Fundamental Accounting Principles, Volume 1, 14th Canadian Edition Solution Manual
Strengthen your problem-solving skills with Fundamental Accounting Principles, Volume 1, 14th Canadian Edition Solution Manual, your essential study tool.
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Last revised: October 26, 2012
1-1
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
14th Canadian Edition
by Larson/Jensen
Prepared by:
Tilly Jensen, Athabasca University
Wendy Popowich, Northern Alberta Institute of Technology
Susan Hurley, Northern Alberta Institute of Technology
Ruby So Koumarelas, Northern Alberta Institute of Technology
Technical checks by:
Ross Meacher
Betty Young, Red River College,
ANSR Source
1-1
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
14th Canadian Edition
by Larson/Jensen
Prepared by:
Tilly Jensen, Athabasca University
Wendy Popowich, Northern Alberta Institute of Technology
Susan Hurley, Northern Alberta Institute of Technology
Ruby So Koumarelas, Northern Alberta Institute of Technology
Technical checks by:
Ross Meacher
Betty Young, Red River College,
ANSR Source
Last revised: October 26, 2012
1-1
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
14th Canadian Edition
by Larson/Jensen
Prepared by:
Tilly Jensen, Athabasca University
Wendy Popowich, Northern Alberta Institute of Technology
Susan Hurley, Northern Alberta Institute of Technology
Ruby So Koumarelas, Northern Alberta Institute of Technology
Technical checks by:
Ross Meacher
Betty Young, Red River College,
ANSR Source
1-1
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
14th Canadian Edition
by Larson/Jensen
Prepared by:
Tilly Jensen, Athabasca University
Wendy Popowich, Northern Alberta Institute of Technology
Susan Hurley, Northern Alberta Institute of Technology
Ruby So Koumarelas, Northern Alberta Institute of Technology
Technical checks by:
Ross Meacher
Betty Young, Red River College,
ANSR Source
Last revised: October 26, 2012
1-2
Chapter 1 Accounting in Business
Chapter Opening Vignette Critical Thinking Challenge Questions*
1. What questions might Jake need the answers to in order to get a loan from a
bank?
How many employees does he need to hire to provide services to clients? Does
Jake pay his employees a salary or a wage? How much does he pay them? Does
he have the cash in the bank to pay his employees? Does he have rental
equipment? Does he have a vehicle? Does he have insurance? Is the building
rented or purchased? If he rents a building, did he make rental payments in
advance or does he pay monthly? If the building was purchased, did he pay cash
or does he owe money on it? If he owes money, does he pay interest? If he owns a
building, how much does he pay on property taxes and utilities? If he owns a
building, how much does he pay for repairs and maintenance? What about buying
and paying for supplies? Does he advertise? If so, how much does he pay? How
much is the business actually earning? Do customers pay in advance or do they
pay per session? Do customers pay cash or on account? What is the amount of
income tax he has to pay? Are there any outstanding loans? If so, what is the
balance outstanding, the term, the payments, and the interest rate? There are
many other questions that could be asked.
2. Who else might require accounting information from Jake’s business?
Other stakeholders that might require accounting information from Jake’s
business include Canada Revenue Agency (CRA), employees, and potential
investors.
*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
1-2
Chapter 1 Accounting in Business
Chapter Opening Vignette Critical Thinking Challenge Questions*
1. What questions might Jake need the answers to in order to get a loan from a
bank?
How many employees does he need to hire to provide services to clients? Does
Jake pay his employees a salary or a wage? How much does he pay them? Does
he have the cash in the bank to pay his employees? Does he have rental
equipment? Does he have a vehicle? Does he have insurance? Is the building
rented or purchased? If he rents a building, did he make rental payments in
advance or does he pay monthly? If the building was purchased, did he pay cash
or does he owe money on it? If he owes money, does he pay interest? If he owns a
building, how much does he pay on property taxes and utilities? If he owns a
building, how much does he pay for repairs and maintenance? What about buying
and paying for supplies? Does he advertise? If so, how much does he pay? How
much is the business actually earning? Do customers pay in advance or do they
pay per session? Do customers pay cash or on account? What is the amount of
income tax he has to pay? Are there any outstanding loans? If so, what is the
balance outstanding, the term, the payments, and the interest rate? There are
many other questions that could be asked.
2. Who else might require accounting information from Jake’s business?
Other stakeholders that might require accounting information from Jake’s
business include Canada Revenue Agency (CRA), employees, and potential
investors.
*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
Last revised: October 26, 2012
1-2
Chapter 1 Accounting in Business
Chapter Opening Vignette Critical Thinking Challenge Questions*
1. What questions might Jake need the answers to in order to get a loan from a
bank?
How many employees does he need to hire to provide services to clients? Does
Jake pay his employees a salary or a wage? How much does he pay them? Does
he have the cash in the bank to pay his employees? Does he have rental
equipment? Does he have a vehicle? Does he have insurance? Is the building
rented or purchased? If he rents a building, did he make rental payments in
advance or does he pay monthly? If the building was purchased, did he pay cash
or does he owe money on it? If he owes money, does he pay interest? If he owns a
building, how much does he pay on property taxes and utilities? If he owns a
building, how much does he pay for repairs and maintenance? What about buying
and paying for supplies? Does he advertise? If so, how much does he pay? How
much is the business actually earning? Do customers pay in advance or do they
pay per session? Do customers pay cash or on account? What is the amount of
income tax he has to pay? Are there any outstanding loans? If so, what is the
balance outstanding, the term, the payments, and the interest rate? There are
many other questions that could be asked.
2. Who else might require accounting information from Jake’s business?
Other stakeholders that might require accounting information from Jake’s
business include Canada Revenue Agency (CRA), employees, and potential
investors.
*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
1-2
Chapter 1 Accounting in Business
Chapter Opening Vignette Critical Thinking Challenge Questions*
1. What questions might Jake need the answers to in order to get a loan from a
bank?
How many employees does he need to hire to provide services to clients? Does
Jake pay his employees a salary or a wage? How much does he pay them? Does
he have the cash in the bank to pay his employees? Does he have rental
equipment? Does he have a vehicle? Does he have insurance? Is the building
rented or purchased? If he rents a building, did he make rental payments in
advance or does he pay monthly? If the building was purchased, did he pay cash
or does he owe money on it? If he owes money, does he pay interest? If he owns a
building, how much does he pay on property taxes and utilities? If he owns a
building, how much does he pay for repairs and maintenance? What about buying
and paying for supplies? Does he advertise? If so, how much does he pay? How
much is the business actually earning? Do customers pay in advance or do they
pay per session? Do customers pay cash or on account? What is the amount of
income tax he has to pay? Are there any outstanding loans? If so, what is the
balance outstanding, the term, the payments, and the interest rate? There are
many other questions that could be asked.
2. Who else might require accounting information from Jake’s business?
Other stakeholders that might require accounting information from Jake’s
business include Canada Revenue Agency (CRA), employees, and potential
investors.
*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
Last revised: October 26, 2012
1-3
Concept Review Questions
1. Jake identifies accounting knowledge as the key to success in business.
2. Businesses offering products include Danier Leather, Bauer, NIKE, and Reebok
which produce apparel; Dell, Hewlett-Packard, and Apple which produce computer
equipment; and Tilley, Levis, and GAP which produce clothing. Service business
examples include: WestJet Airlines which provides airline services; Sympatico, AOL
Canada, and CompuServe provide information communication services; and Tilden,
Hertz, and Budget which provide vehicle rental services.
3. Business organizations can be organized in one of three forms: sole proprietorship,
partnership, or corporation. These forms have implications for legal liability,
taxation, continuity, number of owners, and legal status as follows:
Sole Proprietorship Partnership Corporation
Legal entity no no yes
Limited liability no no yes
Unlimited life no no yes
Business income taxed no no yes
One owner allowed yes no yes
4. The equity section of the balance sheet reports a Virgil Klimb, Capital account. The
presence of the owner’s capital account indicates that Vertically Inclined has been
organized as a sole proprietorship.
5. The two organizations for which accounting information is available in Appendix 1 at
the end of the book are WestJet Airlines and Danier Leather.
6. Hospitals, colleges, prisons, and bus lines are examples of organizations that can be
formed as profit-oriented businesses, government units, or nonprofit
establishments.
7. Individuals responsible for marketing activities are likely interested in information
such as sales volume, advertising costs, promotion costs, salaries of sales
personnel, and sales commissions.
8. External users and their uses of accounting information include: (a) lenders for
measuring the return of loans; (b) shareholders for assessing the acquisition of
shares; (c) members of the board of directors for overseeing management; and (d)
potential employees for judging employment opportunities. Other users are
auditors, consultants, regulators, unions, suppliers, and appraisers. Internal users
and their uses of accounting information include: (a) management for overseeing
performance, financial position, and cash flow; and (b) current employees for
generating special purpose reports to assist management.
9. The internal role of accounting is to serve the organization’s internal operating
functions by providing useful information in completing their tasks more effectively
and efficiently. By providing this information, accounting helps the organization
reach its overall goals.
10. Managerial accounting tasks performed by both private and government
accountants include general accounting, cost accounting, budgeting, auditing, and
management consulting.
11. Management consulting services offered by public accounting professionals include
designing and installing accounting systems, establishing internal controls, advice
1-3
Concept Review Questions
1. Jake identifies accounting knowledge as the key to success in business.
2. Businesses offering products include Danier Leather, Bauer, NIKE, and Reebok
which produce apparel; Dell, Hewlett-Packard, and Apple which produce computer
equipment; and Tilley, Levis, and GAP which produce clothing. Service business
examples include: WestJet Airlines which provides airline services; Sympatico, AOL
Canada, and CompuServe provide information communication services; and Tilden,
Hertz, and Budget which provide vehicle rental services.
