Business Assistant/Business Assistant.iso/acctg/tyea_1/part3.fil

Text File | 1980-01-01 | 83.6 KB | 2,254 lines

{b}{g,0}3.0  Part 3        Balance Sheet Changes{s}

{b}Learning Objectives

In this part you will learn:

1.  The ways that various types of transactions change the amounts
    reported on the balance sheet.

2.  The nature of income and the income statement.

@
3.1
The amounts of assets and equities of a business {1,15}
        (A) remain constant     (B) change
from day to day.  Therefore the amounts shown on its balance sheet
also {2,15}
        (A) remain constant     (B) change
*1
  - POST - {b}{a,4,37}{r}
CHANGE - OK - Correct.
B - OK - Correct.
REMAIN CONSTANT - QUIT - No, "change" is correct.
A - QUIT - No, "change" is correct.
*2
  - POST - {b}{a,10,37}{r}
CHANGE. - OK - Correct.
CHANGE - OK - Correct.
B - OK - Correct.
REMAIN CONSTANT - QUIT - No, "change" is correct.
A - QUIT - No, "change" is correct.
@
3.2
Although a balance sheet must be prepared at the end of each year, it
can be prepared more often.  In this section, you will be asked to prepare
a balance sheet at the end of each day.  We shall consider a business named
Glendale Market owned by a proprietor, John Smith.  The {b}entity{n} here is
 {1,15}.
        (A) John Smith
        (B) Glendale Market
*1
  - POST - {b}{a,14,13}{r}
GLENDALE MARKET - OK - Correct.
B - OK - Correct.
JOHN SMITH - QUIT - No, Glendale Market is the entity.
A - QUIT - No, Glendale Market is the entity.
@
3.3{s}

On January 2, Smith started Glendale Market by opening a bank account
in its name and depositing $10,000 of his money in it.  In the assets column
of the following balance sheet, enter the name of the asset the Glendale Market
possessed at the close of business on January 2, and the appropriate amount.


{b}                            GLENDALE MARKET
                        Balance Sheet as of January 2
{b}            ASSETS                                   EQUITIES
{l,37}     {l,37}{d}
{1,-6} .................. ${2,-6}
*1
 CASH - OK - Correct and the amount?
CASH - OK - Correct and the amount?
  - HINT - No, Cash is the asset.
*2
10,000 - OK - Correct.
10000 - OK - Correct.
  - HINT - $10,000 was deposited.
@
3.4{s}

In a proprietorship (that is, a business owned by one person), the
owners' equity is recorded in a single item titled with the {b}name of the owner{n},
followed by a comma and the word {b}Capital{n}.

In the space below, record John Smith's equity in Glendale Market as of
the close of business on January 2.


{b}                            GLENDALE MARKET
                        Balance Sheet as of January 2
{b}            ASSETS                                   EQUITIES
{l,37}     {l,37}{d}
Cash ........................ $10,000     John Smith, {1,7,1} ..... ${2,-6}

*1
CAPITAL - OK - Correct.
  - HINT - Owners' equity is recorded as "John Smith, Capital."
*2
10,000 - OK - Correct.
10000 - OK - Correct.
  - HINT - Remember, assets must equal equities!
@
3.5{s}


{b}                            GLENDALE MARKET
                        Balance Sheet as of January 2
{b}            ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $10,000     John Smith, Capital ......... $10,000



{d}This balance sheet tells us how much cash {1,15} had on January 2.
        (A) Glendale Market     (B) John Smith
The separation of Glendale Market from John Smith, the person, is an
illustration of the {2,6} concept.
        (C) entity      (D) equity
*1
  - POST - {b}{a,13,13}Glendale Market
GLENDALE MARKET - OK - Correct.
A - OK - Correct.
JOHN SMITH - QUIT - No.  Remember, accounts are kept for ENTITIES.
B - QUIT - No.  Remember, accounts are kept for ENTITIES.
*2
  - POST - {b}{a,19,13}entity
ENTITY - OK - Correct.
C - OK - Correct.
EQUITY - QUIT - No, it's the ENTITY concept.
D - QUIT - No, it's the ENTITY concept.
@
3.6
On January 2, Glendale Market received $10,000 cash from John Smith.
To record the effect of this event on the status of the business, you
made {1,3} change(s) in the balance sheet. [how many?] {s}
{d}
After you made these changes, the balance sheet balanced.  This is an
illustration of the {2,4} - ASPECT concept.
*1
TWO - OK - Correct.
2 - OK - Correct.
ONE - QUIT - "Two" is correct: one in the asset column and one in the equity column.
1 - QUIT - "Two" is correct: one in the asset column and one in the equity column.
  - HINT - There were two changes.
*2
DUAL - OK - Correct.
  - HINT - The dual-aspect concept says that assets = equities.
@
3.7{s}

A total should always be given for each side of a balance sheet,
regardless of the number of items to be totalled.  Complete the following
balance sheet.


{b}                             BROWN COMPANY
                      Balance Sheet as of June 30, 19x1
{b}            ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ....................    $50,000      Accounts payable ........    $10,000
                                          John Brown, Capital .....     40,000
                             {l,8   }                                  {l,8 }{d}
                  {1,-5}      ${2,-6}                       {3,-5}       ${4,-6  }
*1
TOTAL - OK - Correct.
  - HINT - Always label the "Total" for each side.
*2
50,000 - OK - Correct.
50000 - OK - Correct.
  - HINT - Total assets equal $50,000.
*3
TOTAL - OK - Correct.
  - HINT - Label the "Total" on both sides.
*4
50,000 - OK - Correct.
50000 - OK - Correct.
  - HINT - Total equities equal $50,000.
@
3.8
Assets and equities are generally listed with the most
current items first.  Choose the list of equities which accords
with this practice.  {1,-1}{s}

        {b}Equities{n} (as of December 31, 19x1)
        {l,34}
(A)       Robert Burns, Capital
          Accounts payable
          Note payable (due in 19x3)

(B)       Note payable (due in 19x3)
          Accounts payable
          Robert Burns, Capital

(C)       Accounts payable
          Note payable (due in 19x3)
          Robert Burns, Capital
*1
  - POST - {b}{a,18,6}{r}{a,19,6}{r}{a,20,6}{r}
C - OK - Correct.
A - NO - No, the owner's equity is payable last.
B - NO - No, "Accounts payable" are due before 19x3.
@
3.9
When a business borrows money, it may sign a written promise
to repay.  Such a written promise is termed a {b}note{n}.  For example, if
Business X borrows money from Business Y, signing a note, then
Business X will record a {1,15} on its balance sheet,
        (A) note payable      (B) note receivable
and Business Y will record a {2,15}.
        (A) note payable      (B) note receivable
*1
  - POST - {b}{a,10,13}note payable
NOTE PAYABLE - OK - Correct.
A - OK - Correct.
NOTE RECEIVABLE - QUIT - No, Business X {u}owes{n} the money to Business Y.
B - QUIT - No, Business X {u}owes{n} the money to Business Y.
*2
  - POST - {b}{a,14,35}{r}
NOTE RECEIVABLE - OK - Correct.
B - OK - Correct.
NOTE PAYABLE - QUIT - No, Business Y {u}is owed{n} the money by Business X.
A - QUIT - No, Business Y {u}is owed{n} the money by Business X.
@
3.10{s}

On January 3, Glendale Market borrowed $5,000 from a bank, giving
a note therefor.  Change the following January 2 balance sheet as required
to make it show the financial condition on January 3.

Make changes by typing your correction alongside the old information,
which will be shown in {i}reverse video{n}.  If the old information is correct
as written, indicate that no change is needed by typing "NC".

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 2
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $10,000     ____________ ................ $ _____

                                          John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total          $10,000                    Total          $10,000

{a,11,52}{i}(2){n} {a,11,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,14,21} {i}(10,000){n} {a,14,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?
3 - OK - Correct.
  - HINT - What follows 2?
*2
  - POST - {a,18,21} {i}(10,000){n} {a,18,32}{3,6}
  - POST - {a,21,1}What is the new Total for the assets column?
15,000 - OK - Correct.
15000  - OK - Correct.
  - HINT - The new Cash value equals $10,000 plus $5,000.
*3
  - POST - {a,14,43}{4,12}
  - POST - {a,21,1}What term should be entered on the balance sheet here?
15,000 - OK - Correct.
15000 - OK - Correct.
  - HINT - Total Assets is the same as Cash, in this case.
*4
  - POST - {a,14,63} {i}(      ){n}{a,14,74}{5,6}
  - POST - {a,21,1}{c, ,75} {a,21,1}And the amount?
NOTE PAYABLE - OK - Correct.
  - HINT - Glendale borrowed $5,000 and gave a Note payable.
*5
  - POST - {a,16,63} {i}(10,000){n} {a,16,74}{6,6}
  - POST - {a,21,1}What is the new value for John Smith, Capital?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
  - HINT - Glendale gave a note for $5,000.
*6
  - POST - {a,16,63}{n}.........
  - POST - {a,18,63} {i}(10,000){n} {a,18,74}{7,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,000 - OK - Correct. (You could also have replied with "NC").
10000 - OK - Correct. (You could also have replied with "NC").
NC - OK - "No change" is correct.
  - HINT - No change necessary here.
*7
15,000 - OK - Correct.  Continue by pressing ENTER.
15000 - OK - Correct.  Continue by pressing ENTER.
  - HINT - Total equities equal $5,000 plus $10,000.
@
3.11{s}

{b}                            GLENDALE MARKET
                      Balance Sheet as of January {i}(2){n} 3
{b}            ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(10,000){n} $15,000     Note payable ....... {i}(     ){n} $ 5,000
                                          John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total {i}(10,000){n} $15,000                    Total {i}(10,000){n} $15,000


To record the effect of the event of January 3, changes in {1,3} item(s)

[how many?] on the balance sheet (not counting the new totals and the new date)

were necessary.  The changes {2,7} affect the equality that had existed

        (A) did     (B) did not

between assets and equities.
*1
TWO - OK - Correct.
2 - OK - Correct.
ONE - QUIT - No, there were two: Cash and Note payable.
1 - QUIT - No, there were two: Cash and Note payable.
3 - NO - Well, "Note payable" and the $5,000 count as just one item.
  - HINT - There were two: Cash and Note payable.
*2
  - POST - {b}{a,18,25}{r}
DID NOT - OK - Correct.
B - OK - Correct.
DID - QUIT - No, the changes did not affect the equality.
A - QUIT - No, the changes did not affect the equality.
@
3.12{s}

On January 4, Glendale Market purchased inventory costing $2,000,
paying cash.

