Review the following balance sheet and answer the following ...

[Pineappleeh]

Review the following balance sheet and answer the following questions.
 
  Barry Rich, CPA
   Balance Sheet
   April 30, 2012
   Assets Liabilities
  Cash 2,430 Note Payable 3,000
  Supplies 1,690 Shareholders' equity
  Equipment 7,500 Contributed capital 5,000
   Retained Earnings 3,620
   Total Sharheolders' equity 8,620
  Total assets 11,620 Total liabilities and shareholders' equity 11,620
 
  1. Is this business a sole proprietorship, partnership, or corporation? How do you know?
  2. Who has claims to the assets owned by the business and how much are they?
  3. Assume that April is the first month of operations and no dividends were given to the owner. How much net income was earned during April?
  4. Using this balance sheet, describe what Barry Rich did during the first month of running his business.

Question 2

On December 29, Perch X, Inc. purchased 2,000 of merchandise from a supplier. The shipping terms were FOB destination. The merchandise did not arrive until after yearend. Perch X should ______.
 
  A) exclude the merchandise from its inventory but should record the related accounts payable as of yearend.
  B) include the merchandise in its inventory and record the related accounts payable.
  C) exclude both the merchandise from its inventory and the related accounts payable as of yearend.
  D) expense the merchandise as cost of goods sold at yearend.

[Cnarkel]

Answer to Question 1

1. This is a corporation. Only corporations have retained earnings and shareholders' equity.
2. Creditors have claims to 3,000, and Barry has claim to 8,620.
3. Since this is the first month of operations, the business started with a zero balance in retained earnings. Therefore, the amount of retained earnings indicates that the business earned 3,620 since there were no dividends.
4. Barry started the business by investing 5,000 of his own money. He also borrowed 3,000. He purchased 7,500 worth of equipment. In running the business, he ended up with 2,430 in cash and 1,690 in supplies. He made a profit of 3,620.

Answer to Question 2

C

[Pineappleeh]

Thanks for the timely response, appreciate it

[zacnyjessica]

Excellent