3. Business organizations can be organized in one of three forms: sole proprietorship,
partnership, or corporation. These forms have implications for legal liability,
taxation, continuity, number of owners, and legal status as follows:
Sole Proprietorship Partnership Corporation
Legal entity no no yes
Limited liability no no yes
Unlimited life no no yes
Business income taxed no no yes
One owner allowed yes no yes
4. The equity section of the balance sheet reports a Virgil Klimb, Capital account. The
presence of the owner’s capital account indicates that Vertically Inclined has been
organized as a sole proprietorship.
5. The two organizations for which accounting information is available in Appendix 1 at
the end of the book are WestJet Airlines and Danier Leather.
6. Hospitals, colleges, prisons, and bus lines are examples of organizations that can be
formed as profit-oriented businesses, government units, or nonprofit
establishments.
7. Individuals responsible for marketing activities are likely interested in information
such as sales volume, advertising costs, promotion costs, salaries of sales
personnel, and sales commissions.
8. External users and their uses of accounting information include: (a) lenders for
measuring the return of loans; (b) shareholders for assessing the acquisition of
shares; (c) members of the board of directors for overseeing management; and (d)
potential employees for judging employment opportunities. Other users are
auditors, consultants, regulators, unions, suppliers, and appraisers. Internal users
and their uses of accounting information include: (a) management for overseeing
performance, financial position, and cash flow; and (b) current employees for
generating special purpose reports to assist management.
9. The internal role of accounting is to serve the organization’s internal operating
functions by providing useful information in completing their tasks more effectively
and efficiently. By providing this information, accounting helps the organization
reach its overall goals.
10. Managerial accounting tasks performed by both private and government
accountants include general accounting, cost accounting, budgeting, auditing, and
management consulting.
11. Management consulting services offered by public accounting professionals include
designing and installing accounting systems, establishing internal controls, advice
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Last revised: October 26, 2012
1-4
on budgeting, guidance in information technology, and constructing employee
benefit plans.
12. In addition to preparing tax returns, tax accountants help companies plan future
transactions to minimize the amount of tax to be paid.
13. The independent auditor for Danier Leather is PricewaterhouseCoopers LLP.
14. The purpose of accounting is to provide decision makers with information helping
them make better decisions. Examples include information for people making
investments, loans and similar decisions.
15. Accounting professionals deal with a variety of information about their employers
and clients that is not generally available to the public. Ethical issues arise
concerning the possibility that accounting professionals might personally benefit by
using confidential information. There is also the possibility that their employers and
clients might be harmed if certain information is not kept confidential.
16. An income statement user must know what time period is covered to judge whether
the company’s performance is satisfactory. For example, a statement user would not
be able to assess whether the amounts of revenue and net income are satisfactory
without knowing whether they were earned over a week, a month, or a year.
17. The revenue recognition principle provides guidance that managers and auditors
need for knowing when to recognize revenue. For example, if revenue is recognized
too early, the income statement reports income earlier than it should and the
business looks more profitable than it really is. On the other hand, if the revenue is
not recognized on time, the income statement shows lower amounts of revenue and
net income than it should and the business looks less profitable than it really is.
Basically, this principle requires revenue to be recognized when it is earned and can
be measured reliably. The amount of revenue should equal the value of the assets
received from the customers.
18. The four financial statements are: the income statement, the balance sheet, the
statement of changes in equity, and the statement of cash flows.
19. An income statement reports on the business’s performance during the period. It
shows whether the business earned a net income (or net loss). The statement does
not simply report the amount of net income or loss but lists the types and amounts
of the revenues and expenses.
20. A revenue is an inflow of assets received in exchange for goods or services
provided to customers as part of the major or central operations of the business. A
revenue also may occur as a decrease in liabilities as when a service or product is
delivered having been paid for in advance.
21. A business’s equity is increased by investments into the business made by the
owner and by net income. It is decreased by withdrawals made by the owner and by
a net loss, which is the excess of expenses over revenues.
22. The balance sheet reports on the financial position of a business at a specific point
in time. It is often called the statement of financial position. It provides information
that helps users understand a company’s financial status. The balance sheet lists
the types and dollar amounts of assets, liabilities, and equity of the business.
1-4
on budgeting, guidance in information technology, and constructing employee
benefit plans.
12. In addition to preparing tax returns, tax accountants help companies plan future
transactions to minimize the amount of tax to be paid.
13. The independent auditor for Danier Leather is PricewaterhouseCoopers LLP.
14. The purpose of accounting is to provide decision makers with information helping
them make better decisions. Examples include information for people making
investments, loans and similar decisions.
15. Accounting professionals deal with a variety of information about their employers
and clients that is not generally available to the public. Ethical issues arise
concerning the possibility that accounting professionals might personally benefit by
using confidential information. There is also the possibility that their employers and
clients might be harmed if certain information is not kept confidential.
16. An income statement user must know what time period is covered to judge whether
the company’s performance is satisfactory. For example, a statement user would not
be able to assess whether the amounts of revenue and net income are satisfactory
without knowing whether they were earned over a week, a month, or a year.
17. The revenue recognition principle provides guidance that managers and auditors
need for knowing when to recognize revenue. For example, if revenue is recognized
too early, the income statement reports income earlier than it should and the
business looks more profitable than it really is. On the other hand, if the revenue is
not recognized on time, the income statement shows lower amounts of revenue and
net income than it should and the business looks less profitable than it really is.
Basically, this principle requires revenue to be recognized when it is earned and can
be measured reliably. The amount of revenue should equal the value of the assets
received from the customers.
18. The four financial statements are: the income statement, the balance sheet, the
statement of changes in equity, and the statement of cash flows.
19. An income statement reports on the business’s performance during the period. It
shows whether the business earned a net income (or net loss). The statement does
not simply report the amount of net income or loss but lists the types and amounts
of the revenues and expenses.
20. A revenue is an inflow of assets received in exchange for goods or services
provided to customers as part of the major or central operations of the business. A
revenue also may occur as a decrease in liabilities as when a service or product is
delivered having been paid for in advance.
21. A business’s equity is increased by investments into the business made by the
owner and by net income. It is decreased by withdrawals made by the owner and by
a net loss, which is the excess of expenses over revenues.
22. The balance sheet reports on the financial position of a business at a specific point
in time. It is often called the statement of financial position. It provides information
that helps users understand a company’s financial status. The balance sheet lists
the types and dollar amounts of assets, liabilities, and equity of the business.
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Last revised: October 26, 2012
1-5
23. (a) Assets are probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events. (b) Liabilities are probable
future sacrifices of economic benefits arising from present obligations of a
particular entity to transfer assets or provide services to other entities in the future
as a result of past transactions or events. (c) Equity is the residual interest in the
assets of an entity that remains after deducting its liabilities. (d) The term “net
assets” means the same thing as equity, which is also determined as assets less
liabilities.
QUICK STUDY
Quick Study 1-1
There are a variety of questions and this list is certainly not exhaustive:
1. How much was spent on advertising last year? And/or how much is projected to be
spent this year?
2. What is the effect of advertising on sales? And/or what is the projected effect of
advertising on this year’s sales?
3. How much was spent on delivering flowers last year? And/or how much is projected
to be spent this year?
4. How much will it cost to create a webpage and sell flowers online?
5. Can sales be increased by selling online? And/or what is the experience of our
competitors in this regard?
6. When pricing flowers, how much is being charged for delivery?
7. Are there enough sales staff to answer phones/emails and/or are sales being lost
because of insufficient staffing and/or staffing issues?
Quick Study 1-2
a. Accounting Meeting with the mechanical staff to determine new machine
requirements for next year.
b. Recordkeeping Data entry of sales orders received via the telephone.
c. Accounting Analyzing a sales report to determine if the discount policy is
effective in getting customers to buy in multiple quantities.
d. Recordkeeping Listing cheques received in the mail.
Quick Study 1-3
a. Highlands United Church Non-business d. CDI College Business
b. Royal Alexandra Hospital Non-business e. Loblaw Business
c. RBC Business f. World Vision Non-business
1-5
23. (a) Assets are probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events. (b) Liabilities are probable
future sacrifices of economic benefits arising from present obligations of a
particular entity to transfer assets or provide services to other entities in the future
as a result of past transactions or events. (c) Equity is the residual interest in the
assets of an entity that remains after deducting its liabilities. (d) The term “net
assets” means the same thing as equity, which is also determined as assets less
liabilities.
QUICK STUDY
Quick Study 1-1
There are a variety of questions and this list is certainly not exhaustive:
1. How much was spent on advertising last year? And/or how much is projected to be
spent this year?
2. What is the effect of advertising on sales? And/or what is the projected effect of
advertising on this year’s sales?
3. How much was spent on delivering flowers last year? And/or how much is projected
to be spent this year?
4. How much will it cost to create a webpage and sell flowers online?
5. Can sales be increased by selling online? And/or what is the experience of our
competitors in this regard?
6. When pricing flowers, how much is being charged for delivery?
7. Are there enough sales staff to answer phones/emails and/or are sales being lost
because of insufficient staffing and/or staffing issues?
Quick Study 1-2
a. Accounting Meeting with the mechanical staff to determine new machine
requirements for next year.
b. Recordkeeping Data entry of sales orders received via the telephone.
c. Accounting Analyzing a sales report to determine if the discount policy is
effective in getting customers to buy in multiple quantities.
d. Recordkeeping Listing cheques received in the mail.