Change the following January 3 balance sheet as required to make it show the
financial condition on January 4.  Type your corrections alongside the old
information, which will be shown in reverse video.  If the old information
is correct as written, indicate that no change is needed by typing "NC".

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 3
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $15,000     Note payable ................ $ 5,000

_________ ...................   _____     John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total          $15,000                    Total          $15,000

{a,11,52}{i}(3){n} {a,11,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,14,21} {i}(15,000){n} {a,14,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?
4 - OK - Correct.
  - HINT - What follows 3?
*2
  - POST - {a,16,1}{3,9,3}
  - POST - {a,21,1}What term should be entered here on the balance sheet?
13,000 - OK - Correct.
13000  - OK - Correct.
  - HINT - The new Cash value equals $15,000 minus $2,000.
*3
  - POST - {a,16,21} {i}(      ){n} {a,16,32}{4,6}
  - POST - {a,21,1}{c, ,75} {a,21,1}And the value?
INVENTORY - OK - Correct.
*4
  - POST - {a,18,21} {i}(15,000){n} {a,18,32}{5,6}
  - POST - {a,21,1}What is the Total for the assets column?
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
*5
  - POST - {a,18,21} {n}{c, ,8}
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{6,6}
  - POST - {a,21,1}{c, ,75} {a,21,1}What is the new value for Note payable?
15,000 - OK - Correct.  You could also have replied with "NC".
15000 - OK - Correct.  You could also have replied with "NC".
NC - OK - "No change" is correct.
   - HINT - No change there.
*6
  - POST - {a,14,63}{n}.........
  - POST - {a,16,63} {i}(10,000){n} {a,16,74}{7,6}
  - POST - {a,21,1}What is the new value for John Smith, Capital?
 5,000 - OK - Correct.  You could also have replied with "NC".
5,000 - OK - Correct.  You could also have replied with "NC".
5000 - OK - Correct.  You could also have replied with "NC".
NC - OK - "No change" is correct.
  - HINT - No change is necessary.
*7
  - POST - {a,16,63}{n}.........
  - POST - {a,18,63} {i}(15,000){n} {a,18,74}{8,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,000 - OK - "No change" is correct.
10000 - OK - "No change" is correct.
NC - OK - "No change" is correct.
   - HINT - No change required there.
*8
  - POST - {a,18,63} {n}{c, ,8}
15,000 - OK - "No change" is correct.
15000 - OK - "No change" is correct.
NC - OK - "No change" is correct.
   - HINT - No change required here.
@
3.13
The event of January 4 required two changes on the balance sheet,
even though {1,8} side(s) of the balance sheet was (were) affected.
        (A) only one
        (B) both
*1
  - POST - {b}{a,6,13}{r}
ONLY ONE - OK - Correct.
A - OK - Correct.
BOTH - QUIT - No, only one side was affected.  Look again at Item 3.12.
B - QUIT - No, only one side was affected.  Look again at Item 3.12.
@
3.14
Each event that is recorded in the accounting records is called a
{b}transaction{n}.  When Glendale Market received $10,000 from John Smith and
deposited it in its bank account, this qualified as a transaction.
@
3.15
Each transaction you have recorded has caused changes in at least
{1,3} [how many?] item(s) on the balance sheet (not counting the changes in the
totals and in the date), even when only one side of the balance sheet was
affected.  This is true of all transactions, and this is why accounting
is called a {2,6} - ENTRY  system.
        (A) single
        (B) double
        (C) triple
*1
TWO - OK - Correct.
2 - OK - Correct.
ONE - QUIT - No, the correct answer is two.
1 - QUIT - No, the correct answer is two.
*2
  - POST - {b}{a,14,13}{r}
DOUBLE - OK - Correct.
B - OK - Correct.
SINGLE - QUIT - (B) is correct. A transaction causes at least two changes on the balance sheet.
A - QUIT - (B) is correct. A transaction causes at least two changes on the balance sheet.
TRIPLE - QUIT - (B) is correct. A transaction causes at least two changes on the balance sheet.
C - QUIT - (B) is correct. A transaction causes at least two changes on the balance sheet.
@
3.16
Earlier we described the fundamental accounting equation,
                      ASSETS = EQUITIES
If we were to record only {u}one{n} effect of a transaction, this equation
{1,9} continue to describe an equality.
        (A) would
        (B) would not
*1
  - POST - {b}{a,12,13}{r}
WOULD NOT - OK - Correct.
B - OK - Correct.
WOULD - QUIT - No, it would not describe an equality.
A - QUIT - No, it would not describe an equality.
@
3.17
The fundamental accounting equation, which says that {1,6}
equal {2,8}, was also referred to earlier in this program as the
{3,4} - ASPECT concept.
*1
ASSETS - OK - Correct.
  - HINT - "Assets" is correct.
*2
EQUITIES - OK - Correct.
  - HINT - "Equities" is correct.
*3
DUAL - OK - Correct.
  - HINT - "Dual" is correct.
@
3.18
When a business sells merchandise for $150 that cost it $50 to manu-
facture or acquire, the profit of $100 represents an increase of $100 in the
{u}owner's equity{n}.  In the case of Glendale Market, the owner's equity item is
titled "John Smith, Capital."  These facts will help you in the items that
follow.
@
3.19{s}

On January 5, Glendale Market sold merchandise for $300, receiving
cash.  The merchandise had cost $200.

Change the following January 4 balance sheet so that it reports the financial
condition on January 5.  Type your corrections alongside the old information.
Where no change is required, type "NC".  [If you cannot do this screen, skip
to the next without looking at the answers to this one.]

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 4
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $13,000     Note payable ................ $ 5,000

Inventory ...................   2,000     John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total          $15,000                    Total          $15,000

{a,11,52}{i}(4){n} {a,11,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,14,21} {i}(13,000){n} {a,14,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?
5 - OK - Correct.
  - HINT - What follows 4?
*2
  - POST - {a,16,21} {i}( 2,000){n} {a,16,32}{3,6}
  - POST - {a,21,1}What is the new value of Inventory?
13,300 - OK - Correct.
13300  - OK - Correct.
  - HINT - The new Cash value equals $13,000 plus $300.
*3
  - POST - {a,18,21} {i}(15,000){n} {a,18,32}{4,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 1,800 - OK - Correct.
1,800 - OK - Correct.
1800 - OK - Correct.
  - HINT - Inventory has been sold which cost Glendale $200.
*4
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{5,6}
  - POST - {a,21,1}What is the new value for Note payable?
15,100 - OK - Correct.
15100 - OK - Correct.
   - HINT - This day's sales have increased total assets by $100.
*5
  - POST - {a,14,63}{n}.........
  - POST - {a,16,63} {i}(10,000){n} {a,16,74}{6,6}
  - POST - {a,21,1}What is the new value for John Smith, Capital?
 5,000 - OK - Correct.
5,000 - OK - Correct.  You could also have replied with "NC".
5000 - OK - Correct.  You could also have replied with "NC".
NC - OK - "No change" is correct.
  - HINT - No change is necessary.
*6
  - POST - {a,18,63} {i}(15,000){n} {a,18,74}{7,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,100 - OK - Correct.
10100 - OK - Correct.
   - HINT - Remember, profit represents an increase in owners' equity.
*7
  - POST - {a,21,1}If you answered this screen correctly, you may skip to part 3 screen 26!
15,100 - OK - Good!
15100 - OK - Good!
   - HINT - Remember, assets equal equities.
@
3.20{s}

On January 5, Glendale Market sold merchandise for $300 cash
that cost $200.

To record this transaction, let us handle its individual parts separately.
Change the date.  Then, record {u}only{n} the amount of cash after the receipt
of the $300.  (Disregard, for the moment, any other changes, including
changes in totals.)

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 4
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $13,000     Note payable ................ $ 5,000

Inventory ...................   2,000     John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total          $15,000                    Total          $15,000

{a,11,52}{i}(4){n} {a,11,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,14,21} {i}(13,000){n} {a,14,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?
5 - OK - Correct.
  - HINT - What follows 4?
*2
  - POST - {a,21,1}Press "ENTER" to continue the example ...
13,300 - OK - Correct.
13300  - OK - Correct.
  - HINT - The new value of Cash equals $13,000 plus $300.
@
3.21{s}

On January 5, Glendale Market sold merchandise for $300 cash
that cost $200.

