A: Introduction to Basic Accounting PE AJAPC101 Page 1

AAJJAPCAPC101101

CalculCalculatatee FinancialFinancial PPoossiitiontion ((EEquity)quity)Practical Exercises

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Solution AJAPC101.3.1: Bowling Alley’s Financial Position

Classify the following items contained in today’s files of the Base Recreation Division’sBowling Alley as assets, liabilities or non-relevant data.

Description AmountBuilding and Land $135,100.00Cash in Bank Account 4,356.12Cash in Register 143.88Current Payroll 1,500.00Snack Sales for Next Month 3,200.00Health Plan Bill 725.00Pinsetter 4,035.00Rental Shoe 465.00Scoring System 2,580.00Snack Bar Employee Evaluation -0-Cleaning Supplies 82.15Vendor’s Request to Purchase Surplus Equipment 130.00Utility Bills 714.00Mortgage Note 77,000.00Video Games 16,000.00

Name of Entity: RD Bowling AlleyType of Entity: Government/Non ProfitDate: Today

Assets LiabilitiesDescription Amount Description AmountCash $ 4,500 Mortgage Note $77,000Building and Land 135,000 Health Plan 725Pinsetter 4,035 Utility Bills 714Rental Shoes 465 Payroll 1,500Scoring System 2,580Video Games 16,000Total $162,580 Total $79,939

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1) What is the financial position (net assets) of the bowling alley?Assets – Liabilities = Financial Position

$162,580 – $79,939 = $82,641

2) Which items can be rounded up or down without degrading the level of detail required for decision making?a) Round Building and Land to $135,000 b) Round Cash to $4,500c) Round Mortgage to $77,000 (or $80,000)d) Round Video Games to 16,000

3) Which items do not qualify as assets or liabilities? Why?a) Snack Bar Sales Estimate – It is not ownedb) Snack Bar Employee Evaluation – Cannot be objectively valued c) Cleaning Supplies –Cannot presume future valued) Vendor’s purchase request – It is not owned or owed.

4) What is the term for the bowling alley’s financial position?a) Net Assets

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Solution AJAPC101.3.2: My Family’s Financial Position

Suppose your family has the following financial information in your records:

Description AmountAutomotive Insurance Bill $ 725.00Bill for Son’s Tuition 4,200.00Car Loan 12,499.80Cash in Coffee Can and Wallets 143.89Credit Card Statements 692.00Deed to House 135,100.00Doctor’s Co-pay Bill 35.00DVD 179.00Furniture and Electronics 2,352.00Gas 82.15Health Insurance Bill 121.00Lab Test Bill for Daughter’s Strep Throat 45.00Mortgage Note 76,996.00Prescription Co-pay 15.00Son’s Textbooks 549.78Reconciled Bank Account Statements 4,356.12RV Loan Statement 71,500.00Title to Car 18,000.00Title to RV 84,000.00Utility Bills 214.00

1) Classify your family’s assets and liabilities.

2) Enter the data according to accounting principles. For this exercise you will need to make some materiality constraint assumptions. There is no perfect answer to how to round your entries, but be sure to be consistent for the level of value of each entry.

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3) Assuming that all the relevant data is in the presented financial information, determine your net worth.

4) Which items was not relevant due to the accounting principle of assumed future value? The Gas and the Prescription.

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Solution AJAPC101.3: Sebastian’s Dinner TheaterThe dinner theater has the following records on file:

Description AmountCash in Register $ 100.00Cash Register 450.00Certificate of Deposit 1,500.00Claim for Slip and Fall Injury 10,000.00Cleaning Supplies 95.12Costumes 1,142.00Employee Health Insurance Bill 120.00Employee Time Sheets 1000.00Food Items 500.00Kitchen and Serving Ware 4,000.00Lease Payment 2,000.00Liability Insurance Bill 45.00Petty Cash 100.00Printing Bill 35.00Props and Set Decorations 4,500.00Reconciled Bank Statement 1,382.85Sound and Lighting Equipment 7,325.00Staff Raise Recommendations -0-Tickets for this Month’s Performances 49.99

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1) Classify the theater’s assets and liabilities. Round to nearest dollar.2) Enter the data according to accounting principles.

3) Assuming that all the relevant data is in the presented financial informationdetermine the equity of the business.

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4) Is the claim for a slip and fall injury a liability? Why or why not?a) It is not owed. If a judgment is entered against Sebastian’s then a liability would

be recorded. Even if it is probable that Sebastian’s will lose the law suit, the value of the judgment would be difficult to estimate.

5) Why are staff raising recommendations listed without a dollar value?a) Employees are not owned.

6) What do food items, cleaning supplies and tickets have in common?a) They cannot be assumed to have value in a future period.

7) What term refers to Sebastian’s Financial Position?a) Equity