obtained the prior October 1 that carried at 12%
interest rate, with interest being payable annually on October 1.

12) In December, the company paid the rent for the following January in advance.

13) The total amount that customer’s owed Alice’s at the end of the year, after the three accounts had
been written off, totaled $20,000.

14) Alice’s still owed suppliers $10,000 at the end of the second year for the inventory it had purchased.

15) In addition to his salary, the company paid a $10,000 dividend to Alice.

16) The company’s tax rate was 15%. Alice planned to wait until April 15 of his company’s third year to
pay the income tax bill for its second year of operations.

17) The company still had the truck and equipment it had purchased at the beginning of its first year of
operation. At the time, it had paid $30,000 for the truck and $20,000 for the equipment. It was assumed
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that the truck would have a useful life of five years, and the equipment would have a useful life of four
years. Neither the truck, nor the equipment was expected to have any salvage value.

Required:

1) Prepare all journal entries required for Alice’s second year of operations.

2) Post the information’s to T-accounts.

3) Prepare an income statement that summarizes the results of operations for the second year.

4) Prepare a balance sheet as of December 31.

5) Prepare a statement of cash flow for the second year.

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Alice’s Electronics services, Inc.: The second year

Balance sheet as of December 31, End of first year

Assets:

 Cash
 Accounts receivables
 Parts and supplies inventory
 Prepaid rent
 Investment in XYZ, Inc.
 PP&E

Total Assets

 Liabilities
 Accounts Payable
 Wages Payable
 Interest Payable
 Loan Payable
 Taxes Payable

Stockholder’s Equity

Capital Stock

Retained earnings

Total Liabilities and Stockholder’s Equity