Next, record only the amount of inventory after this transaction.
(Disregard, for the moment, any other changes, including changes
in totals.)


{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(4){n} 5
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(13,000){n} $13,300     Note payable ................ $5,000

Inventory ...................   2,000     John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total          $15,000                    Total          $15,000

{a,16,21} {i}( 2,000){n} {a,16,32}{1,6}
{a,21,1}What is the new value of Inventory?
*1
  - POST - {a,21,1}Press "ENTER" to continue the example ...
 1,800 - OK - Correct.
1,800 - OK - Correct.
1800 - OK - Correct.
1,700 - NO - The inventory value of the merchandise sold was only $200.
1700 - NO - The inventory value of the merchandise sold was only $200.
  - HINT - Remaining inventory has a value of $2,000 minus $200.
@
3.22{s}

On January 5, Glendale Market sold merchandise for $300 cash
that cost $200.

Now total the assets as of the close of business on January 5, and show
the new total.


{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(4){n} 5
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(13,000){n} $13,300     Note payable ................ $5,000

Inventory .......... {i}( 2,000){n}   1,800     John Smith, Capital ......... 10,000
                             {l,8   }                                  {l,8   }
               Total          $15,000                    Total          $15,000

{a,18,21} {i}(15,000){n} {a,18,32}{1,6}
{a,21,1}What is the new Total for the assets column?
*1
  - POST - {a,21,1}Press "ENTER" to continue the example
15,100 - OK - Correct.
15100 - OK - Correct.
  - HINT - {c, ,50}{a,21,1}Assets total $13,300 plus $1,800.
@
3.23{s}

On January 5, Glendale Market sold merchandise for $300 cash that
cost $200.

{d}Evidently the transaction of January 5 caused a net {1,8}  of ${2,-3}{s}
        (A) decrease        (B) increase
in the assets of Glendale Market from what they had been at the close
of business on January 4.

{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(4){n} 5
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(13,000){n} $13,300     Note payable ................ $5,000

Inventory .......... {i}( 2,000){n}   1,800     John Smith, Capital ......... 10,000
                             {l,8   }                                  {l,8   }
               Total {i}(15,000){n} $15,100                      Total       $15,000

*1
  - POST - {a,6,33}{b}increase
INCREASE - OK - Correct.
B - OK - Correct.
DECREASE - QUIT - No, the total assets were HIGHER.
A - QUIT - No, the total assets were HIGHER.
*2
  - POST - {a,21,1}Press "ENTER" to continue the example ...
100 - OK - Correct.
  - HINT - There was an increase of $100.
@
3.24{s}

On January 5, Glendale Market sold merchandise for $300 that cost $200.
The assets of the entity increased by $100.  Now look at the equities column.
Who will claim this additional $100 of assets?  {1,15}
        (A) Note payable
        (B) John Smith
        (C) Glendale Market

{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(4){n} 5
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(13,000){n} $13,300     Note payable ................ $ 5,000

Inventory .......... {i}( 2,000){n}   1,800     John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total {i}(15,000){n} $15,100                      Total        $15,000

*1
  - POST - {a,6,13}{b}{r}
  - POST - {a,21,1}Press "ENTER" to continue the example ...
JOHN SMITH - OK - Correct.
B - OK - Correct.
  - HINT - The $100 profit is a $100 increase in the owner's equity.
@
3.25{g,5}{s}

On January 5, Glendale Market sold merchandise for $300 cash
that cost $200.

To complete this example, change the owner's equity appropriately, and
show the new total of the equities.



{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(4){n} 5
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(13,000){n} $13,300     Note payable ................ $ 5,000

Inventory .......... {i}( 2,000){n}   1,800     John Smith, Capital .........  10,000
                             {l,8   }                                  {l,8   }
               Total {i}(15,000){n} $15,100                  Total            $15,000

{a,16,63} {i}(10,000){n} {a,16,74}{1,6}
{a,21,1}What is the new value of John Smith, Capital?
*1
  - POST - {a,18,63} {i}(15,000){n} {a,18,74}{2,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,100 - OK - Correct.
10100 - OK - Correct.
  - HINT - The owner's equity has increased by $100.
*2
  - POST - {a,21,1}{c, ,75}
15,100 - OK - Good!
15100 - OK - Good!
  - HINT - Total equities have also increased by $100.
@
3.26{s}

On January 6, in order to increase its inventory, Glendale Market
purchased and received merchandise for $2,000, agreeing to pay within 30 days.

Change the following January 5 balance sheet so that it reports the financial
condition on January 6.  Recall that an obligation to pay another entity, such
as a vendor, is called an "Account payable."

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 5
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $13,300

Inventory ...................   1,800     Note payable ................   5,000

                                          John Smith, Capital .........  10,100
                             {l,8   }                                  {l,8   }
               Total          $15,100                    Total          $15,100

{a,10,52}{i}(5){n} {a,10,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(13,300){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?
6 - OK - Correct.
  - HINT - What follows 5?
*2
  - POST - {a,13,21}{n}.........
  - POST - {a,15,21} {i}( 1,800){n} {a,15,32}{3,6}
  - POST - {a,21,1}What is the new value of Inventory?
13,300 - OK - Correct.  You could also have typed "NC" for no change.
13300 - OK - Correct.  You could also have typed "NC" for no change.
NC - OK - Correct.
   - HINT - No change is required here.
*3
  - POST - {a,19,21} {i}(15,100){n} {a,19,32}{4,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 3,800 - OK - Correct.
3,800 - OK - Correct.
3800 - OK - Correct.
  - HINT - The value of Inventory has increased by $2,000.
*4
  - POST - {a,13,43}{5,15}
  - POST - {a,21,1}What term should be entered here?            {n}
17,100 - OK - Correct.
17100 - OK - Correct.
  - HINT - Assets have increased by $2,000.
*5
  - POST - {a,13,59}............. $
  - POST - {a,13,63} {i}(      ){n} {a,13,74}{6,6}
  - POST - {a,21,1}And the amount?                              {n}
ACCOUNT PAYABLE - OK - Correct.
*6
  - POST - {a,15,63} {i}( 5,000){n} {a,15,74}{7,6}
  - POST - {a,21,1}What is the new value of Note payable?
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
  - HINT - Merchandise worth $2,000 was purchased on credit.
*7
  - POST - {a,15,63}{n}.........
  - POST - {a,17,63} {i}(10,100){n} {a,17,74}{8,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 5,000 - OK - Correct.
5,000 - OK - Correct.  You could also have typed "NC".
5000 - OK - Correct.  You could also have typed "NC".
NC - OK - Correct.
  - HINT - No change is required here.
*8
  - POST - {a,17,63}{n}.........
  - POST - {a,19,63} {i}(15,100){n} {a,19,74}{9,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,100 - OK - Correct.
10100 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*9
  - POST - {a,21,1}{c, ,75}
17,100 - OK - Correct.
17100 - OK - Correct.
  - HINT - Remember, equities equal assets.
@
3.27{s}

On January 7, merchandise costing $500 was sold for $800, which
was received in cash.

Change the following January 6 balance sheet so that it reports the financial
condition on January 7.


{b}                             GLENDALE MARKET
                       Balance Sheet as of January 6
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $13,300     Account payable ............. $ 2,000

Inventory ...................   3,800     Note payable ................   5,000

                                          John Smith, Capital .........  10,100
                             {l,8   }                                  {l,8   }
               Total          $17,100                    Total          $17,100

{a,10,52}{i}(6){n} {a,10,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(13,300){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?              {n}
7 - OK - Correct.
  - HINT - What follows 6?
*2
  - POST - {a,15,21} {i}( 3,800){n} {a,15,32}{3,6}
  - POST - {a,21,1}What is the new value of Inventory?
14,100 - OK - Correct.
14100 - OK - Correct.
   - HINT - Cash assets have increased by $800.
*3
  - POST - {a,19,21} {i}(17,100){n} {a,19,32}{4,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 3,300 - OK - Correct.
3,300 - OK - Correct.
3300 - OK - Correct.
  - HINT - The value of Inventory has decreased by $500.
*4
  - POST - {a,13,63} {i}( 2,000){n} {a,13,74}{5,6}
  - POST - {a,21,1}What is the new value of Account payable?    {n}
17,400 - OK - Correct.
17400 - OK - Correct.
  - HINT - A net profit of $300 has been realized.
*5
  - POST - {a,13,63}{n}.........
  - POST - {a,15,63} {i}( 5,000){n} {a,15,74}{6,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.  You could also have typed "NC".
2,000 - OK - Correct.  You could also have typed "NC".
2000 - OK - Correct.  You could also have typed "NC".
NC - OK - Correct.
  - HINT - No change is necessary here.
*6
  - POST - {a,15,63}{n}.........
  - POST - {a,17,63} {i}(10,100){n} {a,17,74}{7,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*7
  - POST - {a,19,63} {i}(17,100){n} {a,19,74}{8,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,400 - OK - Correct.
10400 - OK - Correct.
  - HINT - A $300 profit represents a $300 increase in owner's equity.
*8
  - POST - {a,21,1}{c, ,75}
17,400 - OK - Correct.
17400 - OK - Correct.
  - HINT - Remember, total equities always equal total assets.
@
3.28 {s}

On January 8, merchandise costing $600 was sold for $900.  The customer
agreed to pay $900 within 30 days.  (Recall that when a customer agrees to pay
the entity, the entity has an asset called an "Account receivable.")

Change the following January 7 balance sheet so that it reports the financial
condition on January 8.