Quick Study 1-3
a. Highlands United Church Non-business d. CDI College Business
b. Royal Alexandra Hospital Non-business e. Loblaw Business
c. RBC Business f. World Vision Non-business
Loading page 6...
Last revised: October 26, 2012
1-6
Quick Study 1-4
Accounting professionals practice in four
broad fields including:
Accounting-related opportunities within
each field are numerous and include:
Financial accounting - Statement preparation
- Statement analysis
- Auditing
- Regulatory
- Consulting
- Planning
- Criminal investigation
Managerial accounting - General accounting
- Cost accounting
- Budgeting
- Internal auditing
- Management advisory services
Taxation - Preparation
- Planning
- Regulatory
- Investigations
- Consulting
Accounting-related - Lenders
- Consultants
- Analysts
- Traders
- Managers
- Directors
- Underwriters
- Planners
- Appraisers
Quick Study 1-5
Accounting information could be used to determine if a product should be sold or if an
investment should be made.
1-6
Quick Study 1-4
Accounting professionals practice in four
broad fields including:
Accounting-related opportunities within
each field are numerous and include:
Financial accounting - Statement preparation
- Statement analysis
- Auditing
- Regulatory
- Consulting
- Planning
- Criminal investigation
Managerial accounting - General accounting
- Cost accounting
- Budgeting
- Internal auditing
- Management advisory services
Taxation - Preparation
- Planning
- Regulatory
- Investigations
- Consulting
Accounting-related - Lenders
- Consultants
- Analysts
- Traders
- Managers
- Directors
- Underwriters
- Planners
- Appraisers
Quick Study 1-5
Accounting information could be used to determine if a product should be sold or if an
investment should be made.
Loading page 7...
Last revised: October 26, 2012
1-7
Quick Study 1-6
The four elements need to be addressed as follows:
1. Is it the Truth? No, personal dinners with a spouse are not business expenses so
you are not being truthful in submitting these as part of the expense report.
2. Is it Fair to all concerned? No, it is not fair to the owner(s) of the business, to the
other employees, or to your spouse (since they are likely not aware of the deceit).
3. Will it build goodwill and better friendships? It may build a good relationship with
the restaurant owners where you take your spouse but it will damage goodwill
between the employer and you as well as strain friendships with other employees.
4. Will it be beneficial to all concerned? It will benefit you, your spouse, and the
restaurant owner but it will not benefit the business owner(s) and the other
employees.
Conclusion: The behaviour in the situation described appears to be unethical based on
the application of the Rotary 4-Way Test.
Quick Study 1-7
a. Business entity principle
b. Revenue recognition principle
c. Cost principle
Quick Study 1-8
1. Revenue Recognition
2. Cost
3. Business Entity
4. Going Concern
5. Monetary Unit
Quick Study 1-9
Monetary Unit a. Delco performed work for a client located in China and collected
8,450,000 RMB (Chinese currency), the equivalent of about $1,320,000
Canadian. Delco recorded it as 8,450,000.
Revenue
Recognition
b. Delco collected $180,000 from a customer on December 20, 2014 for
work to be done in February 2015. The $180,000 was recorded as
revenue during 2014. Delco’s year end is December 31.
Going
Concern
c. Delco’s December 31, 2014 balance sheet showed total assets of
$840,000 and liabilities of $1,120,000. The income statement for the
past 6 years has shown a trend of increasing losses.
Cost d. Included in Delco’s assets was land and building purchased for
$310,000 and reported on the balance sheet at $470,000.
Business
Entity
e. Delco’s owner, Tom Del, consistently buys personal supplies and
charges them to the company.
1-7
Quick Study 1-6
The four elements need to be addressed as follows:
1. Is it the Truth? No, personal dinners with a spouse are not business expenses so
you are not being truthful in submitting these as part of the expense report.
2. Is it Fair to all concerned? No, it is not fair to the owner(s) of the business, to the
other employees, or to your spouse (since they are likely not aware of the deceit).
3. Will it build goodwill and better friendships? It may build a good relationship with
the restaurant owners where you take your spouse but it will damage goodwill
between the employer and you as well as strain friendships with other employees.
4. Will it be beneficial to all concerned? It will benefit you, your spouse, and the
restaurant owner but it will not benefit the business owner(s) and the other
employees.
Conclusion: The behaviour in the situation described appears to be unethical based on
the application of the Rotary 4-Way Test.
Quick Study 1-7
a. Business entity principle
b. Revenue recognition principle
c. Cost principle
Quick Study 1-8
1. Revenue Recognition
2. Cost
3. Business Entity
4. Going Concern
5. Monetary Unit
Quick Study 1-9
Monetary Unit a. Delco performed work for a client located in China and collected
8,450,000 RMB (Chinese currency), the equivalent of about $1,320,000
Canadian. Delco recorded it as 8,450,000.
Revenue
Recognition
b. Delco collected $180,000 from a customer on December 20, 2014 for
work to be done in February 2015. The $180,000 was recorded as
revenue during 2014. Delco’s year end is December 31.
Going
Concern
c. Delco’s December 31, 2014 balance sheet showed total assets of
$840,000 and liabilities of $1,120,000. The income statement for the
past 6 years has shown a trend of increasing losses.
Cost d. Included in Delco’s assets was land and building purchased for
$310,000 and reported on the balance sheet at $470,000.
Business
Entity
e. Delco’s owner, Tom Del, consistently buys personal supplies and
charges them to the company.
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Last revised: October 26, 2012
1-8
Quick Study 1-10
1. SP
2. C
3. P
4. SP
5. C
6. C
7. P
Quick Study 1-11
a. Equity = $ 75,000 – $ 40,500 = $ 34,500
b. Liabilities = $300,000 – $ 85,500 = $214,500
c. Assets = $187,500 + $ 95,400 = $282,900
Quick Study 1-12
a. Equity = $374,700 – $252,450 = $122,250
b. Liabilities = $150,900 – $126,000 = $ 24,900
c. Assets = $ 37,650 + $112,500 = $150,150
1-8
Quick Study 1-10
1. SP
2. C
3. P
4. SP
5. C
6. C
7. P
Quick Study 1-11
a. Equity = $ 75,000 – $ 40,500 = $ 34,500
b. Liabilities = $300,000 – $ 85,500 = $214,500
c. Assets = $187,500 + $ 95,400 = $282,900
Quick Study 1-12
a. Equity = $374,700 – $252,450 = $122,250
b. Liabilities = $150,900 – $126,000 = $ 24,900
c. Assets = $ 37,650 + $112,500 = $150,150
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Last revised: October 26, 2012
1-9
Quick Study 1-13
a.
Allin Servicing
Income Statement
For Month Ended April 30, 2014
Revenues $300
Expenses 125
Net income (loss) 175
Allin Servicing
Statement of Changes in Equity
For Month Ended April 30, 2014
Tim Allin, capital, April 1 $ 50
Add: Investments by
owner $ 30
Net income 175 205
Total $255
Less: Withdrawals by owner 15
Tim Allin, capital, April 30 $240
Allin Servicing
Balance Sheet
April 30, 2014
Assets Liabilities
Cash $ 60 Accounts payable $ 25
Equipment 205 Equity
Tim Allin, capital 240
Total liabilities and
Total assets $265 equity $265
b.
Allin Servicing
Income Statement
For Month Ended May 31, 2014
Revenues $135
Expenses 85
Net income (loss) $ 50
Allin Servicing
Statement of Changes in Equity
For Month Ended May 31, 2014
Tim Allin, capital, May 1 $240
Add: Investments by
owner $ 60
Net income 50 $110
Total 350
Less: Withdrawals by owner 75
Tim Allin, capital, May 31 $275
Allin Servicing
Balance Sheet
May 31, 2014
Assets Liabilities
Cash $120 Accounts payable $ 45
Equipment 200 Equity
Tim Allin, capital 275
Total liabilities and
Total assets $320 equity $320
1-9
Quick Study 1-13
a.
Allin Servicing
Income Statement
For Month Ended April 30, 2014
Revenues $300
Expenses 125
Net income (loss) 175
Allin Servicing
Statement of Changes in Equity
For Month Ended April 30, 2014
Tim Allin, capital, April 1 $ 50
Add: Investments by
owner $ 30
Net income 175 205
Total $255
Less: Withdrawals by owner 15
Tim Allin, capital, April 30 $240
Allin Servicing
Balance Sheet
April 30, 2014
Assets Liabilities
Cash $ 60 Accounts payable $ 25
Equipment 205 Equity
Tim Allin, capital 240
Total liabilities and
Total assets $265 equity $265
b.
