Principles of Managerial Finance

78 PART 1 Introduction to Managerial Finance

LG1

b. In column (2), indicate whether the account is a current asset (CA), current

liability (CL), expense (E), fixed asset (FA), long-term debt (LTD), revenue

(R), or stockholders’ equity (SE).

2–3 Income statement preparation On December 31, 2003, Cathy Chen, a self-

employed certified public accountant (CPA), completed her first full year in busi-

ness. During the year, she billed $180,000 for her accounting services. She had

two employees: a bookkeeper and a clerical assistant. In addition to hermonthly

salary of $4,000, Ms. Chen paidannualsalaries of $24,000 and $18,000 to the

bookkeeper and the clerical assistant, respectively. Employment taxes and benefit

costs for Ms. Chen and her employees totaled $17,300 for the year. Expenses for

office supplies, including postage, totaled $5,200 for the year. In addition, Ms.

Chen spent $8,500 during the year on tax-deductible travel and entertainment

associated with client visits and new business development. Lease payments for

(1) (2)

Account name Statement Type of account

Accounts payable 

Accounts receivable 

Accruals 

Accumulated depreciation 

Administrative expense 

Buildings 

Cash 

Common stock (at par) 

Cost of goods sold 

Depreciation 

Equipment 

General expense 

Interest expense 

Inventories 

Land 

Long-term debts 

Machinery 

Marketable securities 

Notes payable 

Operating expense 

Paid-in capital in excess of par 

Preferred stock 

Preferred stock dividends 

Retained earnings 

Sales revenue 

Selling expense 

Taxes 

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