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1.10: Dividends paid to owners (stockholders)

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    41724
  • 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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