Allin Servicing
Income Statement
For Month Ended May 31, 2014
Revenues $135
Expenses 85
Net income (loss) $ 50
Allin Servicing
Statement of Changes in Equity
For Month Ended May 31, 2014
Tim Allin, capital, May 1 $240
Add: Investments by
owner $ 60
Net income 50 $110
Total 350
Less: Withdrawals by owner 75
Tim Allin, capital, May 31 $275
Allin Servicing
Balance Sheet
May 31, 2014
Assets Liabilities
Cash $120 Accounts payable $ 45
Equipment 200 Equity
Tim Allin, capital 275
Total liabilities and
Total assets $320 equity $320
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Last revised: October 26, 2012
1-10
Quick Study 1-14
1. $20,000 - $15,000 = $5,000 beginning capital on January 1, 2014
2. $5,000 + $3,000 + $8,000 - $4,000 = $12,000 ending capital on December 31, 2014
Quick Study 1-15
The source documents include:
c. Telephone bill
d. Invoice from supplier
g. Bank statement
h. Sales invoice
Quick Study 1-16
Assets = Liabilities + Equity
a. Increase/Decrease
b. Increase Increase
c. Decrease Decrease
d. Increase Decrease
e. Decrease Decrease
Quick Study 1-17
c 1. Supplies ................................................... $10
a 2. Supplies expense .................................... 22
c 3. Accounts receivable................................ 25
c 4. Accounts payable.................................... 12
c 5. Equipment................................................ 40
b 6. Tim Roadster’s withdrawals in April ...... 35
c 7. Notes payable .......................................... 30
a 8. Utilities expense ....................................... 10
c 9. Furniture ................................................... 20
a 10. Fees earned .............................................. 70
a 11. Rent revenue............................................. 35
a 12. Salaries expense ...................................... 45
b 13. Tim Roadster’s investments in April....... 60
a+b 14. Net income*............................................... 28
*Calculated as: 70 + 35 – 22 – 10 – 45 = 28
1-10
Quick Study 1-14
1. $20,000 - $15,000 = $5,000 beginning capital on January 1, 2014
2. $5,000 + $3,000 + $8,000 - $4,000 = $12,000 ending capital on December 31, 2014
Quick Study 1-15
The source documents include:
c. Telephone bill
d. Invoice from supplier
g. Bank statement
h. Sales invoice
Quick Study 1-16
Assets = Liabilities + Equity
a. Increase/Decrease
b. Increase Increase
c. Decrease Decrease
d. Increase Decrease
e. Decrease Decrease
Quick Study 1-17
c 1. Supplies ................................................... $10
a 2. Supplies expense .................................... 22
c 3. Accounts receivable................................ 25
c 4. Accounts payable.................................... 12
c 5. Equipment................................................ 40
b 6. Tim Roadster’s withdrawals in April ...... 35
c 7. Notes payable .......................................... 30
a 8. Utilities expense ....................................... 10
c 9. Furniture ................................................... 20
a 10. Fees earned .............................................. 70
a 11. Rent revenue............................................. 35
a 12. Salaries expense ...................................... 45
b 13. Tim Roadster’s investments in April....... 60
a+b 14. Net income*............................................... 28
*Calculated as: 70 + 35 – 22 – 10 – 45 = 28
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Last revised: October 26, 2012
1-11
Quick Study 1-18
1. Total revenues ............................................. 70 + 35 = 105
2. Total operating expenses............................ 22 + 10 + 45 = 77
3. Net income ................................................... 105 – 77 = 28
4. Total assets.................................................. 10 + 25 + 40 + 20 = 95
5. Total liabilities.............................................. 12 + 30 = 42
6. Tim Roadster, capital (April 30, 2014) ........ 60 – 35 + 28 = 53
7. Total liabilities and equity ........................... 42 + 53 = 95
Quick Study 1-19
d 1. Net loss................................................... 2 Income statement &
Statement of changes in equity
d 2. Rent expense.......................................... 22 Income statement
b 3. Rent payable........................................... 6
a 4. Accounts receivable .............................. 14
d 5. Joan Bennish’s investments in May..... 30 Statement of changes in equity
d 6. Interest revenue ..................................... 2 Income statement
d 7. Joan Bennish, capital, May 1, 2014....... 0 Statement of changes in equity
a 8. Repair supplies ....................................... 5
b 9. Notes payable.......................................... 25
d 10. Joan Bennish’s withdrawals in May ...... 5 Statement of changes in equity
a 11. Truck........................................................ 15
d 12. Consulting fees earned .......................... 18 Income statement
c 13. Joan Bennish, capital, May 31, 2014...... 23*
a 14. Cash......................................................... 20
* See QS1-20 for details on how this amount was calculated; this calculation was not a
requirement of QS1-19.
1-11
Quick Study 1-18
1. Total revenues ............................................. 70 + 35 = 105
2. Total operating expenses............................ 22 + 10 + 45 = 77
3. Net income ................................................... 105 – 77 = 28
4. Total assets.................................................. 10 + 25 + 40 + 20 = 95
5. Total liabilities.............................................. 12 + 30 = 42
6. Tim Roadster, capital (April 30, 2014) ........ 60 – 35 + 28 = 53
7. Total liabilities and equity ........................... 42 + 53 = 95
Quick Study 1-19
d 1. Net loss................................................... 2 Income statement &
Statement of changes in equity
d 2. Rent expense.......................................... 22 Income statement
b 3. Rent payable........................................... 6
a 4. Accounts receivable .............................. 14
d 5. Joan Bennish’s investments in May..... 30 Statement of changes in equity
d 6. Interest revenue ..................................... 2 Income statement
d 7. Joan Bennish, capital, May 1, 2014....... 0 Statement of changes in equity
a 8. Repair supplies ....................................... 5
b 9. Notes payable.......................................... 25
d 10. Joan Bennish’s withdrawals in May ...... 5 Statement of changes in equity
a 11. Truck........................................................ 15
d 12. Consulting fees earned .......................... 18 Income statement
c 13. Joan Bennish, capital, May 31, 2014...... 23*
a 14. Cash......................................................... 20
* See QS1-20 for details on how this amount was calculated; this calculation was not a
requirement of QS1-19.
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Last revised: October 26, 2012
1-12
Quick Study 1-20
BENNISH CONSULTING
Income Statement
For Month Ended May 31, 2014
Revenues:
Consulting fees earned ..................................... $18
Interest revenue................................................. 2
Total revenues........................................................... $20
Operating expenses:
Rent expense ..................................................... 22
Net loss .................................................................... $ 2
BENNISH CONSULTING
Statement of Changes in Equity
For Month Ended May 31, 2014
Joan Bennish, capital, May 1.............................. $ 0
Add: Investments by owner ............................ 30
Total ............................................................... $30
Less: Withdrawals by owner .............................. $ 5
Net loss ...................................................... 2 7
Joan Bennish, capital, May 31............................ $23
BENNISH CONSULTING
Balance Sheet
May 31, 2014
Assets Liabilities
Cash................................................ $20 Rent payable............................. $ 6
Accounts receivable ...................... 14 Notes payable........................... 25
Repair supplies .............................. 5 Total liabilities .......................... $31
Truck............................................... 15 Equity
Joan Bennish, capital............... 23
Total liabilities and
Total assets .................................... $54 equity..................................... $54
1-12
Quick Study 1-20
BENNISH CONSULTING
Income Statement
For Month Ended May 31, 2014
Revenues:
Consulting fees earned ..................................... $18
Interest revenue................................................. 2
Total revenues........................................................... $20
Operating expenses:
Rent expense ..................................................... 22
Net loss .................................................................... $ 2
BENNISH CONSULTING
Statement of Changes in Equity
For Month Ended May 31, 2014
Joan Bennish, capital, May 1.............................. $ 0
Add: Investments by owner ............................ 30
Total ............................................................... $30
Less: Withdrawals by owner .............................. $ 5
Net loss ...................................................... 2 7
Joan Bennish, capital, May 31............................ $23
BENNISH CONSULTING
Balance Sheet
May 31, 2014
Assets Liabilities
Cash................................................ $20 Rent payable............................. $ 6
Accounts receivable ...................... 14 Notes payable........................... 25
Repair supplies .............................. 5 Total liabilities .......................... $31
Truck............................................... 15 Equity
Joan Bennish, capital............... 23
Total liabilities and
Total assets .................................... $54 equity..................................... $54
Loading page 13...
Last revised: October 26, 2012
1-13
EXERCISES
Exercise 1-1 (10 minutes)
a. Corporation
b. Sole proprietorship
c. Corporation
d. Partnership
e. Sole proprietorship
f. Sole proprietorship
g. Corporation
Exercise 1-2 (5 minutes)
I or E I or E
Bank manager E Parent E
Owner I Canada Revenue Agency E
Toy Supplier E Cleaner contracted by TLC E
Exercise 1-3 (10 minutes)
1. A
2. C
3. B
4. A
5. A
6. B
7. B
8. C
Exercise 1-4 (20 minutes) (Answers will vary.)
a.
1. Is it the Truth? No, making personal long distance calls on the company phone
without paying for the charges is deceitful.
2. Is it Fair to all concerned? No, it is not fair to the owner(s) of the business or to
the other employees.
3. Will it build goodwill and better friendships? It will damage goodwill and
friendships between the caller and their employer and colleagues as well as with
the people they are calling (since they are likely not aware of the deceit).
4. Will it be beneficial to all concerned? It will benefit the caller in the short run in
terms of cost savings but these costs will reduce the profits of the business
owner(s).
Conclusion: The behaviour in the situation described appears to be unethical based on
the application of the Rotary 4-Way Test.
1-13
EXERCISES
Exercise 1-1 (10 minutes)
a. Corporation
b. Sole proprietorship
c. Corporation
d. Partnership
e. Sole proprietorship
f. Sole proprietorship
g. Corporation
Exercise 1-2 (5 minutes)
I or E I or E
Bank manager E Parent E
Owner I Canada Revenue Agency E
Toy Supplier E Cleaner contracted by TLC E
Exercise 1-3 (10 minutes)
1. A
2. C
3. B
4. A
5. A
6. B
7. B
8. C
Exercise 1-4 (20 minutes) (Answers will vary.)
a.
1. Is it the Truth? No, making personal long distance calls on the company phone
without paying for the charges is deceitful.
2. Is it Fair to all concerned? No, it is not fair to the owner(s) of the business or to
the other employees.
