Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 2 Basic Accounting Concepts 95

The increasing complexity of the current business and regulatory environment has created an

increased demand for accountants who can analyze business transactions and interpret their ef-

fects on the financial statements. In addition, a basic ability to analyze the effects of transactions is

necessary to be successful in all fields of business as well as in other disciplines, such as law. To

better understand the importance of accounting in today’s environment, search the Internet or

your local newspaper for job opportunities. One possible Internet site is http://www.jobweb.com.

Then do one of the following:

1. Print a listing of at least two ads for accounting jobs. Alternatively, bring to class at least
   two newspaper ads for accounting jobs.


2. Print a listing of at least two ads for nonaccounting jobs for which some knowledge of
   accounting is preferred or necessary. Alternatively, bring to class at least two newspaper
   ads for such jobs.

ANSWERS TO SELF-STUDY QUESTIONS

Activity 2-4

Opportunities for accountants

1. DEven though a recording error has been made, the ac-
   counting equation will balance (answer D). However, assets
   (cash) will be overstated by $50,000, and liabilities (notes
   payable) will be overstated by $50,000. Answer A is incorrect
   because although cash is overstated by $50,000, the accounting
   equation will balance. Answer B is incorrect because although
   notes payable are overstated by $50,000, the accounting equa-
   tion will balance. Answer C is incorrect because the account-
   ing equation will balance and assets will not exceed liabilities.


2. C Total assets will exceed total liabilities and stockholders’
   equity by $16,000. This is because stockholders’ equity (re-
   tained earnings) was decreased instead of increased by $8,000.
   Thus, stockholders’ equity will be understated by a total of
   $16,000.


3. C The accounting equation is:

AssetsLiabilitiesStockholders’ Equity

Therefore, if assets increased by $20,000 and liabili-
ties increased by $12,000, stockholders’ equity must have

increased by $8,000 (answer C), as indicated in the follow-

ing computation:

Assets  Liabilities Stockholders’ Equity

$20,000  $12,000 Stockholders’ Equity

$20,000$12,000  Stockholders’ Equity

$8,000  Stockholders’ Equity

4. B Net income is the excess of revenue over expenses, or
   $7,500 (answer B). If expenses exceed revenue, the difference
   is a net loss. Dividends are the opposite of the stockholders’
   investing in the business and do not affect the amount of net
   income or net loss.


5. B The purchase of land for cash changes the mix of
   assets and does not affect liabilities or stockholders’ equity
   (answer B). Borrowing cash from a bank (answer A) increases
   assets and liabilities. Receiving cash for fees earned (answer C)
   increases cash and stockholders’ equity (retained earnings).
   Paying office salaries (answer D) decreases cash and stock-
   holders’ equity (retained earnings).