Guided Readings for Financial Accounting, Lesson 2.3 – Expert Level

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At the end of Chapter Two, you will find a section with two video problems. The second one poses the following situation. Your uncle has the chance to buy 1,000 shares of capital stock issued by the company for which he works. He is studying the company’s financial information and finds that it is presented fairly in conformity with U.S. GAAP. Because you are taking this financial accounting class, he calls to ask for an explanation of this term. What would you tell your uncle? Determine your answer and then watch the video.

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A few years ago, I made a video to help the students in my live college class. Let’s see if it also helps you. A company starts the year with $1,000 in cash and no other assets or liabilities. The company has the following events. How does each event impact the company’s net assets?

  • --A service is sold for $5,000 cash; all work is done.
  • --Cash of $2,000 is paid for last month’s rent.
  • --New capital stock is issued for $4,000 cash.
  • --A cash dividend of $1,000 is distributed.
  • --Cash of $5,000 is borrowed on a bank loan.

Now, watch as I discuss this accounting:

https://bit.ly/FA2_3

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“It's supposed to be hard. If it wasn't hard, everyone would do it. The hard is what makes it

great.”

Tom Hanks

from the movie A League of Their Own

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