Financial Accounting, 9th Edition Solution Manual

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Chapter 1The Financial Statements1-1Chapter 1The Financial StatementsShort Exercises(5 min.)S 1-1Computed amounts in boxesTotal Assets=Total Liabilities+Stockholders’ Equitya.$300,000=$150,000+$150,000b.280,000=110,000+170,000c.210,000=50,000+160,000(5 min.) S1-2Ethicsisafactorthatshouldbeincludedineverybusinessandaccountingdecision,beyondthepotentialeconomicandlegalconsequences.Ideally, foreach decision, honesty and truthfulnessshould prevail, considering the rights of others. The decision guidelinesat the end of the chapter spell out the considerations we should takewhenmakingdecisions.Simply,wemightaskourselvesthreequestions:(1) is the action legal? (2) Who will be affected by thedecision? (3) How will the decision make me feel afterward?

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Financial Accounting 9/eSolutions Manual1-2(10 min.)S 1-3a.Corporation, Limited-liability partnership (LLP) and Limited-liabilitycompany (LLC).If any of these businesses fails and cannot pay itsliabilities, creditors cannot force the owners to pay the business’sdebts from the owners’ personal assets.b.Proprietorship. There is a single owner of the business, so the owneris answerable to no other owner.c.Partnership.If the partnership fails and cannot pay its liabilities,creditors can force the partners to pay the business’s debts from theirpersonal assets. A partnership affords more protection for creditorsthan a proprietorship because there are two or more owners to sharethis liability.(5 min.) S1-41.Theentity assumptionapplies.2.ApplicationoftheentityassumptionwillseparateNewberry’spersonal assets from the assets of Healthy Food Brands. This willhelpNewberry,investors,andlendersknowhowmuchassets,liabilities and equitythe business has, and this knowledge will help allparties evaluate the business realistically.(5-10 min.)S 1-5a.Historical cost principleb.Stable-monetary-unit assumptionc.Entity assumptiond.Historical cost principle

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Chapter 1The Financial Statements1-3(5 min.)S 1-61.Owners’ Equity = Assets − LiabilitiesThis way of determining the amount of owners’ equity applies to anycompany, your household, or a single IHOP restaurant.2.Liabilities = Assets − Owners’ Equity(5 min.)S 1-71.Assetsare theeconomic resourcesof a business that are expected toproduce a benefit in the future.Owners’equityrepresentstheinsiderclaimsofabusiness,theowners’ interest in its assets.Assets and owners’ equitydifferin that assets areresourcesandowners’ equity is aclaim to assets.Assets must be at least as largeas owners’ equity, so equity can be smaller than assets.2.Both liabilities and owners’ equity areclaims to assets.Liabilities are theoutsiderclaims to the assets of a business; they areobligations to pay creditors.Owners’ equity represents theinsiderclaims to the assets of thebusiness; they are the owners’ interest in its assets.(5-10 min.)S 1-8a.Accounts payableLg.Accounts receivableAb.Common stockSh.Long-term debtLc.SuppliesAi.Merchandise inventoryAd.Retained earningsSj.Notes payableLe.LandAk.Accrued expenses payableLf.Prepaid expensesAl.EquipmentA

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Financial Accounting 9/eSolutions Manual1-4(5 min.)S 1-91.Revenuesandexpenses2.Net income (or net loss)(5 min.)S 1-10Split Second Wireless, Inc.Income StatementYear Ended December 31, 2012(millions)Revenues……………………………………..$ 97Expenses……………………………………..26Net income…………………………………...$ 71(5 min.)S 1-11CellPhone Corp.Statement of Retained EarningsYear Ended December 31, 2012(millions)Retained earnings, December 31, 2011…….$290Add: Net income ($360−$250)…….……….110Less: Dividends……………………….............(44)Retained earnings, December 31, 2012…….$356

