Question 1: 50 points
Elnora Comstock, president of Limberlost Incorporated (LI), rushed into your office bright and early this morning. Last night, while dining at the Tower Club with a few
business acquaintances, the conversation turned to a discussion of the implications of business transactions on the financial reports. Not knowing much about the
"numbers end of the business, she kept her mouth closed and her ears open. Now she is relying on your expertise to bring her up to speed. Limberlost primary
business lines include sales of eco-friendly travel tours to exctic locations and the manufacture and sale of pre-packaged organic multi-course meals.
1. Please analyze and record the following selected economic events for the first month of opertaion using the accrual method of accounting in the matrix below. Make
sure to indicate if the event is an Operating (O), Investing (I), or Financing (F) activity.
2. In the last column, mark an "X" if the economic event would be recorded differently under the cash method of accounting.
Net Income (i.e., RE)
Rev. or (Exp)
"X" if different
L imberlost Incorporated (RI) sels shares of stock
Limberlost Incorporated (RI) borrows $20,000
from the bank.
LI purchases office equipment for $7 ,000 on
LI purchases marketable securities for $6,000 in
LI sells 100 meals for $10,000 on account (credit).
The meals cost $3,000 to manufacture.
LI pays salaries of $5,000 in cash.
A customer pays off his outstanding account of
LI records depreciation on office equipment of
LI records interest incurred on the loan borrowed
from the bank.
LI pays $5,000 in cash for rent on its off ice space
at the time the rent is incurred
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