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 7
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $14,100     Account payable ............. $ 2,000

                                          Note payable ................   5,000

Inventory ...................   3,300     John Smith, Capital .........  10,400
                             {l,8   }                                  {l,8   }
               Total          $17,400                    Total          $17,400

{a,10,52}{i}(7){n} {a,10,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(14,100){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?              {n}
8 - OK - Correct.
  - HINT - What follows 7?
*2
  - POST - {a,13,21}{n}.........
  - POST - {a,15,1}{3,18,9}
  - POST - {a,21,1}What term belongs here?                      {n}
14,100 - OK - Correct.
14100 - OK - Correct.
NC - OK - Correct.
   - HINT - No change is necessary.
*3
  - POST - {a,15,21} {i}(      ){n} {a,15,32}{4,6}
  - POST - {a,21,1}And the amount?                              {n}
ACCOUNT RECEIVABLE - OK - Correct.
  - HINT - Glendale has acquired an Account receivable.
*4
  - POST - {a,17,21} {i}( 3,300){n} {a,17,32}{5,6}
  - POST - {a,21,1}What is the new value of Inventory?
   900 - OK - Correct.
900 - OK - Correct.
  - HINT - The customer agreed to pay $900 within 30 days.
*5
  - POST - {a,19,21} {i}(17,400){n} {a,19,32}{6,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 2,700 - OK - Correct.
2,700 - OK - Correct.
2700 - OK - Correct.
  - HINT - The value of Inventory has decreased by $600.
*6
  - POST - {a,13,63} {i}( 2,000){n} {a,13,74}{7,6}
  - POST - {a,21,1}What is the new value of Account payable?    {n}
17,700 - OK - Correct.
17700 - OK - Correct.
  - HINT - A net profit of $300 has been realized.
*7
  - POST - {a,13,63}{n}.........
  - POST - {a,15,63} {i}( 5,000){n} {a,15,74}{8,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.  You could also have typed "NC".
2,000 - OK - Correct.  You could also have typed "NC".
2000 - OK - Correct.  You could also have typed "NC".
NC - OK - Correct.
  - HINT - No change is necessary here.
*8
  - POST - {a,15,63}{n}.........
  - POST - {a,17,63} {i}(10,400){n} {a,17,74}{9,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*9
  - POST - {a,19,63} {i}(17,400){n} {a,19,74}17,700
  - POST - {a,21,1}(The new Total for the equities column has been filled in for you.)
10,700 - OK - Correct.
10700 - OK - Correct.
  - HINT - A $300 profit represents a $300 increase in owner's equity.
@
3.29a{s}

On January 9, Glendale Market purchased a one-year insurance policy
for $200, paying cash.  (Recall that the right to insurance protection is an
asset, called "Prepaid insurance.")

Change the following January 8 balance sheet so that it reports the financial
condition on January 9.

{b}                             GLENDALE MARKET
                       Balance Sheet as of January 8
{b}        ASSETS                                     EQUITIES
{l,37}     {l,37}
Cash ........................ $14,100     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700     John Smith, Capital .........  10,700

                  {l,8   }                        {l,8   }
               Total          $17,700             Total          $17,700

{a,10,52}{i}(8){n} {a,10,56}{1,1}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(14,100){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?        {n}
9 - OK - Correct.
  - HINT - What follows 8?
*2
  - POST - {a,14,21} {i}(   900){n} {a,14,32}{3,6}
  - POST - {a,21,1}What is the new value of Account receivable?
13,900 - OK - Correct.
13900 - OK - Correct.
   - HINT - Glendale just paid out $200 cash.
*3
  - POST - {a,14,21}{n}.........
  - POST - {a,15,21} {i}( 2,700){n} {a,15,32}{4,6}
  - POST - {a,21,1}What is the new value of Inventory?        {n}
   900 - OK - Correct.
900 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*4
  - POST - {a,15,21}{n}.........
  - POST - {a,16,1}{5,17,11}
  - POST - {a,21,1}What term belongs here?            {n}
 2,700 - OK - Correct.
2,700 - OK - Correct.
2700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*5
  - POST - {a,16,19}..
  - POST - {a,16,21} {i}(      ){n} {a,16,32}{6,6}
  - POST - {a,21,1}And the amount?                {n}
PREPAID INSURANCE - OK - Correct.
  - HINT - No.  (Reread hint at top of screen.)
*6
  - POST - {a,18,21} {i}(17,700){n} {a,18,32}{7,6}
  - POST - {a,21,1}What is the new Total for the assets column?
   200 - OK - Correct.
200 - OK - Correct.
  - HINT - The one-year policy cost $200.
*7
  - POST - {a,18,21}{n}{c, ,9}
  - POST - {a,21,1}Press "ENTER" to continue with the right side ...
17,700 - OK - Correct.
17700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change has occurred in the total.
@
3.29b{s}

On January 9, Glendale Market purchased a one-year insurance policy
for $200, paying cash.  (Recall that the right to insurance protection is an
asset, called "Prepaid insurance.")

Change the following January 8 balance sheet so that it reports the financial
condition on January 9.

{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(8){n} 9
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(14,100){n} $13,900     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700     John Smith, Capital .........  10,700
Prepaid insurance .. {i}(      ){n}     200
                             {l,8   }                                  {l,8   }
               Total          $17,700                    Total          $17,700

{a,13,63} {i}( 2,000){n} {a,13,74}{1,6}
{a,21,1}What is the new value of Account payable?
*1
  - POST - {a,13,63}{n}.........
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{2,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*2
  - POST - {a,14,63}{n}.........
  - POST - {a,15,63} {i}(10,700){n} {a,15,74}{3,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*3
  - POST - {a,15,63}{n}.........
  - POST - {a,18,63} {i}(17,700){n} {a,18,74}{4,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,700 - OK - Correct.
10700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*4
  - POST - {a,18,63}{n}{c, ,9}
  - POST - {a,21,1}{c, ,75}
17,700 - OK - Correct.
17700 - OK - Correct.
NC - OK - Good!
  - HINT - No change has occurred in the equity total.
@
3.30
When a business borrows money, it may pledge some of its real
estate (land, buildings, etc.) as security for a loan.  A pledge of real
estate as security for a loan is termed a {b}mortgage{n}.  When a business
borrows, it has a {b}payable{n}.  Thus the accounting term for a loan secured
by a mortgage is {1,16},
        (A) Note payable    (B) Account payable    (C) Mortgage payable
which is a(n) {2,9}.
        (D) asset       (E) liability
*1
  - POST - {b}{a,12,56}{r}
MORTGAGE PAYABLE - OK - Correct.
C - OK - Correct.
NOTE PAYABLE - NO - Well, a mortgage IS a note, but there is a better term.
A - NO - Well, a mortgage IS a note, but there is a better term.
ACCOUNT PAYABLE - NO - No, an Account payable usually applies to a vendor.
B - NO - No, an Account payable usually applies to a vendor.
*2
  - POST - {b}{a,16,29}{r}
LIABILITY - OK - Correct.
E - OK - Correct.
ASSET - QUIT - No, a mortgage can't be an asset.
D - QUIT - No, a mortgage can't be an asset.
@
3.31a{s}

On January 10, Glendale Market purchased two lots of land of equal size
for a total of $10,000.  It thereby acquired an asset, Land.  It paid $2,000
in cash and gave a ten-year mortgage for the balance of $8,000.

Change the following January 9 balance sheet so that it reports the financial
condition on January 10.

{b}                          GLENDALE MARKET
                       Balance Sheet as of January 9
{b}        ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $13,900     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700
Prepaid insurance ...........     200     John Smith, Capital .........  10,700

                        {l,8   }                                  {l,8   }
               Total          $17,700             Total          $17,700

{a,10,60}{i}(9){n} {a,10,64}{1,2}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(13,900){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?        {n}
10 - OK - Correct.
  - HINT - What follows 9?
*2
  - POST - {a,14,21} {i}(   900){n} {a,14,32}{3,6}
  - POST - {a,21,1}What is the new value of Account receivable?
11,900 - OK - Correct.
11900 - OK - Correct.
   - HINT - Glendale just paid out $2000 cash.
*3
  - POST - {a,14,21}{n}.........
  - POST - {a,15,21} {i}( 2,700){n} {a,15,32}{4,6}
  - POST - {a,21,1}What is the new value of Inventory?        {n}
   900 - OK - Correct.
900 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*4
  - POST - {a,15,21}{n}.........
  - POST - {a,16,21} {i}(   200){n} {a,16,32}{5,6}
  - POST - {a,21,1}What is the new value of Prepaid insurance?
 2,700 - OK - Correct.
2,700 - OK - Correct.
2700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*5
  - POST - {a,16,21}{n}.........
  - POST - {a,17,1}{6,9}
  - POST - {a,21,1}What term belongs here?            {n}
   200 - OK - Correct.
200 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*6
  - POST - {a,17,6}...............
  - POST - {a,17,21} {i}(      ){n} {a,17,32}{7,6}
  - POST - {a,21,1}And the value?                {n}
LAND - OK - Correct.
  - HINT - A new asset called Land has been acquired.
*7
  - POST - {a,19,21} {i}(17,700){n} {a,19,32}{8,6}
  - POST - {a,21,1}What is the new Total for the assets column?
10,000 - OK - Correct.
10000 - OK - Correct.
  - HINT - The two lots together cost $10,000.
*8
  - POST - {a,21,1}Press "ENTER" to continue with the right side ...
25,700 - OK - Correct.
25700 - OK - Correct.
  - HINT - Net assets have increased by $8,000.
@
3.31b{g,5} {s}

On January 10, Glendale Market purchased two lots of land of equal size
for a total of $10,000.  It thereby acquired an asset, Land.  It paid $2,000
in cash and gave a ten-year mortgage for the balance of $8,000.