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Chapter 1The Financial Statements1-5(10 min.)S 1-12Landy ProductsBalance SheetDecember 31, 2012ASSETSCurrent assets:Cash.....................................................................$ 12,000Receivables..........................................................8,000Inventory..............................................................44,000Total current assets.............................................64,000Equipment……………………………………………….88,000Total assets……………………………………………..$152,000LIABILITIESCurrent liabilities:Accounts payable……………………………………$ 13,000Total current liabilities……………………………...13,000Long-term liabilities:Long-term notes payable…………………………..80,000Total liabilities……………………………………….....93,000STOCKHOLDERS’ EQUITYCommon stock………………………………………….15,300Retained earnings………………………………………43,700*Total stockholders’ equity…………………………59,000Total liabilities and stockholders’ equity…………..$152,000_____*Computation of retained earnings:Total assets ($152,000) − current liabilities ($13,000) − long-term notespayable ($80,000) − common stock($15,300) = $43,700

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Financial Accounting 9/eSolutions Manual1-6(10-15 min.)S 1-13Yidas Medical, Inc.Statement of Cash FlowsYear Ended December 31, 2012Cash flows from operating activities:Net income……………………………………….....$ 80,000Adjustments to reconcile net income to net cashprovided by operating activities………….(11,000)Net cash provided by operating activities69,000Cash flows from investing activities:Purchases of equipment……………….$(32,000)Net cash used for investing activities….(32,000)Cash flows from financing activities:Payment of dividends…………………$(25,000)Net cashused for financing activities…..(25,000)Netincrease in cash…………………....……………12,000Cash balance, December 31,2011...………………30,000Cash balance, December 31, 2012…………………$ 42,000

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Chapter 1The Financial Statements1-7(10 min.)S 1-14a.DividendsSRE, SCFb.Salary expenseISc.InventoryBSd.Sales revenueISe.Retained earningsSRE,BSf.Net cash provided by operating activitiesSCFg.Net incomeIS, SRE, SCFh.CashBS, SCFi.Net cash used for financing activitiesSCFj.Accounts payableBSk.Common stockBSl.Interest revenueISm.Long-term debtBSn.Increase or decrease in cashSCF(15-20 min.)S1-15a.Paying large dividendswill cause retained earnings to be low.b.Heavyinvesting activityandpayingoffdebtscanresultinacashshortage even if net income has been high.c.Thesinglebestsourceofcashforabusinessiscollectionsfromcustomers.This source of cash is best because it results from the coreoperations of the business.d.Borrowing, issuing stock, and selling land, buildings, and equipmentcan bring in cash even when the company has experienced losses.Reducing accounts receivable and inventory can also increase cashflow.

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Financial Accounting 9/eSolutions Manual1-8Exercises(10-15 min.)E 1-16AAmounts in billions; (computed amounts in boxes)Assets=Liabilities+Owners’ EquityPerfect Cleaners$33$ 15$18Ernie’s Bank351322Hudson Gift andCards271710Ernie’s Bank appears to have the strongest financial position becauseitsliabilitiesmakeupthesmallestpercentageofcompanyassets($13/$35 = .37). Stated differently, Ernie’s Bank’s equity is the highestpercentage of company assets ($22/$35 = .63).(10-15 min.)E 1-17AReq. 1(Amounts in millions)Assets=Liabilities+Stockholders’Equity$280$170430300170Total$880=$470+$410Req. 2Resourcesto work withReq. 3Amountowed tocreditorsReq. 4Actuallyowned by companystockholders

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Chapter 1The Financial Statements1-9(10-20 min.)E 1-18ASituation123MillionsTotal stockholders’ equity,January 31, 2012 ($28−$5)……………$23$23$23Add:Issuances of stock………………………1-0-33Net income………………………………..712*-0-Less:Dividends…………………………...........-0-(4)(8)Net loss……………………………………-0-*-0-(17)*Total stockholders’ equity,January 31,2013 ($48 − $17)…………..$31$31$31_____*Must solve for these amounts.(10-15 min.)E 1-19A1.Diamond, Inc.Assets=Liabilities+Stockholders’EquityBeginning amount$130,000=$95,000+$35,000Multiplier for increase× 1.05Ending amount$136,5002.NorthWest Airlines, Ltd.Assets−Liabilities=Stockholders’EquityBeginning amount$100,000−$52,000=$48,000Net income27,000Ending amount$75,000