3. Will it build goodwill and better friendships? It will damage goodwill and
friendships between the caller and their employer and colleagues as well as with
the people they are calling (since they are likely not aware of the deceit).
4. Will it be beneficial to all concerned? It will benefit the caller in the short run in
terms of cost savings but these costs will reduce the profits of the business
owner(s).
Conclusion: The behaviour in the situation described appears to be unethical based on
the application of the Rotary 4-Way Test.
Loading page 14...
Last revised: October 26, 2012
1-14
Exercise 1-4 (concluded)
b.
1. Is it the Truth? It appears that the three people ahead of you entered without
tickets which is deceitful. They may have fabricated a story to enter and/or the
ticket-taker is part of the deceit.
2. Is it Fair to all concerned? It is unfair to the paying patrons of the theatre and
unfair to the owner of the theatre.
3. Will it build goodwill and better friendships? In the long run, these types of
relationships (between the ticket-taker and the three individuals admitted without
tickets) are not what goodwill and true friendships are based upon. Having
observed the event, your respect for the ticket-taker and the three individuals
admitted without tickets will be negatively affected.
4. Will it be beneficial to all concerned? In the short run, it will benefit the three
people who were admitted without paying and the ticket-taker, if an acquaintance,
may have accrued future benefits from the three people admitted. If this
transgression is discovered by the ticket-taker’s supervisor, the ticket-taker will
likely lose their job which is certainly not beneficial. The owner(s) of the theatre
do not benefit from this event, nor do other patrons because if it is known that
such things occur, ticket prices will be priced to include the cost of this kind of
lost sale.
Conclusion: The behaviour in the situation described appears to be unethical based
on the application of the Rotary 4-Way Test.
c.
1. Is it the Truth? The cashier is not being truthful by providing receipts only upon
request because the cash register would be showing fewer drop-in customers
than actually occur.
2. Is it Fair to all concerned? No, it is not fair to the paying customers (prices may
go up if drop-in revenues are not what is expected) or the owner of the facility.
3. Will it build goodwill and better friendships? No, deceitful acts never build
goodwill and do not build good friendships. Eventually, the supervisor and/or
owner of the facility will recognize that drop-in revenues are lower than the actual
number of drop-in customers attending the facility and the cashier will lose
his/her job and perhaps face criminal charges.
4. Will it be beneficial to all concerned? No, it is not beneficial to the cashier (as
they may lose his/her job), to the owner, or to the paying patrons.
Conclusion: The behaviour in the situation described appears to be unethical based
on the application of the Rotary 4-Way Test.
1-14
Exercise 1-4 (concluded)
b.
1. Is it the Truth? It appears that the three people ahead of you entered without
tickets which is deceitful. They may have fabricated a story to enter and/or the
ticket-taker is part of the deceit.
2. Is it Fair to all concerned? It is unfair to the paying patrons of the theatre and
unfair to the owner of the theatre.
3. Will it build goodwill and better friendships? In the long run, these types of
relationships (between the ticket-taker and the three individuals admitted without
tickets) are not what goodwill and true friendships are based upon. Having
observed the event, your respect for the ticket-taker and the three individuals
admitted without tickets will be negatively affected.
4. Will it be beneficial to all concerned? In the short run, it will benefit the three
people who were admitted without paying and the ticket-taker, if an acquaintance,
may have accrued future benefits from the three people admitted. If this
transgression is discovered by the ticket-taker’s supervisor, the ticket-taker will
likely lose their job which is certainly not beneficial. The owner(s) of the theatre
do not benefit from this event, nor do other patrons because if it is known that
such things occur, ticket prices will be priced to include the cost of this kind of
lost sale.
Conclusion: The behaviour in the situation described appears to be unethical based
on the application of the Rotary 4-Way Test.
c.
1. Is it the Truth? The cashier is not being truthful by providing receipts only upon
request because the cash register would be showing fewer drop-in customers
than actually occur.
2. Is it Fair to all concerned? No, it is not fair to the paying customers (prices may
go up if drop-in revenues are not what is expected) or the owner of the facility.
3. Will it build goodwill and better friendships? No, deceitful acts never build
goodwill and do not build good friendships. Eventually, the supervisor and/or
owner of the facility will recognize that drop-in revenues are lower than the actual
number of drop-in customers attending the facility and the cashier will lose
his/her job and perhaps face criminal charges.
4. Will it be beneficial to all concerned? No, it is not beneficial to the cashier (as
they may lose his/her job), to the owner, or to the paying patrons.
Conclusion: The behaviour in the situation described appears to be unethical based
on the application of the Rotary 4-Way Test.
Loading page 15...
Last revised: October 26, 2012
1-15
Exercise 1-5 (10 minutes)
Description
B 1. Requires every business to be accounted for separately from its owner or
owners.
A 2. Requires financial statement information to be based on costs incurred in
transactions.
D 3. Requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold.
C 4. Requires revenue to be recorded only when the earnings process is complete
Exercise 1-6 (10 minutes)
a) $516,000 – $492,000 = $24,000 net income
b) $165,000 – $240,000 = $75,000 net loss
c) $32,000 + 0 – 0 + x = $86,000
x = $86,000 – $32,000
x = $54,000 net income
d) $48,000 + $40,000 – 0 + x = $52,000
x = $52,000 – $48,000 – $40,000
x = –$36,000 or a $36,000 net loss
Exercise 1-7 (15 minutes)
(a) (b) (c) (d) (e)
Answers $ (19,750) $46,000 $7,000 $10,250 $102,000
Proofs:
Equity, January 1 ................................$ 0 $ 0 $ 0 $ 0 $102,000
Owner’s investments
during the year ................................ 60,000 46,000 31,500 37,500 140,000
Net income (loss) for the year ............... 15,750 30,500 (4,500) 10,250 (8,000)
Owner’s withdrawals
during the year ................................ (19,750) (27,000) (20,000) (15,750) (63,000)
Equity, December 31..............................$56,000 $49,500 $7,000 $32,000 $171,000
1-15
Exercise 1-5 (10 minutes)
Description
B 1. Requires every business to be accounted for separately from its owner or
owners.
A 2. Requires financial statement information to be based on costs incurred in
transactions.
D 3. Requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold.
C 4. Requires revenue to be recorded only when the earnings process is complete
Exercise 1-6 (10 minutes)
a) $516,000 – $492,000 = $24,000 net income
b) $165,000 – $240,000 = $75,000 net loss
c) $32,000 + 0 – 0 + x = $86,000
x = $86,000 – $32,000
x = $54,000 net income
d) $48,000 + $40,000 – 0 + x = $52,000
x = $52,000 – $48,000 – $40,000
x = –$36,000 or a $36,000 net loss
Exercise 1-7 (15 minutes)
(a) (b) (c) (d) (e)
Answers $ (19,750) $46,000 $7,000 $10,250 $102,000
Proofs:
Equity, January 1 ................................$ 0 $ 0 $ 0 $ 0 $102,000
Owner’s investments
during the year ................................ 60,000 46,000 31,500 37,500 140,000
Net income (loss) for the year ............... 15,750 30,500 (4,500) 10,250 (8,000)
Owner’s withdrawals
during the year ................................ (19,750) (27,000) (20,000) (15,750) (63,000)
Equity, December 31..............................$56,000 $49,500 $7,000 $32,000 $171,000
Loading page 16...
Last revised: October 26, 2012
1-16
Exercise 1-8 (15 minutes)
THE HIGGINS GROUP
Income Statement
For Month Ended November 30, 2014
Revenues:
Consulting fees earned ..................................... $22,000
Operating expenses:
Salaries expense ............................................... $6,000
Rent expense ..................................................... 2,550
Telephone expense ........................................... 1,680
Utilities expenses .............................................. 660
Total operating expenses .............................. 10,890
Net income................................................................. $ 11,110
Exercise 1-9 (15 minutes)
THE HIGGINS GROUP
Statement of Changes in Equity
For Month Ended November 30, 2014
Jean Higgins, capital, November 1..................... $ 0
Add: Investments by owner ............................ 84,000
Net income ............................................... 11,110 95,110
Total ............................................................... $95,110
Less: Withdrawals by owner .............................. 3,360
Jean Higgins, capital, November 30................... $91,750
Analysis component:
The owner, Jean Higgins, invested $84,000 of assets during the month, which caused
equity to increase. Also, net income earned during the month was $11,110 also causing
equity to increase during November. The total increases in equity during the month were
a total of $95,110 ($84,000 + $11,110).
NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawals
which in combination with the total increase of $95,110 caused a net increase in equity of
$91,750.
1-16
Exercise 1-8 (15 minutes)
THE HIGGINS GROUP
Income Statement
For Month Ended November 30, 2014
Revenues:
Consulting fees earned ..................................... $22,000
Operating expenses:
Salaries expense ............................................... $6,000
Rent expense ..................................................... 2,550
Telephone expense ........................................... 1,680
Utilities expenses .............................................. 660
Total operating expenses .............................. 10,890
Net income................................................................. $ 11,110
Exercise 1-9 (15 minutes)
THE HIGGINS GROUP
Statement of Changes in Equity
For Month Ended November 30, 2014
Jean Higgins, capital, November 1..................... $ 0
Add: Investments by owner ............................ 84,000
Net income ............................................... 11,110 95,110
Total ............................................................... $95,110
Less: Withdrawals by owner .............................. 3,360
Jean Higgins, capital, November 30................... $91,750
Analysis component:
The owner, Jean Higgins, invested $84,000 of assets during the month, which caused
equity to increase. Also, net income earned during the month was $11,110 also causing
equity to increase during November. The total increases in equity during the month were
a total of $95,110 ($84,000 + $11,110).
NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawals
which in combination with the total increase of $95,110 caused a net increase in equity of
$91,750.
Loading page 17...
Last revised: October 26, 2012
1-17
Exercise 1-10 (15 minutes)
THE HIGGINS GROUP
Balance Sheet
November 30, 2014
Assets Liabilities
Cash................................................ $16,000 Accounts payable..................... $ 7,500
Accounts receivable ...................... 17,000
Office supplies ............................... 5,000 Equity
Automobiles ................................... 36,000 Jean Higgins, capital................ 91,750
Office equipment............................ 25,250 Total liabilities and
Total assets .................................... $99,250 equity..................................... $99,250
Analysis component:
$91,750 (or 92.44% calculated as $91,750/$99,250 × 100) of the total $99,250 assets are
financed by Jean Higgins, the owner of The Higgins Group.
Exercise 1-11 (15 minutes)
WINDSOR LEARNING SERVICES
Income Statement
For Month Ended July 31, 2014
Revenues:
Tutoring fees earned ......................................... $4,200
Textbook rental revenue ................................... 300
Total revenues................................................ $ 4,500
Operating expenses:
Office rent expense ........................................... $2,500
Tutors wages expense ...................................... 1,540
Utilities expense ................................................ 680
Total operating expenses .............................. 4,720
Net loss .................................................................... $ 220
1-17
Exercise 1-10 (15 minutes)
THE HIGGINS GROUP
Balance Sheet
November 30, 2014
Assets Liabilities
Cash................................................ $16,000 Accounts payable..................... $ 7,500
Accounts receivable ...................... 17,000
Office supplies ............................... 5,000 Equity
Automobiles ................................... 36,000 Jean Higgins, capital................ 91,750
Office equipment............................ 25,250 Total liabilities and
Total assets .................................... $99,250 equity..................................... $99,250
Analysis component:
$91,750 (or 92.44% calculated as $91,750/$99,250 × 100) of the total $99,250 assets are
financed by Jean Higgins, the owner of The Higgins Group.
Exercise 1-11 (15 minutes)
WINDSOR LEARNING SERVICES
Income Statement
For Month Ended July 31, 2014
Revenues:
Tutoring fees earned ......................................... $4,200
Textbook rental revenue ................................... 300
Total revenues................................................ $ 4,500
Operating expenses:
Office rent expense ........................................... $2,500
Tutors wages expense ...................................... 1,540
Utilities expense ................................................ 680
Total operating expenses .............................. 4,720
Net loss .................................................................... $ 220
Loading page 18...
Last revised: October 26, 2012
1-18
Exercise 1-12 (15 minutes)
WINDSOR LEARNING SERVICES
Statement of Changes in Equity
For Month Ended July 31, 2014
Milton Windsor, capital, July 1 ........................... $ 7,400
Add: Investments by owner ............................ 1,200
Total ............................................................... $ 8,600
Less: Withdrawals by owner .............................. $ 1,000
Net loss ...................................................... 220 1,220
Milton Windsor, capital, July 31 ......................... $ 7,380
Analysis component:
Withdrawals of $1,000 by the owner, Milton Windsor, caused equity to decrease during
July, 2014. Also, the net loss of $220 caused equity to decrease in July. The total
decrease in equity during the month of July was $1,220 (calculated as $1,000 + $220).
NOTE: Students might point out that equity increased by $1,200 of owner investments
which, in combination with the total decrease of $1,220, caused a net decrease in equity
of $20.
Exercise 1-13 (15 minutes)
WINDSOR LEARNING SERVICES
Balance Sheet
July 31, 2014
Assets Liabilities
Cash................................................ $ 1,600 Accounts payable..................... $ 1,500
Accounts receivable ...................... 2,000
Supplies.......................................... 1,280 Equity
Furniture ......................................... 1,800 Milton Windsor, capital ............ 7,380
Computer equipment ..................... 2,200 Total liabilities and
Total assets .................................... $8,880 equity..................................... $8,880
Analysis component:
$1,500 or 16.89% (calculated as $1,500/$8,880 × 100) of the total $8,880 assets held by
Windsor Learning Services are financed by debt.
1-18
Exercise 1-12 (15 minutes)
WINDSOR LEARNING SERVICES
Statement of Changes in Equity
For Month Ended July 31, 2014
Milton Windsor, capital, July 1 ........................... $ 7,400
Add: Investments by owner ............................ 1,200
Total ............................................................... $ 8,600
Less: Withdrawals by owner .............................. $ 1,000
Net loss ...................................................... 220 1,220
Milton Windsor, capital, July 31 ......................... $ 7,380
Analysis component:
Withdrawals of $1,000 by the owner, Milton Windsor, caused equity to decrease during
July, 2014. Also, the net loss of $220 caused equity to decrease in July. The total
decrease in equity during the month of July was $1,220 (calculated as $1,000 + $220).
NOTE: Students might point out that equity increased by $1,200 of owner investments
which, in combination with the total decrease of $1,220, caused a net decrease in equity
of $20.
Exercise 1-13 (15 minutes)
WINDSOR LEARNING SERVICES
Balance Sheet
July 31, 2014
Assets Liabilities
Cash................................................ $ 1,600 Accounts payable..................... $ 1,500
Accounts receivable ...................... 2,000
Supplies.......................................... 1,280 Equity
Furniture ......................................... 1,800 Milton Windsor, capital ............ 7,380
Computer equipment ..................... 2,200 Total liabilities and
Total assets .................................... $8,880 equity..................................... $8,880
Analysis component:
$1,500 or 16.89% (calculated as $1,500/$8,880 × 100) of the total $8,880 assets held by
Windsor Learning Services are financed by debt.
Loading page 19...
Last revised: October 26, 2012
1-19
Exercise 1-14 (20 minutes)
Assets – Liabilities = Equity
Beginning of the year......................... $ 75,000 – $30,000 = $ 45,000
End of the year ................................... $120,000 – $46,000 = 74,000
(a) (b) (c) (d)
Answers $ 29,000 $86,000 $(51,000) $(4,000)
Proofs:
Equity, January 1 ................................$ 45,000 $ 45,000 $ 45,000 $ 45,000
Owner’s investments
during the year ................................ 0 0 80,000 75,000
Net income (loss) for the year ............... 29,000 86,000 (51,000) (4,000)
Owner’s withdrawals
during the year ................................ (0) (57,000) (0) (42,000)
Equity, December 31..............................$74,000 $74,000 $74,000 $74,000
a. An alternative calculation:
$45,000 + 0 + x – 0 = $74,000; x = $29,000
b. An alternative calculation:
$45,000 + 0 + x - $57,000 = $74,000; x = $86,000
c. An alternative calculation:
$45,000 + $80,000 + x - 0 = $74,000; x = ($51,000) where the negative represents a
loss.
d. An alternative calculation:
$45,000 + $75,000 + x - $42,000 = $74,000; x = ($4,000) where the negative
represents a loss.
Exercise 1-15 (10 minutes)
a.
If assets decreased by $15,000 during August, then
$25,000 + $15,000 = $40,000 Assets at August 1, 2014.
Therefore, Equity at August 1, 2014 = $40,000 - $10,000 = $30,000
b.
If liabilities increased by $9,000 during August, then
$10,000 + $9,000 = $19,000 Liabilities at August 31, 2014.
Therefore, Equity at August 31, 2014 = $25,000 - $19,000 = $6,000
1-19
Exercise 1-14 (20 minutes)
Assets – Liabilities = Equity
Beginning of the year......................... $ 75,000 – $30,000 = $ 45,000
End of the year ................................... $120,000 – $46,000 = 74,000
(a) (b) (c) (d)
Answers $ 29,000 $86,000 $(51,000) $(4,000)
Proofs:
Equity, January 1 ................................$ 45,000 $ 45,000 $ 45,000 $ 45,000
Owner’s investments
during the year ................................ 0 0 80,000 75,000
Net income (loss) for the year ............... 29,000 86,000 (51,000) (4,000)
Owner’s withdrawals
during the year ................................ (0) (57,000) (0) (42,000)
Equity, December 31..............................$74,000 $74,000 $74,000 $74,000
a. An alternative calculation:
$45,000 + 0 + x – 0 = $74,000; x = $29,000
b. An alternative calculation:
$45,000 + 0 + x - $57,000 = $74,000; x = $86,000
c. An alternative calculation:
$45,000 + $80,000 + x - 0 = $74,000; x = ($51,000) where the negative represents a
loss.
d. An alternative calculation:
$45,000 + $75,000 + x - $42,000 = $74,000; x = ($4,000) where the negative
represents a loss.
Exercise 1-15 (10 minutes)
a.
If assets decreased by $15,000 during August, then
$25,000 + $15,000 = $40,000 Assets at August 1, 2014.
Therefore, Equity at August 1, 2014 = $40,000 - $10,000 = $30,000
b.
If liabilities increased by $9,000 during August, then
$10,000 + $9,000 = $19,000 Liabilities at August 31, 2014.
Therefore, Equity at August 31, 2014 = $25,000 - $19,000 = $6,000
Loading page 20...
Last revised: October 26, 2012
1-20
Exercise 1-16 (15 minutes)
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Office
Supplies =
Accounts
Payable +
Marnie Wesson,
Capital
a) + $25,000 + $25,000
b) + $600 + $600
c) + 7,000 + 7,000
d)*
e) – 4,500 – 4,500
f) + $1,250 + 1,250
Totals $27,500 + $1,250 + $600 = $600 + $28,750
$29,350 = $29,350
*Note: For (d), since no exchange has occurred, no entry is required.
