Sara Obermeyer Decides to Open a Pizza Parlor near the Local

question 93

Essay

Sara Obermeyer decides to open a pizza parlor near the local college campus that will operate as a corporation. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing (-) the dollar amount of each item affected. Indicate the new balance of each item after a transaction is recorded. It is not necessary to identify the cause of changes in stockholders' equity.
Transactions
(1) Sara Obermeyer invests $25,000 cash in exchange for common stock to start a pizza parlor business on June 1.
(2) Purchased equipment for $4,000 paying $2,000 in cash and the remainder due in 30 days.
(3) Purchased supplies for $1,200 cash.
(4) Received a bill from Campus News for $200 for advertising in the campus newspaper.
(5) Cash receipts from customers for pizza sales amounted to $1,500.
(6) Paid salaries of $200 to student workers.
(7) Billed the Tiger Football Team $300 for pizzas ordered.
(8) Paid $200 to Campus News for advertising that was previously billed in Transaction 4.
(9) Sara Obermeyer was paid dividends of $1,200.
(10) Incurred utility expenses for month on account, $100.

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Definitions:

Absorption Costing

An approach in accounting that comprises all costs of manufacturing, like direct materials, direct labor, and both types of manufacturing overheads (variable and fixed), in determining a product's cost.

Overproduction

The creation of more products or goods than are needed, leading to excess inventory and potential waste.

Variable Costing

An accounting approach that solely accounts for variable production expenses like direct materials, direct labor, and variable manufacturing overhead in the calculation of product costs.

Limitations

The constraints or restrictions that hinder a process, investigation, or analysis.