Change the following January 9 balance sheet so that it reports the financial
condition on January 10.

{b}                             GLENDALE MARKET
                       Balance Sheet as of January {i}(9){n} 10
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(13,900){n} $11,900     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700
Prepaid insurance ...........     200     John Smith, Capital .........  10,700
Land ............... {i}(      ){n}  10,000
                             {l,8   }                                  {l,8   }
               Total {i}(17,700){n} $25,700                    Total          $17,700

{a,13,63} {i}( 2,000){n} {a,13,74}{1,6}
{a,21,1}What is the new value of Account payable?
*1
  - POST - {a,13,63}{n}.........
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{2,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*2
  - POST - {a,14,63}{n}.........
  - POST - {a,15,43}{3,16,10}
  - POST - {a,21,1}What term belongs here?                      {n}
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*3
  - POST - {a,15,60}...
  - POST - {a,15,63} {i}(      ){n} {a,15,74}{4,6}
  - POST - {a,21,1}And the amount?                              {n}
MORTGAGE PAYABLE - OK - Correct.
  - HINT - We need an entry called Mortgage payable.
*4
  - POST - {a,16,63} {i}(10,700){n} {a,16,74}{5,6}
  - POST - {a,21,1}What is the new value for John Smith, Capital?
 8,000 - OK - Correct.
8,000 - OK - Correct.
8000 - OK - Correct.
  - HINT - A mortgage was given for the $8,000 balance.
*5
  - POST - {a,16,63}{n}.........
  - POST - {a,19,63} {i}(17,700){n} {a,19,74}{6,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,700 - OK - Correct.
10700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*6
  - POST - {a,21,1}{c, ,75}
25,700 - OK - Correct.
25700 - OK - Correct.
  - HINT - Remember that equities equal assets.
@
3.32a{s}

On January 11, Glendale Market sold one of the two lots of land for
$5,000.  The buyer paid $1,000 cash and assumed $4,000 of the mortgage; that
is, Glendale was no longer responsible for this half of the mortgage payable.

Change the following January 10 balance sheet so that it reports the financial
condition on January 11.

{b}                          GLENDALE MARKET
                        Balance Sheet as of January 10
{b}        ASSETS                               EQUITIES
{l,37}     {l,37}
Cash ........................ $11,900     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700     Mortgage payable ............   8,000
Prepaid insurance ...........     200     John Smith, Capital .........  10,700
Land ........................  10,000
                        {l,8   }                          {l,8   }
               Total          $25,700             Total          $25,700

{a,10,59}{i}(10){n} {a,10,64}{1,2}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(11,900){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?        {n}
11 - OK - Correct.
  - HINT - What follows 10?
*2
  - POST - {a,14,21} {i}(   900){n} {a,14,32}{3,6}
  - POST - {a,21,1}What is the new value of Account receivable?
12,900 - OK - Correct.
12900 - OK - Correct.
   - HINT - Glendale just received a $1,000 cash payment.
*3
  - POST - {a,14,21}{n}.........
  - POST - {a,15,21} {i}( 2,700){n} {a,15,32}{4,6}
  - POST - {a,21,1}What is the new value of Inventory?        {n}
   900 - OK - Correct.
900 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*4
  - POST - {a,15,21}{n}.........
  - POST - {a,16,21} {i}(   200){n} {a,16,32}{5,6}
  - POST - {a,21,1}What is the new value of Prepaid insurance?
 2,700 - OK - Correct.
2,700 - OK - Correct.
2700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*5
  - POST - {a,16,21}{n}.........
  - POST - {a,17,21} {i}(10,000){n} {a,17,32}{6,6}
  - POST - {a,21,1}What is the new value of Land?        {n}
   200 - OK - Correct.
200 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*6
  - POST - {a,19,21} {i}(25,700){n} {a,19,32}{7,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
  - HINT - $5,000 worth of a $10,000 property has been sold.
*7
  - POST - {a,21,1}Press "ENTER" to continue with the right side ...
21,700 - OK - Correct.
21700 - OK - Correct.
  - HINT - The net assets have decreased by $4,000.
@
3.32b{s}{g,5}

On January 11, Glendale Market sold one of the two lots of land for
$5,000.  The buyer paid $1,000 cash and assumed $4,000 of the mortgage; that
is, Glendale was no longer responsible for this half of the mortgage payable.

Change the following January 10 balance sheet so that it reports the financial
condition on January 11.

{b}                             GLENDALE MARKET
                      Balance Sheet as of January {i}(10){n} 11
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(11,900){n} $12,900     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700     Mortgage payable ............   8,000
Prepaid insurance ...........     200     John Smith, Capital .........  10,700
Land ............... {i}(10,000){n}   5,000
                             {l,8   }                                  {l,8   }
               Total {i}(25,700){n} $21,700                    Total          $25,700

{a,13,63} {i}( 2,000){n} {a,13,74}{1,6}
{a,21,1}What is the new value of Account payable?
*1
  - POST - {a,13,63}{n}.........
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{2,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*2
  - POST - {a,14,63}{n}.........
  - POST - {a,15,63} {i}( 8,000){n} {a,15,74}{3,6}
  - POST - {a,21,1}What is the new value of Mortgage payable?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*3
  - POST - {a,16,63} {i}(10,700){n} {a,16,74}{4,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 4,000 - OK - Correct.
4,000 - OK - Correct.
4000 - OK - Correct.
  - HINT - Half of the mortgage has been assumed by someone else.
*4
  - POST - {a,16,63}{n}.........
  - POST - {a,19,63} {i}(25,700){n} {a,19,74}{5,6}
  - POST - {a,21,1}What is the new Total for the equities column?
10,700 - OK - Correct.
10700 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*5
  - POST - {a,21,1}{c, ,75}
21,700 - OK - Good!
21700 - OK - Good!
  - HINT - Assets equal equities.
@
3.33
On January 12, Smith received an offer of $15,000 for his equity in
the business.  Although his equity was then only $10,700, he rejected the
offer.  It was evident that the store had already acquired goodwill of
$4,300.
Which items should be changed in (or added to) the January 11 balance sheet
so that it reports the financial condition on January 12?   {1,-1}
        (A) Only the date.
        (B) Date, Goodwill, and John Smith, Capital.
        (C) Date, John Smith, Capital, and Account receivable.

*1
  - POST - {b}{a,14,13}{r}
A - OK - {a,21,1}Correct.  In accordance with the cost concept, goodwill is an asset only {a,22,1}when it has been paid for.
B - QUIT - {a,20,1}No, the balance sheet is unchanged from that of January 11, except for {a,21,1}the date.  In accordance with the cost concept, goodwill is an asset only {a,22,1}when it has been paid for.
C - QUIT - {a,20,1}No, the balance sheet is unchanged from that of January 11, except for {a,21,1}the date.  In accordance with the cost concept, goodwill is an asset only {a,22,1}when it has been paid for.
@
3.34a{s}

On January 13, Smith withdrew for his personal use $500 cash from the
Glendale Market bank account, and he also withdrew merchandise costing $400.

Change the following January 12 balance sheet so that it shows the financial
condition on January 13.


{b}                          GLENDALE MARKET
                      Balance Sheet as of January 12
{b}        ASSETS                                  EQUITIES
{l,37}     {l,37}
Cash ........................ $12,900     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,700     Mortgage payable ............   4,000
Prepaid insurance ...........     200     John Smith, Capital .........  10,700
Land ........................   5,000
                  {l,8   }                            {l,8   }
               Total          $21,700             Total          $21,700

{a,10,59}{i}(12){n} {a,10,64}{1,2}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(12,900){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?        {n}
13 - OK - Correct.
  - HINT - What follows 12?
*2
  - POST - {a,14,21} {i}(   900){n} {a,14,32}{3,6}
  - POST - {a,21,1}What is the new value of Account receivable?
12,400 - OK - Correct.
12400 - OK - Correct.
   - HINT - $500 was just withdrawn from the Glendale account.
*3
  - POST - {a,14,21}{n}.........
  - POST - {a,15,21} {i}( 2,700){n} {a,15,32}{4,6}
  - POST - {a,21,1}What is the new value of Inventory?        {n}
   900 - OK - Correct.
900 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*4
  - POST - {a,16,21} {i}(   200){n} {a,16,32}{5,6}
  - POST - {a,21,1}What is the new value of Prepaid insurance?
 2,300 - OK - Correct.
2,300 - OK - Correct.
2300 - OK - Correct.
  - HINT - Smith withdrew inventory worth $400.
*5
  - POST - {a,16,21}{n}.........
  - POST - {a,17,21} {i}( 5,000){n} {a,17,32}{6,6}
  - POST - {a,21,1}What is the new value of Land?            {n}
   200 - OK - Correct.
200 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*6
  - POST - {a,17,21}{n}.........
  - POST - {a,19,21} {i}(21,700){n} {a,19,32}{7,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*7
  - POST - {a,21,1}Press "ENTER" to continue with the right side ...
20,800 - OK - Correct.
20800 - OK - Correct.
  - HINT - The net assets have decreased by $900.
@
3.34b{s}{g,5}

On January 13, Smith withdrew for his personal use $500 cash from the
Glendale Market bank account, and he also withdrew merchandise costing $400.

