EPPD 1033 PRINCIPLES OF ACCOUNTING – SET 21 (SEM 2 2023/2024)

TUTORIAL 1

QUESTION 1

(a) The following are users of financial statements. Identify the users as being
either external or internal users.

________________________ customers
________________________ Internal Revenue Service
________________________ Labour unions
________________________ Marketing manager
________________________ Production supervisor
________________________Securities and Exchange Commission
________________________ Store manager
________________________ Suppliers
________________________ Vice president of finance

(b) An internal or external user could ask the following questions. Identify
each question as more likely to be asked by an internal or external user.

____________________ Can we afford to give our employees a pay rise?

____________________ Did the company earn a satisfactory income?
____________________ Do we need to borrow in the near future?
____________________ How does the company's profitability compare to other
companies?
____________________ What does it cost us to manufacture each unit produced?
____________________ Which product should we emphasize?
____________________ Will the company be able to pay its short-term debts?
QUESTION 2

Selected transactions for Mountain Goats Tree Service are listed below. Describe the
effect of each transaction on assets, liabilities, and owner's equity.

For example, the answer for 1. is "an increase in assets and an increase in owner's
equity."

1. Made cash investments to start the business.

2. Paid for monthly advertising.
3. Purchased supplies on account.
4. Billed customers for services performed.
5. Withdrew cash for owner's personal use.
6. Received cash from customers billed in (4).
7. Incurred utility expense on the account.
8. Purchased additional supplies for cash.
9. Received cash from customers when service was performed.

QUESTION 3

Neko Case decides to open a cleaning and laundry service near the local college
campus that will operate as a sole proprietorship. Analyze the following transactions
for the month of June in terms of their effect on the basic accounting equation.
Record each transaction by increasing (+) or decreasing (–) the dollar amount of
each item affected.

Transactions
(1) Neko Case invests $20,000 in cash to start a cleaning and laundry business
on June 1.
(2) Purchased equipment for $5,000 paying $3,000 in cash and the remainder
due in 30 days.
(3) Purchased supplies for $1,200 cash.
(4) Received a bill from College News for $300 for advertising in the campus
newspaper.
(5) Cash receipts from customers for cleaning and laundry amounted to $2,400.
(6) Paid salaries of $600 to student workers.
(7) Billed the Lion Soccer Team $450 for cleaning and laundry services.
(8) Paid $300 to College News for advertising that was previously billed in
Transaction 4.
(9) Neko Case withdrew $1,500 from the business for living expenses.
(10) Incurred utility expenses for month on account, $500.

Required:
Prepare a tabular summary of the transactions
 Assets = Liabilities Owner’s Equity
Transaction Accounts Accounts Owner’s Owner’s
Cash Supplies Equipment + Revenue - Expenses -
Receivables Payable Capital Drawings
1
2
3
4
5
6
7
8
10