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Financial Accounting 9/eSolutions Manual1-10(10-15 min.)E 1-20Aa.Balance sheetb.Balance sheetc.Statement of retained earnings, Statement of cash flowsd.Income statemente.Balance sheet, Statement of retained earningsf.Balance sheetg.Balance sheeth.Income statementi.Statement of cash flowsj.Income statementk.Statement of cash flowsl.Balance sheet, Statement of cash flowsm.Balance sheetn.Income statement, Statement of retained earnings, Statement ofcash flows

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Chapter 1The Financial Statements1-11(10-20 min.)E 1-21AMary Burke Banking CompanyBalance Sheet (Amounts in millions)August 31, 2012ASSETSLIABILITIESCash$ 2.8Current liabilities$155.4Receivables0.3Long-term liabilities2.6Investment assets169.3Total liabilities158.0Property andequipment, net1.6STOCKHOLDERS’EQUITYOther assets14.2Common stock14.2Retained earnings16.0*Total stockholders’ equity30.2Total liabilities andTotal assets$188.2stockholders’ equity$188.2_____*Computation of retained earnings:Total assets ($188.2) − Total liabilities ($158.0) − Common stock($14.2) = $16.0

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Financial Accounting 9/eSolutions Manual1-12(15-25 min.)E 1-22AReq. 1Mary Burke Banking CompanyIncome Statement (Amounts in millions)Year Ended August 31, 2012Total revenue…………………………………………$31.4Expenses:Salary and other employee expenses.………..$ 17.4Other expenses…………………………………...6.6Interest expense..…………………………………0.1Total expenses…………………………………….24.1Net income…………………………………………….$ 7.3Req. 2The statement of retained earnings helps to compute dividends, asfollows:Mary Burke Banking CompanyStatement of Retained EarningsYear Ended August 3, 2012(Amounts in millions)Retained earnings, beginning of year……………………..$9.3Add: Net income for the year (Req. 1)……………………..7.316.6Less: Dividends………………………………………….........0.6Retained earnings, end of year (from Exercise 1-21A)….$16.0

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Chapter 1The Financial Statements1-13(15-20 min.)E 1-23AGlass, Inc.Statement of Cash FlowsYear Ended December 31, 2012Cash flows from operating activities:Net income……………………………………………$430,000Adjustments to reconcile net income to netcash provided by operating activities…….......75,000Net cash provided by operating activities………..$505,000Cash flows from investing activities:Net cash used for investing activities……………..(420,000)Cash flows from financing activities:Net cash provided by financing activities…….......11,000Net increase in cash…………………………......................96,000Beginning cash balance…………………….......................83,000Ending cash balance………………………………..............$179,000Items given that do not appear on the statement of cash flows:Total assets−Balance sheetTotal liabilities−Balance sheet

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Financial Accounting 9/eSolutions Manual1-14(15-20 min.)E 1-24ADogan Copy Center, Inc.Income StatementFor the Month Ended July 31, 2012Revenue:Service revenue…………................$540,200Expenses:Salary expense………………………$160,000Utilities expense….………………….10,500Rent expense…………………………2,700Total expenses……………………….173,200Net income…………………………………..$ 367,000Dogan Copy Center, Inc.Statement of Retained EarningsFor the Month Ended July 31, 2012Retained earnings, July 1, 2012…………………….$-0-Add: Net income…………………….……………….367,000367,000Less: Dividends………………………….……………(4,700)Retained earnings, July 31, 2012…….…………….$362,300

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Chapter 1The Financial Statements1-15(15-20 min.) E 1-25ADogan Copy Center, Inc.Balance SheetJuly 31, 2012AssetsLiabilitiesCash……………..$ 10,300Accounts payable……………$ 17,400Office supplies…14,700Equipment………460,000Stockholders’ EquityCommon stock……………….105,300Retained earnings……………362,300Total stockholders’ equity….467,600Total assets…….$485,000Total liabilities andstockholders’ equity……...$485,000

