Question

1. For each transaction, indicate whether a company would classify the related account as an asset, liability, stockholders' equity, dividend, revenue, or expense.

	Transactions	Related Accounts	Account Classification
1.	Receive cash from investors.	Common Stock
2.	Pay rent for the current period.	Rent Expense
3.	Purchase office equipment.	Equipment
4.	Pay cash to stockholders.	Dividends
5.	Provide services to customers.	Service Revenue

2. Account classifications include assets, liabilities, stockholders' equity, dividends, revenues, and expenses. Indicate the account classification for each account name.

	Related Transactions	Accounts	Account Classifications
1.	Sell common stock to investors.	Common Stock
2.	Receive cash from customers.	Cash
3.	Incur amounts owed to employees.	Salaries Payable
4.	Sell services to customers.	Service Revenue
5.	Incur cost of utilities.	Utilities Expense
6.	Purchase of office supplies.	Supplies
7.	Pay for cost of advertising.	Advertising Expense
8.	Purchase building for operations.	Buildings
9.	Purchase supplies on credit.	Accounts Payable
10.	Distribute cash to stockholders.	Dividends

3. Indicate whether a company would classify the transaction as financing, investing, or operating.

	Transactions	Type of Business Activity
1.	Receive cash from investors.
2.	Pay rent for the current period.
3.	Purchase office equipment.
4.	Pay cash to stockholders.
5.	Provide services to customers.

4. Below are typical transactions for a company. Indicate whether each transaction is classified as a financing, investing, or operating activity.

	Transactions	Type of Business Activity
1.	Purchase office building.
2.	Pay building maintenance fees.
3.	Pay sales taxes to the local government.
4.	Provide services to customers.
5.	Borrow from the bank.
6.	Pay workers’ salaries.
7.	Sell equipment used in operations.
8.	Sell common stock to investors.

Listed below are several terms and definitions associated with the FASB's conceptual framework.
  
Required:
Select the term that relates to each definition.

• Comparability
• Completeness
• Cost effectiveness
• Decision usefulness

Definitions		Terms
a.	Requires the consideration of the costs and value of information.
b.	Recording transactions only for the company.
c.	The indefinite life of a company can be broken into definite periods.
d.	Accounting should be useful in making decisions.
e.	Agreement between a measure and the phenomenon it represents.
f.	Information arrives prior to the decision.
g.	Information is related to the decision at hand.
h.	Implies consensus among different measures.
i.	Concerns the relative size of an item and its effect on decisions.

  

Answer 1

1)

	Transactions	Related Accounts	Account Classification
1	Receive cash from investors.	Common Stock	stockholders' equity
2	Pay rent for the current period.	Rent Expense	Expense
3	Purchase office equipment.	Equipment	Asset
4	Pay cash to stockholders.	Dividends	Dividend
5	Provide services to customers.	Service Revenue	Revenue

2)

	Related Transactions	Accounts	Account Classifications
1	Sell common stock to investors.	Common Stock	stockholders' equity
2	Receive cash from customers.	Cash	Asset
3	Incur amounts owed to employees.	Salaries Payable	Liability
4	Sell services to customers.	Service Revenue	Revenue
5	Incur cost of utilities.	Utilities Expense	Expense
6	Purchase of office supplies.	Supplies	Asset
7	Pay for cost of advertising.	Advertising Expense	Expense
8	Purchase building for operations.	Buildings	Asset
9	Purchase supplies on credit.	Accounts Payable	Liability
10	Distribute cash to stockholders.	Dividends	Dividends

3)

	Transactions	Type of Business Activity
1	Receive cash from investors.	financing
2	Pay rent for the current period.	operating
3	Purchase office equipment.	investing
4	Pay cash to stockholders.	financing
5	Provide services to customers.	operating

4)

	Transactions	Type of Business Activity
1	Purchase office building.	investing
2	Pay building maintenance fees.	operating
3	Pay sales taxes to the local government.	operating
4	Provide services to customers.	operating
5	Borrow from the bank.	financing
6	Pay workers’ salaries.	operating
7	Sell equipment used in operations.	investing
8	Sell common stock to investors.	financing