Change the following January 12 balance sheet so that it shows the financial
condition on January 13.


{b}                             GLENDALE MARKET
                      Balance Sheet as of January {i}(12){n} 13
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(12,900){n} $12,400     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory .......... {i}( 2,700){n}   2,300     Mortgage payable ............   4,000
Prepaid insurance ...........     200     John Smith, Capital .........  10,700
Land ........................   5,000
                             {l,8   }                                  {l,8   }
               Total {i}(21,700){n} $20,800                    Total          $21,700

{a,13,63} {i}( 2,000){n} {a,13,74}{1,6}
{a,21,1}What is the new value of Account payable?
*1
  - POST - {a,13,63}{n}.........
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{2,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*2
  - POST - {a,14,63}{n}.........
  - POST - {a,15,63} {i}( 4,000){n} {a,15,74}{3,6}
  - POST - {a,21,1}What is the new value of Mortgage payable?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*3
  - POST - {a,15,63}{n}.........
  - POST - {a,16,63} {i}(10,700){n} {a,16,74}{4,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 4,000 - OK - Correct.
4,000 - OK - Correct.
4000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change necessary here.
*4
  - POST - {a,19,63} {i}(21,700){n} {a,19,74}{5,6}
  - POST - {a,21,1}What is the new Total for the equities column?
 9,800 - OK - Correct.
9,800 - OK - Correct.
9800 - OK - Correct.
  - HINT - Smith withdrew $900 in assets, so his equity will decrease.
*5
  - POST - {a,21,1}{c, ,75}
20,800 - OK - Good!
20800 - OK - Good!
  - HINT - Assets equal equities.
@
3.35
On January 14, Smith learned that the person who purchased the land
on January 11 for $5,000 sold it for $8,000.  The lot still owned by Glendale
Market was identical in value with this other plot.
Which items should be changed in the January 13 balance sheet so that it
reports the financial condition on January 14?   {1,-1}
        (A) Date, John Smith, Capital, and Land.
        (B) Date, Land, and Mortgage payable.
        (C) Only the date.

*1
  - POST - {b}{a,16,13}{r}
  - POST - {a,22,1}As required by the cost concept, the land continues to be shown at its cost.
C - OK - {a,21,1}Correct.
A - QUIT - {a,21,1}No, the balance sheet is identical to that of January 13, except for the date.
B - QUIT - {a,21,1}No, the balance sheet is identical to that of January 13, except for the date.
@
3.36a{s}

On January 15, Glendale Market paid off $2,000 of its bank loan, giving
cash (disregard interest).

Change the following January 14 balance sheet so that it reports the financial
condition on January 15.


{b}                           GLENDALE MARKET
                      Balance Sheet as of January 14
{b}        ASSETS                               EQUITIES
{l,37}     {l,37}
Cash ........................ $12,400     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,300     Mortgage payable ............   4,000
Prepaid insurance ...........     200     John Smith, Capital .........   9,800
Land ........................   5,000
                  {l,8   }                                {l,8   }
               Total          $20,800             Total          $20,800

{a,10,59}{i}(14){n} {a,10,64}{1,2}
{a,21,1}What should the new date be?
*1
  - POST - {a,13,21} {i}(12,400){n} {a,13,32}{2,6}
  - POST - {a,21,1}What is the new value for Cash?        {n}
15 - OK - Correct.
  - HINT - What follows 14?
*2
  - POST - {a,14,21} {i}(   900){n} {a,14,32}{3,6}
  - POST - {a,21,1}What is the new value of Account receivable?
10,400 - OK - Correct.
10400 - OK - Correct.
   - HINT - $2,000 was just paid out of Glendale's cash account.
*3
  - POST - {a,14,21}{n}.........
  - POST - {a,15,21} {i}( 2,300){n} {a,15,32}{4,6}
  - POST - {a,21,1}What is the new value of Inventory?        {n}
   900 - OK - Correct.
900 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*4
  - POST - {a,15,21}{n}.........
  - POST - {a,16,21} {i}(   200){n} {a,16,32}{5,6}
  - POST - {a,21,1}What is the new value of Prepaid insurance?
 2,300 - OK - Correct.
2,300 - OK - Correct.
2300 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary.
*5
  - POST - {a,16,21}{n}.........
  - POST - {a,17,21} {i}( 5,000){n} {a,17,32}{6,6}
  - POST - {a,21,1}What is the new value of Land?            {n}
   200 - OK - Correct.
200 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is required here.
*6
  - POST - {a,17,21}{n}.........
  - POST - {a,19,21} {i}(20,800){n} {a,19,32}{7,6}
  - POST - {a,21,1}What is the new Total for the assets column?
 5,000 - OK - Correct.
5,000 - OK - Correct.
5000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*7
  - POST - {a,21,1}Press "ENTER" to continue with the right side ...
18,800 - OK - Correct.
18800 - OK - Correct.
  - HINT - The net assets have decreased by $2,000.
@
3.36b{s}{g,5}

On January 15, Glendale Market paid off $2,000 of its bank loan, giving
cash (disregard interest).

Change the following January 14 balance sheet so that it reports the financial
condition on January 15.


{b}                             GLENDALE MARKET
                      Balance Sheet as of January {i}(14){n} 15
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ............... {i}(12,400){n} $10,400     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   5,000
Inventory ...................   2,300     Mortgage payable ............   4,000
Prepaid insurance ...........     200     John Smith, Capital .........   9,800
Land ........................   5,000
                             {l,8   }                                  {l,8   }
               Total {i}(20,800){n} $18,800                    Total          $20,800

{a,13,63} {i}( 2,000){n} {a,13,74}{1,6}
{a,21,1}What is the new value of Account payable?
*1
  - POST - {a,13,63}{n}.........
  - POST - {a,14,63} {i}( 5,000){n} {a,14,74}{2,6}
  - POST - {a,21,1}What is the new value of Note payable?               {n}
 2,000 - OK - Correct.
2,000 - OK - Correct.
2000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is necessary here.
*2
  - POST - {a,15,63} {i}( 4,000){n} {a,15,74}{3,6}
  - POST - {a,21,1}What is the new value of Mortgage payable?
 3,000 - OK - Correct.
3,000 - OK - Correct.
3000 - OK - Correct.
  - HINT - The amount owed on this note has been reduced by $2,000.
*3
  - POST - {a,15,63}{n}.........
  - POST - {a,16,63} {i}( 9,800){n} {a,16,74}{4,6}
  - POST - {a,21,1}What is the new value of John Smith, Capital?
 4,000 - OK - Correct.
4,000 - OK - Correct.
4000 - OK - Correct.
NC - OK - Correct.
  - HINT - No change necessary here.
*4
  - POST - {a,16,63}{n}.........
  - POST - {a,19,63} {i}(20,800){n} {a,19,74}{5,6}
  - POST - {a,21,1}What is the new Total for the equities column?
 9,800 - OK - Correct.
9,800 - OK - Correct.
9800 - OK - Correct.
NC - OK - Correct.
  - HINT - No change is needed here.
*5
  - POST - {a,21,1}{c, ,75}
18,800 - OK - Good!
18800 - OK - Good!
  - HINT - Assets equal equities.
@
3.37{s}

On January 16, Glendale Market was changed to a corporation, Glendale
Market, Inc.  John Smith received 100 shares of common stock in exchange for
his $9,800 equity in the business.  (Disregard costs of organizing the
corporation.  Note that this event changes the title of the balance sheet.)

Change the following January 15 balance sheet so that it reports the financial
condition on January 16.  You may consult Exhibit 2 if necessary.

{b}                          GLENDALE MARKET
                        Balance Sheet as of January 15
{b}             ASSETS                                   EQUITIES
Cash ........................ $10,400     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   3,000
Inventory ...................   2,300     Mortgage payable ............   4,000
Prepaid insurance ...........     200     John Smith, Capital .........   9,800
Land ........................   5,000
                             {l,8   }                                  {l,8   }
               Total          $18,800                    Total          $18,800

{a,10,45}{1,6}
{a,20,1}What is the appropriate new title?
*1
  - POST - {a,10,46}{i} INC.{n}
  - POST - {a,11,23}Balance Sheet as of January {i}(15){n} {a,11,56}{2,2}
  - POST - {a,20,1}What should the new date be?                 {n}
, INC. - OK - Correct.
,INC. - OK - Correct.
, INC - OK - Correct.
,INC - OK - Correct.
INC. - OK - Correct.
INC - OK - Correct.
INCORP - OK - Correct.
*2
  - POST - {a,20,1}Do any monetary values on this balance sheet need changing?  {3,3}  (Yes or No)
16 - OK - Correct.
  - HINT - What follows 15?
*3
  - POST - {a,20,1}Now make the appropriate change in the owner equity line.                    {n}
  - POST - {a,16,43}{4,19,8}
  - POST - {a,17,43}{i}John Smith, Capital{n}
NO - OK - Correct.  No monetary changes are necessary.
N - OK - Correct.  No monetary changes are necessary.
YES - QUIT - No.  No monetary changes are necessary.
Y - QUIT - No.  No monetary changes are necessary.
  - HINT - No monetary changes are necessary.
*4
  - POST - {a,16,56}.........
  - POST - {a,20,1}Press ENTER for a further note.                              {n}
COMMON STOCK - OK - Right.
  - HINT - The term used in Exhibit 2 is "Common stock."
@

({b}Note{n}: In practice, when a store incorporates, the accountant would establish
a new set of records for the new business entity, rather than simply changing
the name of owners' equity.)
@
3.38a {s}

On January 17, Smith sold 25 shares of his Glendale Market, Inc.,
common stock for $4,000 cash.

