Financial Accounting – Exam A

Question 1
C Enterprises purchased a piece of land worth $748,300 in 2008 for $577,700. The estimated selling price on December 31, 2020 is $910,200. Casey Enterprises sold the land on January 31, 2021 for $996,100.
What is the gain or loss from the sale of land?
Choose an answer
A
Gain on sale of land is $418,400.
B
Gain on sale of land is $332,500.
C
Gain on sale of land is $161,900.
D
Gain on sale of land is $247,800.
Hide solution
This question covers 3 topics: Basics of financial statements · Basic accounting conventions and concepts · Business activities to external users
General guidance
Concepts and reason
Historical cost concept: It is based on the measure that the balance sheet value of assets should be carried through its original value. Since market value of assets changes it suggests reporting the original value in balance sheet.
Asset: Asset is a property owned by a company. Assets are resources of the organization, and useful to produce goods or services. Assets may be current or non-current (Fixed). Current assets are useful for one year or one accounting cycle, but non-current assets are useful for more than one year.
Fundamentals
Accounting Principles: The principles or procedures that are required to prepare and report the financial statements of a firm are referred to as accounting principles.
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Step-by-step
Step 1 of 2
The value of the land is $577,700. The purchase price of the land is taken for consideration.
ExplanationCommon mistakesHint for next steps
The historical concept is based on the accounting principle which states that the assets must be recorded at the price of purchase.
Step 2 of 2
Gain or (loss) on sale of land is computed below.
Gain or(Loss)=Selling Price of Land−Purchase price of Land =$996,100−$577,700=$418,400
Thus, the gain or (loss) on sale of land is $418,400.
ExplanationCommon mistakes
Gain or loss from the sale of asset is considered to be the difference of the amount realized on the sale and the value of asset recorded in the books. This is recorded as the revenue from the sale of the asset. Gain is the excess of sale price of asset over the book value. Loss is the excess of book value over the sale price of asset.
In the present case, the sale price is more. Hence, a gain will be recorded as revenue while making the sale of land.
Answer
Gain on sale of land is $418,400.
Question 2
The balance sheet of T S Corporation showed the following balances. However, the value of common stock and stockholder’s equity were missing. Identify the missing value of common stock.
T S Corporation
Balance Sheet
As on January 31, 2020
Particulars
Amount ($)
Amount ($)
Assets:
Cash
$34,350
Accounts receivable
$77,650
Land
$497,000
Supplies
$55,500
Total Assets
$664,500
Liabilities:
Accounts payable
$175,500
Stockholder’s equity:
Common Stock
XXX
(Add) Retained earnings
$101,200
Total Stockholder’s equity
XXX
Total Liabilities and Stockholder’s equity
$664,500
Choose an answer
A
Amount of Common stock is $387,800.
B
Amount of Common stock is $276,700.
C
Amount of Common stock is $489,000.
D
Amount of Common stock is $630,150.
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