Exercise 1-17 (20 minutes)
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Parts
Supplies + Equipment =
Accounts
Payable +
Stacey Crowe,
Capital
a) + $14,000 + $ 14,000
b) - 2,500 - 2,500
c) + $800 + $800
d) + $3,400 + $ 3,400
e) – $ 1,950 + $1,950
f)*
g) – $800 – $800
h) + $3,400 + $ 3,400
i) – $2,700 – $ 2,700
Totals $9,450 + $3,400 + $800 + $1,950 = $ 0 + $15,600
$15,600 = $15,600
*Note: For (f), since no exchange has occurred, no entry is required.
1-20
Exercise 1-16 (15 minutes)
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Office
Supplies =
Accounts
Payable +
Marnie Wesson,
Capital
a) + $25,000 + $25,000
b) + $600 + $600
c) + 7,000 + 7,000
d)*
e) – 4,500 – 4,500
f) + $1,250 + 1,250
Totals $27,500 + $1,250 + $600 = $600 + $28,750
$29,350 = $29,350
*Note: For (d), since no exchange has occurred, no entry is required.
Exercise 1-17 (20 minutes)
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Parts
Supplies + Equipment =
Accounts
Payable +
Stacey Crowe,
Capital
a) + $14,000 + $ 14,000
b) - 2,500 - 2,500
c) + $800 + $800
d) + $3,400 + $ 3,400
e) – $ 1,950 + $1,950
f)*
g) – $800 – $800
h) + $3,400 + $ 3,400
i) – $2,700 – $ 2,700
Totals $9,450 + $3,400 + $800 + $1,950 = $ 0 + $15,600
$15,600 = $15,600
*Note: For (f), since no exchange has occurred, no entry is required.
Loading page 21...
Last revised: October 26, 2012
1-21
Exercise 1-18: (15 minutes)
b. Office Supplies were purchased paying cash of $500.
c. Office Furniture was purchased paying cash of $8,000.
d. Completed work for a client on credit; $1,000.
e. Purchased office supplies on credit; $400.
f. Paid $250 to a creditor.
g. Collected $750 cash from a credit customer.
Exercise 1-19 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash + Accounts
Receivable
+ Supplie
s
+ Equipment = Accounts
Payable
+ Mailin
Moon,
Capital
a) + $3,000 + $2,500 +$5,500
Owner
Investment
b) + $6,500 +$6,500 Revenue
c) + $600 + $600
d) – $ 1,450 – $ 1,450 Sal. Expense
e)*
f) – $ 1,400 – $ 1,400 Rent Expense
g) + $4,500 +$4,500 Revenue
Totals $6,650 + $4,500 + $600 + $2,500 = $600 + $13,650
$14,250 = $14,250
*Note: For (e), since no exchange has occurred, no entry is required.
1-21
Exercise 1-18: (15 minutes)
b. Office Supplies were purchased paying cash of $500.
c. Office Furniture was purchased paying cash of $8,000.
d. Completed work for a client on credit; $1,000.
e. Purchased office supplies on credit; $400.
f. Paid $250 to a creditor.
g. Collected $750 cash from a credit customer.
Exercise 1-19 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash + Accounts
Receivable
+ Supplie
s
+ Equipment = Accounts
Payable
+ Mailin
Moon,
Capital
a) + $3,000 + $2,500 +$5,500
Owner
Investment
b) + $6,500 +$6,500 Revenue
c) + $600 + $600
d) – $ 1,450 – $ 1,450 Sal. Expense
e)*
f) – $ 1,400 – $ 1,400 Rent Expense
g) + $4,500 +$4,500 Revenue
Totals $6,650 + $4,500 + $600 + $2,500 = $600 + $13,650
$14,250 = $14,250
*Note: For (e), since no exchange has occurred, no entry is required.
Loading page 22...
Last revised: October 26, 2012
1-22
Exercise 1-20 (25 minutes)
Mailin Moon– Freelance Writing
Income Statement
For Month Ended March 31, 2014
Revenues:
Freelance writing revenue $11,000
Operating expenses:
Salaries expense $ 1,450
Rent expense 1,400
Total operating expenses 2,850
Net income $8,150
Mailin Moon– Freelance Writing
Statement of Changes in Equity
For Month Ended March 31, 2014
Mailin Moon, capital, March 1 $ 0
Add: Investment by owner $5,500
Net income 8,150 13,650
Mailin Moon, capital, March 31 $13,650
Mailin Moon– Freelance Writing
Balance Sheet
March 31, 2014
Assets Liabilities
Cash $6,650 Accounts payable $ 600
Accounts receivable 4,500
Supplies 600
Equipment 2,500
Equity
Mailin Moon, capital 13,650
Total assets $14,250 Total liabilities and equity $14,250
Analysis component:
a. Supplies of $600 were financed by accounts payable, a liability.
b. Equipment of $2,500 was financed by owner investment, an equity transaction.
c. Cash of $6,650 and Accounts receivable of $4,500 were financed by an investment
by owner of $3,000 and net income of $8,150. Net income includes the equity
transactions of revenues and expenses (revenues of $11,000 less expenses of
$2,850).
1-22
Exercise 1-20 (25 minutes)
Mailin Moon– Freelance Writing
Income Statement
For Month Ended March 31, 2014
Revenues:
Freelance writing revenue $11,000
Operating expenses:
Salaries expense $ 1,450
Rent expense 1,400
Total operating expenses 2,850
Net income $8,150
Mailin Moon– Freelance Writing
Statement of Changes in Equity
For Month Ended March 31, 2014
Mailin Moon, capital, March 1 $ 0
Add: Investment by owner $5,500
Net income 8,150 13,650
Mailin Moon, capital, March 31 $13,650
Mailin Moon– Freelance Writing
Balance Sheet
March 31, 2014
Assets Liabilities
Cash $6,650 Accounts payable $ 600
Accounts receivable 4,500
Supplies 600
Equipment 2,500
Equity
Mailin Moon, capital 13,650
Total assets $14,250 Total liabilities and equity $14,250
Analysis component:
a. Supplies of $600 were financed by accounts payable, a liability.
b. Equipment of $2,500 was financed by owner investment, an equity transaction.
c. Cash of $6,650 and Accounts receivable of $4,500 were financed by an investment
by owner of $3,000 and net income of $8,150. Net income includes the equity
transactions of revenues and expenses (revenues of $11,000 less expenses of
$2,850).
Loading page 23...
Last revised: October 26, 2012
1-23
Exercise 1-21 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash +
Accounts
Receivable + Supplie
s
+ Equipment =
Accounts
Payable +
Pete
Kequahtooway,
Capital
a) + $4,300 +$15,000 +$19,300
Owner
Investment
b) +$1,600 +$1,600
c) +$950 +$950
d)*
e) +$550 +$550 Revenue
f) +$600 +$600 Revenue
g) -$200 -$200
h) -$250 -$250 Adv.
Expense
i) +$600 -$600
Totals $4,450 + $550 + $2,550 + $15,000 = $2,350 + $20,200
$22,550 = $22,550
*Note: For (d), since no exchange has occurred, no entry is required.
1-23
Exercise 1-21 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash +
Accounts
Receivable + Supplie
s
+ Equipment =
Accounts
Payable +
Pete
Kequahtooway,
Capital
a) + $4,300 +$15,000 +$19,300
Owner
Investment
b) +$1,600 +$1,600
c) +$950 +$950
d)*
e) +$550 +$550 Revenue
f) +$600 +$600 Revenue
g) -$200 -$200
h) -$250 -$250 Adv.
Expense
i) +$600 -$600
Totals $4,450 + $550 + $2,550 + $15,000 = $2,350 + $20,200
$22,550 = $22,550
*Note: For (d), since no exchange has occurred, no entry is required.
Loading page 24...
Last revised: October 26, 2012
1-24
Exercise 1-22 (25 minutes)
Pete’s Yard Care
Income Statement
For Month Ended March 31, 2014
Revenues:
Yard care revenue $1,150
Operating expenses:
Advertising expense 250
Net income $ 900
Pete’s Yard Care
Statement of Changes in Equity
For Month Ended March 31, 2014
Pete Kequahtooway, capital, March 1 $ 0
Add: Investment by owner $19,300
Net income 900 20,200
Pete Kequahtooway, capital, March 31 $20,200
Pete’s Yard Care
Balance Sheet
March 31, 2014
Assets Liabilities
Cash $ 4,450 Accounts payable $ 2,350
Accounts receivable 550
Supplies 2,550
Equipment 15,000
Equity
Pete Kequahtooway, capital 20,200
Total assets $22,550 Total liabilities and equity $22,550
Analysis component:
The $900 of net income does not represent cash because all of the revenues ($550 + $600
= $1,150) were on account. The $250 of advertising expense was paid in cash. The net
income (loss) on an income statement represents the net income (loss) that was actually
earned which is not necessarily going to agree to the net income (loss) actually received
in cash. This is in accordance with the revenue recognition principle which says that
revenues (and also expenses) are recorded at the time earned (or expensed in the case
of expenses) regardless of whether cash has been exchanged.