Change the following January 16 balance sheet so that it reports the financial
condition on January 17.


{b}                          GLENDALE MARKET, INC.
                      Balance Sheet as of January 16
{b}             ASSETS                                   EQUITIES
{l,37}     {l,37}
Cash ........................ $10,400     Account payable ............. $ 2,000
Account receivable ..........     900     Note payable ................   3,000
Inventory ...................   2,300     Mortgage payable ............   4,000
Prepaid insurance ...........     200     Common stock ................   9,800
Land ........................   5,000
                             {l,8   }                                  {l,8   }
               Total          $18,800                    Total          $18,800

{a,10,51}{i}(16){n} {a,10,56}{1,2}
{a,20,1}What should the new date be?
*1
  - POST - {a,20,1}Need any other changes be made on this balance sheet?  {2,3}  (Yes or No)
17 - OK - Correct.
  - HINT - What follows 16?
*2
NO - OK - That's right.
N - OK - That's right.
YES - QUIT - No, no other changes are needed.  More information on next screen.
Y - QUIT - No, no other changes are needed.  More information on next screen.
@
3.38b
What concept was illustrated by the transaction of January 17?   {1,-1}
    (A) the cost concept
    (B) the double-entry system
    (C) the entity concept
*1
  - POST - {a,8,13}{b}{r}
  - POST - {a,20,1}This transaction affected Smith the person, but it had no effect on the
  - POST - {a,21,1}entity, Glendale Market, Inc.  This illustrates the entity concept.
C - OK - Correct.
A - NO - No, no changes were made which involve cost.
B - NO - No, no balance sheet changes were made.
@
3.39
Any conceivable transaction can be recorded in terms of its effect on
the balance sheet, just as you have done in this section.  Although we shall
describe techniques, refinements, and shortcuts in later sections, none of
them changes this basic fact.
@
3.40a  Income Statement
Exhibit 3 shows a summary of the balance sheets for Glendale Market
that you prepared for each day, January 2 through January 8.

To answer the questions on the next screen you will probably need to refer to
Exhibit 3.
@
3.40b{s}

Exhibit 3 shows the balance sheets for Glendale Market that you
prepared for each day, January 2 through January 8.

In the table below, enter the dollar amount of CHANGE in owner's equity, if
any, that resulted from each transaction.  If a transaction had no effect on
owner's equity, respond by typing "NC" (no change).

{b}                          Effect on Owner's Equity
    {b}    Date    Nature       Increased by       No change
        {l,4}    {l,9    }    {l,12      }       {l,9}
           3    Borrowing     $                   (   )
           4    Purchase                          (   )
           5    Sale                              (   )
           6    Purchase                          (   )
           7    Sale                              (   )
           8    Sale                              (   )
                             {l,12}
                       Total  $
{a,21,1}By how much did borrowing money on January 3 increase owner's equity?
{a,12,37}{1,5}
*1
  - POST - {a,12,37}    {c,196} {a,12,57}x {a,21,1}{c, ,78}
  - POST - {a,21,1}By how much did the purchase on January 4 increase owner's equity?
  - POST - {a,13,37}{2,5}
NC - OK - Correct.
0 - OK - Correct.
  - HINT - Borrowing did not affect owner's equity on January 3.
*2
  - POST - {a,13,37}    {c,196} {a,13,57}x {a,21,1}{c, ,78}
  - POST - {a,21,1}By how much did the sale on January 5 increase owner's equity?
  - POST - {a,14,37}{3,5}
NC - OK - Correct.
0 - OK - Correct.
  - HINT - The January 4 purchase caused no change in owner's equity.
*3
  - POST - {a,21,1}By how much did the purchase on January 6 increase owner's equity?
  - POST - {a,15,37}{4,5}
  100 - OK - Correct.
100 - OK - Correct.
  - HINT - The January 5 sale caused owner's equity to increase by $100.
*4
  - POST - {a,15,37}    {c,196} {a,15,57}x
  - POST - {a,21,1}By how much did the sale on January 7 increase owner's equity?        {n}
  - POST - {a,16,37}{5,5}
NC - OK - Correct.
0 - OK - Correct.
  - HINT - The January 6 purchase caused no change in owner's equity.
*5
  - POST - {a,21,1}By how much did the sale on January 8 increase owner's equity?
  - POST - {a,17,37}{6,5}
  300 - OK - Correct.
300 - OK - Correct.
  - HINT - The sale on January 7 caused owner's equity to increase by $300.
*6
  - POST - {a,21,1}Finally, what was the total increase in owner's equity over this period?
  - POST - {a,19,37}{7,5}
  300 - OK - Correct.
300 - OK - Correct.
  - HINT - The sale on January 8 caused owner's equity to increase by $300.
*7
  - POST - {a,21,1}{c, ,78}
  700 - OK - Good!
700 - OK - Good!
  - HINT - $100 + $300 + $300 = $700.
@
3.41
As can be seen from the table, three of these transactions did not
affect owner's equity.  Borrowing money does not affect owner's equity.
The purchase of merchandise does not affect owner's equity.  However, the
sale of that merchandise {u}does{n} affect owner's equity.
{s}
{b}                        Effect on Owner's Equity
        {b}    Date    Nature       Increased by       No change
            {l,4}    {l,9    }    {l,12      }       {l,9}
               3    Borrowing     $     -             ( x )
               4    Purchase            -             ( x )
               5    Sale              100             (   )
               6    Purchase            -             ( x )
               7    Sale              300             (   )
               8    Sale              300             (   )
                                 {l,12}
                           Total  $   700
@
3.42
The amount by which owner's equity increased as a result of operations
during a period of time is called the {b}income{n} of that period.  We have just
calculated that the total increase during the period January 3 through 8 was
$700, so Glendale Market's {1,6} for that period was $700.
        (A) income
        (B) equity
*1
  - POST - {a,10,13}{b}{r}
INCOME - OK - Correct.
A - OK - Correct.
EQUITY - QUIT - No, the INCREASE in owner's equity for a period of time is INCOME.
B - QUIT - No, the INCREASE in owner's equity for a period of time is INCOME.
@
3.43
Income is usually the most important information about a business entity.
An accounting report called the {b}income statement{n} explains the income
of a period.  Note that the income statement is for a {1,14},
        (A) period of time      (B) moment in time
in contrast with the other statement, the balance sheet, which is for a
{2,14}.
        (A) period of time      (B) moment in time
*1
  - POST - {b}{a,8,13}period of time
PERIOD OF TIME - OK - Correct.
A - OK - Correct.
MOMENT IN TIME - QUIT - No.
B - QUIT - No.
*2
  - POST - {b}{a,14,37}{r}
MOMENT IN TIME - OK - Correct.
B - OK - Correct.
PERIOD OF TIME - QUIT - No.
A - QUIT - No.
@
3.44
The $700 increase in owner's equity during the period is reported on
the {1,16}.  This statement explains {u}why{n} this increase occurred.
        (A) balance sheet
        (B) income statement
*1
  - POST - {b}{a,8,13}{r}
INCOME STATEMENT - OK - Correct.
B - OK - Correct.
BALANCE SHEET - QUIT - No, the INCOME STATEMENT explains the income of a period.
A - QUIT - No, the INCOME STATEMENT explains the income of a period.
@
3.45
To understand how the income statement does this, let's look at the
January 5 transaction for Glendale Market.
View Exhibit 3 before you answer this question.
On January 5, Glendale Market sold for $300 cash some merchandise that had
cost $200.  This caused owner's equity to increase by ${1,-3}.
*1
100 - OK - Correct.
  - HINT - The owner's equity increased by the amount of profit.
@
3.46
On January 5, Glendale Market sold merchandise for $300 cash that had
cost $200.

An alternate view of this transaction is that it is composed of two events:
(1) the sale, which, taken by itself, {u}increased{n} owner's equity by $300,
and
(2) the decrease in inventory, which, taken by itself, {u}decreased{n} owner's
equity by $200.
@
3.47
Taken by itself, the increase in owner's equity resulting from
operations is called a {b}revenue{n}.  When Glendale Market sold merchandise
for $300, the transaction resulted in $300 of {1,7}.
*1
REVENUE - OK - Correct.
  - HINT - The $300 was a revenue.
@
3.48
And taken by itself, the associated decrease in owner's equity is called
an {b}expense{n}.  When Glendale Market transferred merchandise to the customer,
the transaction reduced inventory and resulted in $200 of {1,7}.
*1
EXPENSE - OK - Correct.
  - HINT - No, the reduction in inventory decreases owner's equity so{a,22,1}it is an expense.
@
3.49
Thus, when Glendale Market sells merchandise for $300 that cost $200,
the effects of the transaction on owner's equity can be separated into two
parts: a {u}revenue{n} of ${1,-3} and an {u}expense{n} of ${2,-3}.
*1
300 - OK - Correct.
*2
200 - OK - Correct.
@
3.50
In accounting, revenues and expenses are recorded separately.
From Exhibit 3, calculate the revenues and expenses for the period January 3
through 8 by completing the following table:
{s}
{b}     Date            Revenues            Expenses
        {l,4}        {l,11}        {l,11}
{d}        5             $ {1,5}             $ {2,5}
        7               {3,5}               {4,5}
{s}        8               {5,5}               {6,5}
                     {l,11}        {l,11}
            Total     $ {7,5}             $ {8,5}