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Financial Accounting 9/eSolutions Manual1-16(15-20 min.)E 1-26ADogan Copy Center, Inc.Statement ofCash FlowsFor the Month Ended July 31, 2012Cash flows from operating activities:Net income……………………………………………$ 367,000Adjustments to reconcile net income to netcashprovided by operations……………………2,700Net cash provided by operating activities369,700Cash flows from investing activities:Acquisition of equipment................................$(460,000)Net cashused for investing activities.....(460,000)Cash flows from financing activities:Issuance (sale) of stock to owners………......$ 105,300Payment of dividends………………………......(4,700)Net cash provided by financing activities100,600Net increase in cash……………………….............10,300Cash balance, July 1, 2012……………………......0Cash balance, July 31, 2012………………...........$ 10,300

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Chapter 1The Financial Statements1-17(10-15 min.)E 1-27ATO:Owner of Dogan Copy Center, Inc.FROM:Student NameSUBJECT:Opinion of net income, dividends, financial position, andcash flowsYourfirst monthof operations wassuccessful.Revenues totaled$540,200 and net income was $367,000. These operating results lookvery strong.The company was able to pay a $4,700 dividend, and this should makeyou happy with so quick a return on your investment.Your financialpositionlooks secure, with assets of $485,000 and liabilities of only$17,400. Your stockholders’ equity is $467,600.Operating activities generated cash of $369,700, which is respectable.You ended the month with cash of $10,300. Based on the above facts, Ibelieve you should stay in business.Student responses may vary.(10-15 min.)E 1-28BAmountsin billions; (computed amounts in boxes)Assets=Liabilities+Owners’ EquityFresh Produce$37$ 20$17Margie’s Bank30$1812Flowers and Gifts216$15FlowersandGiftsappearstohavethestrongestfinancialpositionbecauseits liabilities make up the smallest percentage of companyassets ($6/$21 = .29). Stated differently, Flowers and Gifts’ equity is thehighest percentage of company assets ($15/$21 = .71).

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Financial Accounting 9/eSolutions Manual1-18(10-15 min.)E 1-29BReq. 1(Amounts in millions)Assets=Liabilities+Stockholders’Equity$270$160400340160Total$830=$500+$330Req. 2Resourcesto work withReq. 3Amountowed tocreditorsReq. 4Actuallyowned by companystockholders10-20 min.)E 1-30BSituation123MillionsTotal stockholders’ equity,January 31, 2012 ($31 − $7)………….$24$24$24Add:Issuances of stock……………………4-0-10Net income……………………………..03*39Less:Dividends…………………………........-0-(4)(50)Net loss………………………………….(5)*-0--0-*Total stockholders’ equity,January 31, 2013 ($35 − $12)…………$23$23$23_____*Must solve for these amounts.

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Chapter 1The Financial Statements1-19(10-15 min.)E 1-31B1.Emerald, Inc.Assets=Liabilities+Stockholders’EquityBeginning amount$160,000=$80,000+$80,000Multiplier for increase× 1.25Ending amount$200,0002.JetWest Airlines, Ltd.Assets−Liabilities=Stockholders’EquityBeginning amount$130,000−$37,000=$93,000Net income28,000Ending amount$121,000(10-15 min.)E 1-32Ba.Income statementb.Income statement, Statement of retained earnings, Statement of cashflowsc.Balance sheetd.Balance sheete.Balance sheetf.Balance sheet, Statement of retained earningsg.Income statementh.Balance sheet, Statement of cash flowsi.Statement of retained earnings, Statement of cash flowsj.Balance sheetk.Balance sheetl.Income statementm.Statement of cash flowsn.Statement of cash flows

