A few days ago
sssaarahh!

Accounting Homework Help?

Ted Roderiguez is very excited about starting his part time gardening service. As a senior high school student, he has studied some accounting and has included the following two assets on his beginning balance sheet:

Lawn mower $160

Pick-Up Truck $1000

Ted purchased the two lawn mowers at a local flea market for $20 each but feels that he got very good deals and that the are worth $80 each. The pick-up truck was a gift from his uncle. Ted thinks he has seen similar trucks advertised in the local newspaper for about $2000. Ted would like his balance sheet to be accurate and to follow Generally Accepted Accounting Principles (GAAPs)

Questions

1. Has Ted violated any GAAPs on his balance sheet? Explain

2.If he has made mistakes, how should he correct them?

3. How can an accurate balance sheet value for the truck be determined?

4. How would an overstatement of Ted’s assets affect his capital on the balance sheet?

Top 4 Answers
A few days ago
beingsmartisrelative

Favorite Answer

1. Yes, Ted has violated GAAP with his recording of assets. The lawn mowers are recorded at FMV vs. historical cost. That is a violation of GAAP. The Pick-Up Truck should be recorded at FMV because it was a donation to the business but because it was donated by a related-party GAAP requires a special disclosure for this transaction.

The Truck is recorded at FMV and as revenue per SFAS 116.

2. Correct way to report these assets:

Lawn mower = $40

Pickup Truck = $2,000

The other side of the Pickup Truck is Revenue for $2,000. Also, a disclosure has to be made in the notes indicating that the Pickup Truck was donated by the uncle and the revenue has to be listed under a Related Party Transaction note.

3. A truly accurate balance sheet value for the truck is a valuation of the truck. Usually, the value of a similar truck in the same condition will suffice.

4. The capital would be understated by $1,000.

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A few days ago
tilena17083
1) Yes, Ted has violated the GAAP when it comes to his balance sheet because the information is incorrect. A balance sheet is to keep track of money gained or lost from different accounts. He never paid for the truck so there would be no change untill he sold the truck at which time he could add it to his balance sheet.

2)Ted needs to change the amount on his balance sheet for the price of the lawn mowers and take out the amount for the truck.

3)Cost principle would be used to determin the truck value.

” Generally accepted accounting principles state that the original cost (often called historical cost) is the appropriate value to assign to all business transactions- and therefore to all assets, liabilities, and components of owner’s equity, including revenues and expenses recorded bya business.”

4) Well for one his capital would be wrong because he did not spend that amount of money so the items are not valued at that amount, also over time the value lowers making his investment less then what it is. There are many reasons why this can affect his capital.

Hope this helps, I have a degree in accounting : )

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A few days ago
DK
1.) Yes. The lawn mowers have to be booked based on what Ted actually spent for them (historical cost)–not what he thinks they are worth (fair market value, FMV). To do otherwise would violate GAAP. Because the truck was donated, he can book at FMV, so I don’t know why it is on the books for $1000 unless he applied MACRS to accelerate the depreciation. Even if that were true, such a deduction should be applied at year-end close, not the beginning balance.

2.) The correct journal entries would have been:

. . . Dr Equipment (lawn mowers) $40

. . . . . . Cr Cash

and

. . . Dr. Equipment (truck) $2000

. . . . . . Cr Owner’s Equity (not revenue!!)

3.) Adjust his books so that these items are recorded as in #2.

4.) His capital (or equity) would be understated by $1000 for the truck and overstated by $120 for the lawn mowers (understated by $880 net). This could lead Ted to make poor management decisions should he rely on faulty figures to represent his equity.

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4 years ago
cutlip
right this is the question for the chemical x42 calculate the of pounds of cloth offered, the conventional fee in step with pound of cloth, and the entire conventional cloth fee. the conventional referred to as for a million pound and commonplace fee $0.40 in step with pound much less. cloth value variance-80 4,000 F cloth utilization variance 80,000 U; total cloth variance-4,000 F; product requiring this chemical 2 hundred,000
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