1.10: Dividends paid to owners (stockholders)

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State university

James Stevens was taking an accounting course at State University. Also, he was helping companies find accounting systems that would fit their information needs. He advised one of his clients to acquire a software computer package that could record the business transactions and prepare the financial statements. The licensing agreement with the software company specified that the basic charge for one site was USD 4,000 and that USD 1,000 must be paid for each additional site where the software was used.

James was pleased that his recommendation to acquire the software was followed. However, he was upset that management wanted him to install the software at eight other sites in the company and did not intend to pay the extra USD 8,000 due the software company. A member of management stated, “The software company will never know the difference and, besides, everyone else seems to be pirating software. If they do find out, we will pay the extra fee at that time. Our expenses are high enough without paying these unnecessary costs.” James believed he might lose this client if he did not do as management instructed.

An accounting perspective: Uses of technology

Accountants and others can access the home pages of companies to find their annual reports and other information, home pages of CPA firms to find employment opportunities and services offered, and home pages of government agencies, universities, and any other agency that has established a home page. By making on-screen choices you can discover all kinds of interesting information about almost anything. You can access libraries, even in foreign countries, newspapers, such as The Wall Street Journal, and find addresses and phone numbers of anyone in the nation. We have included some Internet Projects at the end of the chapters to give you some experience at “surfing the net” for accounting applications

A. Summary of Transactions

METRO COURIER, INC.

Summary of Transactions

Month of July 2010

		Assets				Liabilities +		Stockholders' Equity
Trans-action	Explanation	Cash	Accounts Receivable	Trucks	Office Equipment	Accounts Payable	Notes Payable +	Capital Stock	Retained Earnings
	Beginning balances (Illustration 1.2)	$ 13,500	$ -0-	$ 20,000	$ 2,500 =	$ -0-	$ 6,000 +	$ 30,000	$ -0-
1b	Earned service revenue and received cash	4,800							4,800(A)
		$ 18,300		$ 20,000	$ 2,500 =		$ 6,000 +	$ 30,000	$ 4,800
2b	Earned service revenue on account		900						900(B)
		$ 18,300	$ 900	$ 20,000	$ 2,500 =		$ 6,000 +	$ 30,000	$ 5,700
3b	Collected cash on account	200	(200)
		$ 18,500	$ 700	$ 20,000	$2,500=		$ 6,000 +	$ 30,000	$ 5,700
3b	Collected cash on account	200	(200)
		$ 18,500	$ 700	$ 20,000	$2,500=		$6,000+	$ 30,000	$ 5,700
4b	Paid salaries	(2,600)							(2,600)(C)
		$ 15,900	$ 700	$ 20,000	$2,500=		$6,000+	$ 30,000	$ 3,100
5b	Paid rent	(400)							(400)(D)

6b	Received bill for gas and oil used								(600)(E)
	End-of-month balances	$15,500(F)	$ 700(G)	$20,000(H)	$ 2,500 =(I)	$ 600(J)	$ 6,000 +(K)	$30,000(L)	$2,100(M)
		$38,700				$6,600		$32,100

B. Balance Sheet

METRO COURIER, INC.

Balance Sheet

2010 July 31

Assets		Liabilities and Stockholders
Cash	(F)$15,500	Liabilities:
Accounts receivable	(G)700	Accounts payable	(J)$600
Trucks	(H)20,000	Notes payable	(K)6,000
Office equipment	(I)2,500	Total liabilities Stockholders' equity	$6,600

		Capital stock	(L)$30,000
		Retained earnings	(M)2,100
		Total stockholders' equity	$32,100
Total assets	$38,700	Total liabilities and stockholders' equity	$38,700

C. Income Statement

METRO COURIER, INC.

Income Statement

For the Month Ended 2010 July 31

Revenues
Service revenue		(A+B)$ 5,700
Expenses:
Salaries expense	(C)$ 2,600
Rent expense	(D)400
Gas & oil expense	(F)600
Total expenses		3,600
Net income		$ 2,100

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