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Financial Accounting 9/eSolutions Manual1-20(10-20 min.)E 1-33BJill Carlson Banking CompanyBalance Sheet (Amounts in millions)May 31, 2012ASSETSLIABILITIESCash$ 2.3Current liabilities$152.6Receivables0.8Long-term liabilities2.7Investmentassets169.5Total liabilities155.3Property andequipment, net1.2STOCKHOLDERS’EQUITYOther assets14.6Common stock14.8Retained earnings18.3*Total stockholders’equity33.1Total assets$188.4Total liabilities andstockholders’equity$188.4_____*Computation of retained earnings:Total assets($188.4) − Total liabilities ($155.3) − Common stock($14.8) = $18.3

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Chapter 1The Financial Statements1-21(15-25 min.)E 1-34BReq. 1Jill Carlson Banking CompanyIncome Statement (Amounts in millions)Year Ended May 31, 2012Totalrevenue................................................................$34.7Expenses:Salary and other employee expenses...................$ 17.3Other expenses.......................................................6.6Interest expense.....................................................0.7Total expenses........................................................24.6Net income....................................................................$ 10.1Req. 2The statement of retained earnings helps to compute dividends, asfollows:Jill Carlson Banking CompanyStatement of Retained Earnings (Amounts in millions)Year Ended May 31, 2012Retained earnings, beginning of year………………………….$8.7Add: Net income for the year(Req. 1)…….……………………10.118.8Less: Dividends.......................................................................0.5Retained earnings, end of year (from Exercise 1-33B).........$18.3

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Financial Accounting 9/eSolutions Manual1-22(15-20 min.)E 1-35BGroovy, Inc.Statement of Cash FlowsYear Ended December 31, 2012Cash flows from operating activities:Net income...........................................................$360,000Adjustments to reconcile net income to netcash provided by operating activities............60,000Net cash provided by operating activities..............$420,000Cash flows from investing activities:Net cash used for investing activities.....................(410,000)Cash flows from financing activities:Net cashprovided by financing activities..............5,000Net increase in cash..................................................................15,000Beginning cash balance...........................................................95,000Ending cash balance.................................................................$110,000Items given that do not appear on the statement of cash flows:Total assets−Balance sheetTotal liabilities−Balance sheet

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Chapter 1The Financial Statements1-23(15-20 min.)E 1-36BCroyden Copy CenterIncome StatementFor the Month Ended July 31, 2013Revenue:Service revenue……………………….$544,600Expenses:Salary expense………………………..$157,000Utilitiesexpense……………………...10,500Rent expense…….……………………2,500Total expenses………………………..170,000Net income…………………………………$ 374,600Croyden Copy CenterStatement of Retained EarningsFor the Month Ended July 31, 2013Retained earnings, July 1, 2013...............................$-0-Add: Net income for the month................................374,600374,600Less: Dividends.........................................................(4,800)Retained earnings, July 31, 2013.............................$369,800

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Financial Accounting 9/eSolutions Manual1-24(15-20 min.) E 1-37BCroyden Copy CenterBalance SheetJuly 31, 2013AssetsLiabilitiesCash………………...$ 11,100Accounts payable……………$ 17,300Office supplies……14,800Equipment…………410,000Stockholders’ EquityCommon stock………………..48,800Retained earnings……………369,800Total stockholders’ equity418,600Total liabilities andTotal assets………$435,900stockholders’ equity……….$435,90015-20 min.)E 1-38BCroyden Copy CenterStatement of Cash FlowsFor the Month Ended July 31, 2013Cash flows from operating activities:Net income.........................................................$ 374,600Adjustments to reconcile net incometo netcash provided by operations..........................2,500Net cash provided by operating activities…377,100Cash flows from investing activities:Acquisition of equipment.................................$(410,000)Net cash used for investing activities……..(410,000)Cash flows from financing activities:Issuance (sale) of stock to owners..................$48,800Payment of dividends.......................................(4,800)Net cash provided by financing activities…44,000Net increase in cash...............................................$ 11,100Cash balance, July 1, 2013....................................0Cash balance, July 31, 2013..................................$ 11,100

