Question

15. (a) Define the terms assets, liabilities, and stockholders’ equity. (b) What items affect stockholders’ equity?

16. Which of these items are liabilities of White Glove Cleaning Service? (a) Cash. (f) Equipment. (b) Accounts payable. (g) Salaries and wages (c) Dividends. payable. (d) Accounts receivable. (h) Service revenue. (e) Supplies. (i) Rent expense.

Answer 1

Answer 15 a) Assets - An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations. An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses or improve sales, regardless of whether it's manufacturing equipment or a patent. Assets can be broadly categorized into two types short-term (or current) assets and Long-term assets. Current assets are short-term economic resources that are expected to be converted into cash or be consumed within one year, like inventory, debtors, cash or bank balance etc. While long-term assets are expected to be converted in cash or be consumed in more that 12 months, like Plant and Machinery, building etc.

Liabilities - A liability is defined as a company's legal financial debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.

15 b) Items affects stockholder's equity are given below-

Answer 16 -

• Issuing Shares - Issuing additional shares of common or preferred stock affects stockholder's equity.

• Net Income and Dividends - Net income is the profit a company earns after paying all expenses and income taxes. A company has two choices of how to use its net income: It can reinvest the money into the business or distribute a portion of it to stockholders in the form of a dividend. When a company issues a dividend, this reduces stockholder's equity. The portion of net income the company keeps in its coffers shows up in the shareholder's equity section of the balance sheet in an account labeled "retained earnings." The figure is the sum of the beginning retained earnings balance and net income minus the cost of the dividends.

• Share Repurchases - Companies commonly repurchase their own stock. This is a boon for shareholders since it reduces the shares outstanding, which increases earnings per share since the same amount of profit spreads across fewer shares. If the company retires the stock by making them Treasury Stock, shareholder equity is reduced.​

a)	Cash	Not a Liability
b)	Accounts Payable	Liability
c)	Dividends Payable	Liability
d)	Accounts Receivable	Not a Liability
e)	Supplies	Not a Liability
f)	Equipment	Not a Liability
g)	Salaries and Wages	Not a Liability
h)	Service revenue	Not a Liability
i)	Rent exepnse.	Not a Liability