Fill in each open space in the table and total both columns.
{b}Note{n}: View Exhibit 3 before you answer these questions.
*1
  300 - OK - Correct.
300 - OK - Correct.
  - HINT - Cash INCREASED by $300.
*2
  200 - OK - Correct.
200 - OK - Correct.
  - HINT - Inventory DECREASED by $200.
*3
  800 - OK - Correct.
800 - OK - Correct.
  - HINT - The merchandise sold for $800; that is the revenue.
*4
  500 - OK - Correct.
500 - OK - Correct.
  - HINT - Inventory was reduced by $500; that is an EXPENSE.
*5
  900 - OK - Correct.
900 - OK - Correct.
  - HINT - Merchandise was sold for $900, and that is the revenue.
*6
  600 - OK - Correct.
600 - OK - Correct.
  - HINT - Inventory was reduced by $600, the EXPENSE of the sale.
*7
2,000 - OK - Right, $2,000 is the total Revenues.
2000 - OK - Right, $2,000 is the total Revenues.
*8
  - POST - {a,21,1}{c, ,78}
1,300 - OK - Yes, $1,300 is the total Expenses.
1300 - OK - Yes, $1,300 is the total Expenses.
@
3.51
You can now prepare an income statement.  Its heading shows the name
of the accounting entity, the title of the statement, and the period covered.
Complete the heading for Glendale Market's income statement for January 3-8:

{b}                            GLENDALE MARKET
                {1,-10} Statement for the period {2,-11,10}

                (A) Income                            (D) January 3-8
                (B) Balance                           (E) January 8
                (C) Revenue
*1
  - POST - {b}{a,16,21}Income{n}
  INCOME - OK - Correct.
INCOME - OK - Correct.
A - OK - Correct.
BALANCE - NO - No, the balance sheet is only for a MOMENT of time.
B - NO - No, the balance sheet is only for a MOMENT of time.
REVENUE - NO - No, revenues are only one part of an income statement.
C - NO - No, revenues are only one part of an income statement.
*2
  - POST - {b}{a,16,59}{r}{a,12,62}-
JANUARY 3 8 - OK - Correct.
D - OK - Correct.
JANUARY 8 - QUIT - No, income statements are for a PERIOD of time, in this case, January 3-8.
E - QUIT - No, income statements are for a PERIOD of time, in this case, January 3-8.
@
3.52{s}

The income statement reports revenues and expenses for the period, and
the difference between them, which is income.  Which choice shows the correct
ordering of labels for the following Glendale Market income statement?  {1,-1}{s}


        (A) Expenses        (B) Revenues         (C) Revenues
            Revenues            Income               Expenses
            Income              Expenses             Income

{b}                             GLENDALE MARKET
                  Income Statement for the period January 3-8
                {l,47}
                  (        ) ......................... $2,000

                  (        ) .........................  1,300
                                                      {l,7}
                  (        ) ......................... $  700
*1
  - POST - {a,7,53}{b}{r}{a,8,53}{b}{r}{a,9,53}{b}{r}
  - POST - {a,14,19}REVENUES ....{a,16,19}EXPENSES ....
  - POST - {a,18,19}INCOME ......
C - OK - Correct.  Income is the difference between revenues and expenses. {a,22,1}{c, ,78}
A - NO - {a,22,1}No, if expenses were greater than revenues, income would be negative.
B - NO - {a,22,1}No, income is the DIFFERENCE between revenues and expenses.            {n}
@
3.53
The income statement explains the change in owner's equity during a
period.  Referring to Exhibit 3, insert the owner's equity for January 8 in
the following table, and find the change during the period January 3-8.
{s}

        Owner's equity, end of January 8           ${1,6}

        Owner's equity, beginning of January 3      10,000
                                                  {l,8}
                                        Change     ${2,6}

*1
  - POST - {a,21,1}{c, ,78}
10,700 - OK - Correct.
10700 - OK - Correct.
  - HINT - The value of John Smith, Capital, on January 8 was $10,700.
*2
   700 - OK - Correct.
700 - OK - Correct.
@
3.54
The change in owner's equity of $700 {1,8} equal the income for
the period, as shown on the income statement.
        (A) does
        (B) does not
*1
  - POST - {b}{a,6,13}{r}
DOES - OK - Correct.
A - OK - Correct.
DOES NOT - QUIT - The amount, $700, is the same.  The income equals the change in owner's equity.
B - QUIT - The amount, $700, is the same.  The income equals the change in owner's equity.
@
3.55
The term {b}profit{n} means the same as the term {b}income{n}; that is, profit is
defined as the difference between {u}revenues{n} and {u}expenses{n}.
@
3.56
Another name for the income statement is {b}profit and loss statement{n}.
This suggests that if revenues are less than expenses, the bottom line on the
income statement is labelled {1,6} rather than income.
        (A) loss
        (B) income
        (C) total
*1
  - POST - {b}{a,8,13}{r}
LOSS - OK - Correct.  A loss is a negative income.
A - OK - Correct.  A loss is a negative income.
INCOME - NO - Well, it's negative income. (There is a better choice.)
B - NO - Well, it's negative income. (There is a better choice.)
TOTAL - NO - When the bottom (income) line is negative, it's "loss."
C - NO - When the bottom (income) line is negative, it's "loss."
@
3.57
In later parts, we shall describe various revenue and expense items,
such as sales revenue, interest revenue, salary expense, and rent expense.
These explain in more detail the reasons for the change in owner's equity
during a period.
@
3.58{s}

The two financial statements may be compared to two reports on a
reservoir.  One report may show how much water {u}flowed through{n} the reservoir
during a period, and the other report may show how much water {u}was in{n} the
reservoir as of the end of the period.

Similarly, the {1,16} reports flows during a period of time,
        (A) balance sheet    (B) income statement
whereas the {2,16} reports status as of a moment in time.
        (A) balance sheet    (B) income statement

Thus the income statement may be called a {3,6} report, and the balance
        (C) flow        (D) status
sheet may be called a {4,6} report.
        (C) flow        (D) status
*1
  - POST - {b}{a,8,34}{r}
INCOME STATEMENT - OK - Correct.
B - OK - Correct.
BALANCE SHEET - QUIT - No.
A - QUIT - No.
*2
  - POST - {b}{a,10,13}balance sheet
BALANCE SHEET - OK - Correct.
A - OK - Correct.
INCOME STATEMENT - QUIT - No.
B - QUIT - No.
*3
  - POST - {b}{a,13,13}flow
FLOW - OK - Correct.
C - OK - Correct.
STATUS - QUIT - No.
D - QUIT - No.
*4
  - POST - {b}{a,15,29}{r}
STATUS - OK - Correct.
D - OK - Correct.
FLOW - QUIT - No.
C - QUIT - No.
@
3.59
Revenues are increases and expenses are decreases in
{1,14} arising from operation of the business.
        (A) inventory
        (B) cash
        (C) owner's equity
*1
  - POST - {b}{a,10,13}{r}
OWNER'S EQUITY - OK - Correct. {a,20,1}{c, ,78}{a,21,1}{c, ,78}
C - OK - Correct. {a,20,1}{c, ,78}{a,21,1}{c, ,78}
INVENTORY - NO - {a,20,1}A decrease in inventory IS an expense, but revenues and expenses together {a,21,1}affect owner's equity on the balance sheet.
A - NO - {a,20,1}A decrease in inventory IS an expense, but revenues and expenses together {a,21,1}affect owner's equity on the balance sheet.
CASH - NO - {a,20,1}An increase in cash IS revenue, but revenues and expenses together affect {a,21,1}owner's equity on the balance sheet.              {n}
B - NO - {a,20,1}An increase in cash IS revenue, but revenues and expenses together affect {a,21,1}owner's equity on the balance sheet.
@
3.60
In accounting, income is the {u}difference{n} between revenues and expenses.
(Some people use {b}income{n} to mean the same as {b}revenue{n}, which can lead to
confusion.)
@
{s}Key Points to Remember

 - Every accounting transaction affects at least two items and preserves the
   basic equation: assets = equities.  Accounting is a double-entry system.

 - Some events are not transactions; they do not affect balance sheet amounts.
   Examples in this part were: a change in the value of land, "goodwill" that
   was not purchased, and the changing of the entity from a proprietorship to
   a corporation.

 - Other events affect assets and/or liabilities but have no effect on owners'
   equity.  Examples in this part were: borrowing money, purchasing inventory,
   purchasing insurance protection, acquiring an asset, giving a mortgage,
   buying land, selling land at its cost, and repaying a bank loan.

 - Still other events affect owners' equity as well as assets and/or
   liabilities.  Revenues are increases in owners' equity resulting from
   operations in a period.  Expenses are decreases.

                                    <continued>
@
{s}Key Points to Remember

 - A sale has two aspects, a revenue aspect and an expense aspect.  Revenue
   results when the sale is made, whether or not cash is received at that time.
   The related expense is the cost of the merchandise that was sold.


                                     <continued>
@

You have completed Part 3 of this program.  If you feel you have understood
the material in this part, you should now take Post Test 3.  If you would like
to review the material before taking the post test, please do so. {s}
{d}
The post test will serve both to test your comprehension and to review the
highlights of Part 3.  After taking the post test, you may find that you are
unsure about certain points the test raises.  You should review these points
before continuing with Part 4.
@
{m}
@@@@@