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Chapter 1The Financial Statements1-25(10-15 min.)E 1-39BTO:Owner of CROYDEN Copy Center, Inc.FROM:Student NameSUBJECT:Opinion of net income, dividends, financial position,and cash flowsYourfirst monthof operations wassuccessful.Revenues totaled$544,600 and net income was $374,600. These operating results lookvery strong.The company was able to pay a $4,800 dividend, and this should makeyou happy with so quick a return on your investment.Your financialposition looks secure, with assets of $435,900 and liabilities of only$17,300. Your stockholders’ equity is $418,600.Operating activities generated cash of $377,100, which is respectable.You ended the month with cash of $11,100. Based on the above facts, Ibelieve you should stay in business.Student responses may vary.

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Financial Accounting 9/eSolutions Manual1-26QuizQ1-40cQ1-41cQ1-42cQ1-43bStockholders’Assets=Liabilities+Equity+ $28,000=+ $9,000++$19,000Q1-44dQ1-45dQ1-46aQ1-47aQ1-48aQ1-49a[$55,000−$58,000 − $21,000 − $6,000 = $(30,000)]Q1-50d($200,000 + $105,000 − $45,000 = $260,000)Q1-51dQ1-52bQ1-53dStockholders’Assets=Liabilities+EquityBeg.$25,000=$ 4,000*+$21,000Changes+ 12,000End.$39,000*=$16,000*+$23,000_____*Must solve for these amounts.Q1-54aAssets − Liabilities =Stockholders’ equityBeg. bal.$530,000−$24,000 =$506,000+ Net income+X−Dividends−80,000End. bal.$750,000−$33,000 =$717,000

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Chapter 1The Financial Statements1-27Problems(15-30 min.) P 1-55AReq. 1A Division of Harrold CorporationIncome StatementYear Ended December 31, 2013Revenue:Service revenue....................................$250,000Other revenue.......................................57,000Total revenue........................................$307,000Expenses:Salary expense.....................................$ 29,000Other expenses....................................242,000Total operating expenses....................271,000Income before income tax............................36,000Income tax expense ($36,000 × .34).............12,240Net income.....................................................$ 23,760Req. 2a.Faithful representation. Report revenues at their actual sale valuebecausethatamountrepresentsmorefaithfullywhatactuallyhappened than what management believes the services are worth.b.Historical cost principle. Account for expenses at their actual cost,not a hypothetical amount that the company might have incurredunder other conditions.c.Historical cost principle. Account for expenses at their actual cost.

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Financial Accounting 9/eSolutions Manual1-28(continued) P 1-55Ad.Entity assumption. Each subdivision of the company is a separateentity,andthecompanyasawholeconstitutesanentityforaccounting purposes.e.Stable-monetary-unit assumption. Accounting in the UnitedStatesignores the effect of inflation.f.Continuity (going-concern) assumption. There is no evidence that ADivision of Harrold Corporation is going out of business, so it seemssafe to assume that the division is a going concern.

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Chapter 1The Financial Statements1-29(30 min.)P 1-56AReq. 1Computed amounts in boxesRubyLarsBarbMillionsBalance sheets:Beginning:Assets………………………...$ 78$ 40$14Liabilities……………………..45141Common stock……………...436Retained earnings………….29237Ending:Assets………………………...$84$ 59$ 17Liabilities……………………..47262Common stock……………...436Retained earnings………….33309Income statement:Revenues…………………….$220$170$21Expenses…………………….21416018Net income…………………..$6$103Statement of retained earnings:Beginning RE………………..$ 29$ 23$ 7+Net income…………………..6103−Dividends…………………….(2)(3)(1)=Ending RE……………………$ 33$ 30$ 9

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Financial Accounting 9/eSolutions Manual1-30(continued) P 1-56AReq. 2RubyLarsBarbMillionsNet income………….$6$10$3Highest% of net income$6= 2.7%$10= 5.9%$3=14.3%to revenues………$220$170$21Highest

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