1-24
Exercise 1-22 (25 minutes)
Pete’s Yard Care
Income Statement
For Month Ended March 31, 2014
Revenues:
Yard care revenue $1,150
Operating expenses:
Advertising expense 250
Net income $ 900
Pete’s Yard Care
Statement of Changes in Equity
For Month Ended March 31, 2014
Pete Kequahtooway, capital, March 1 $ 0
Add: Investment by owner $19,300
Net income 900 20,200
Pete Kequahtooway, capital, March 31 $20,200
Pete’s Yard Care
Balance Sheet
March 31, 2014
Assets Liabilities
Cash $ 4,450 Accounts payable $ 2,350
Accounts receivable 550
Supplies 2,550
Equipment 15,000
Equity
Pete Kequahtooway, capital 20,200
Total assets $22,550 Total liabilities and equity $22,550
Analysis component:
The $900 of net income does not represent cash because all of the revenues ($550 + $600
= $1,150) were on account. The $250 of advertising expense was paid in cash. The net
income (loss) on an income statement represents the net income (loss) that was actually
earned which is not necessarily going to agree to the net income (loss) actually received
in cash. This is in accordance with the revenue recognition principle which says that
revenues (and also expenses) are recorded at the time earned (or expensed in the case
of expenses) regardless of whether cash has been exchanged.
Loading page 25...
Last revised: October 26, 2012
1-25
Exercise 1-23 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash + Accounts
Receivable
+ Supplie
s
+ Equipment = Accounts
Payable
+ Otto
Ingles,
Capital
Bal. $6,000 $1,200 $1,900 $6,500 $4,000 $11,600
a) +$800 -$800
b) -$2,500 -$2,500
c) +$1,100 +$1,100 Revenue
d) -$950 -$950 Wage Exp.
e) -$1,200 -$1,200 Rent Exp.
f) -$600 -$600 Utilities
Exp.
g) +$1,600 +$1,600 Revenue
h)*
Totals $2,650 + $2,000 + $1,900 + $6,500 = $1,500 + $11,550
$13,050 = $13,050
*Note: For (h), since no exchange has occurred, no entry is required.
1-25
Exercise 1-23 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash + Accounts
Receivable
+ Supplie
s
+ Equipment = Accounts
Payable
+ Otto
Ingles,
Capital
Bal. $6,000 $1,200 $1,900 $6,500 $4,000 $11,600
a) +$800 -$800
b) -$2,500 -$2,500
c) +$1,100 +$1,100 Revenue
d) -$950 -$950 Wage Exp.
e) -$1,200 -$1,200 Rent Exp.
f) -$600 -$600 Utilities
Exp.
g) +$1,600 +$1,600 Revenue
h)*
Totals $2,650 + $2,000 + $1,900 + $6,500 = $1,500 + $11,550
$13,050 = $13,050
*Note: For (h), since no exchange has occurred, no entry is required.
Loading page 26...
Last revised: October 26, 2012
1-26
Exercise 1-24 (25 minutes)
Otto’s Wrecking Service
Income Statement
For Month Ended July 31, 2014
Revenues:
Wrecking revenue $2,700
Operating expenses:
Rent expense $ 1,200
Utilities expense 600
Wage expense 950
Total operating expenses 2,750
Net loss $ 50
Otto’s Wrecking Service
Statement of Changes in Equity
For Month Ended July 31, 2014
Otto Ingles, capital, July 1 $ 11,600
Less: Net loss 50
Otto Ingles, capital, July 31 $ 11,550
Otto’s Wrecking Service
Balance Sheet
July 31, 2014
Assets Liabilities
Cash $2,650 Accounts payable $ 1,500
Accounts receivable 2,000
Supplies 1,900
Equipment 6,500
Equity
Otto Ingles, capital 11,550
Total assets $13,050 Total liabilities and equity $13,050
Analysis component:
$11,550 or 88.54% (calculated as $11,550/$13,050 × 100) of the assets are financed by
Otto Ingles, the owner. $1,500 or 11.49% (calculated as $1,500/$13,050 × 100) of the
assets are financed by debt.
1-26
Exercise 1-24 (25 minutes)
Otto’s Wrecking Service
Income Statement
For Month Ended July 31, 2014
Revenues:
Wrecking revenue $2,700
Operating expenses:
Rent expense $ 1,200
Utilities expense 600
Wage expense 950
Total operating expenses 2,750
Net loss $ 50
Otto’s Wrecking Service
Statement of Changes in Equity
For Month Ended July 31, 2014
Otto Ingles, capital, July 1 $ 11,600
Less: Net loss 50
Otto Ingles, capital, July 31 $ 11,550
Otto’s Wrecking Service
Balance Sheet
July 31, 2014
Assets Liabilities
Cash $2,650 Accounts payable $ 1,500
Accounts receivable 2,000
Supplies 1,900
Equipment 6,500
Equity
Otto Ingles, capital 11,550
Total assets $13,050 Total liabilities and equity $13,050
Analysis component:
$11,550 or 88.54% (calculated as $11,550/$13,050 × 100) of the assets are financed by
Otto Ingles, the owner. $1,500 or 11.49% (calculated as $1,500/$13,050 × 100) of the
assets are financed by debt.
Loading page 27...
Last revised: October 26, 2012
1-27
PROBLEM SET “A”
Problem 1-1A (10 minutes)
Characteristic
Type of Business Organization
Sole
Proprietorship Partnership Corporation
Limited liability
Unlimited liability
Owners are shareholders
Owners are partners
Taxed as a separate legal entity
Problem 1-2A (20 minutes)
Year
2015 2014 2013
Beginning capital 125,0001 28,0003 0
+ Owner investment 0 0 10,000
+ Net income (loss) (5,000) 175,000 60,0005
– Owner withdrawals 0 78,000 42,000
= Ending capital 120,000 125,0002 28,0004
Note: The superscripts show the order in which the answers were calculated.
Calculations:
1. $120,000 + 5,000 = $125,000
2. $125,000 (The beginning capital balance for one period is the ending capital
balance of the previous period)
3. $125,000 + $78,000 - $175,000 = $28,000
4. $28,000 (The beginning capital balance for one period is the ending capital
balance of the previous period)
5. $28,000 + $42,000 - $10,000 = $60,000
1-27
PROBLEM SET “A”
Problem 1-1A (10 minutes)
Characteristic
Type of Business Organization
Sole
Proprietorship Partnership Corporation
Limited liability
Unlimited liability
Owners are shareholders
Owners are partners
Taxed as a separate legal entity
Problem 1-2A (20 minutes)
Year
2015 2014 2013
Beginning capital 125,0001 28,0003 0
+ Owner investment 0 0 10,000
+ Net income (loss) (5,000) 175,000 60,0005
– Owner withdrawals 0 78,000 42,000
= Ending capital 120,000 125,0002 28,0004
Note: The superscripts show the order in which the answers were calculated.
Calculations:
1. $120,000 + 5,000 = $125,000
2. $125,000 (The beginning capital balance for one period is the ending capital
balance of the previous period)
3. $125,000 + $78,000 - $175,000 = $28,000
4. $28,000 (The beginning capital balance for one period is the ending capital
balance of the previous period)
5. $28,000 + $42,000 - $10,000 = $60,000
Loading page 28...
Last revised: October 26, 2012
1-28
Problem 1-3A (30 minutes)
BEE-CLEAN
Income Statement
For Year Ended July 31, 2014
Revenues:
Service revenue ................................................. $131,000
Repair revenue................................................... 2,500
Total revenues................................................ $133,500
Operating expenses:
Wages expense.................................................. $68,000
Rent expense ..................................................... 14,000
Supplies expense .............................................. 15,900
Utilities expense ................................................ 9,800
Interest expense ................................................ 2,100
Total operating expenses .............................. 109,800
Net income................................................................. $ 23,700
BEE-CLEAN
Statement of Changes in Equity
For Year Ended July 31, 2014
Bee Cummins, capital, August 1, 2013 .............. $ 79,300
Add: Investments by owner ............................ $ -0-
Net income ............................................... 23,700 23,700
Total ............................................................... $ 103,000
Less: Withdrawals by owner .............................. 46,000
Bee Cummins, capital, July 31, 2014 ................. $ 57,000
BEE-CLEAN
Balance Sheet
July 31, 2014
Assets Liabilities
Cash............................................ $ 5,600 Accounts payable................... $ 9,400
Accounts receivable .................. 42,000 Notes payable ......................... 20,000
Supplies...................................... 2,400 Total liabilities ................. $ 29,400
Prepaid rent................................ 4,000
Office equipment........................ 19,200 Equity
Furniture ..................................... 13,200 Bee Cummins, capital ............ 57,000
Total assets ................................ $86,400 Total liabilities and equity ...... $ 86,400
1-28
Problem 1-3A (30 minutes)
BEE-CLEAN
Income Statement
For Year Ended July 31, 2014
Revenues:
Service revenue ................................................. $131,000
Repair revenue................................................... 2,500
Total revenues................................................ $133,500
Operating expenses:
Wages expense.................................................. $68,000
Rent expense ..................................................... 14,000
Supplies expense .............................................. 15,900
Utilities expense ................................................ 9,800
Interest expense ................................................ 2,100
Total operating expenses .............................. 109,800
Net income................................................................. $ 23,700
BEE-CLEAN
Statement of Changes in Equity
For Year Ended July 31, 2014
Bee Cummins, capital, August 1, 2013 .............. $ 79,300
Add: Investments by owner ............................ $ -0-
Net income ............................................... 23,700 23,700
Total ............................................................... $ 103,000
Less: Withdrawals by owner .............................. 46,000
Bee Cummins, capital, July 31, 2014 ................. $ 57,000
BEE-CLEAN
Balance Sheet
July 31, 2014
Assets Liabilities
Cash............................................ $ 5,600 Accounts payable................... $ 9,400
Accounts receivable .................. 42,000 Notes payable ......................... 20,000
Supplies...................................... 2,400 Total liabilities ................. $ 29,400
Prepaid rent................................ 4,000
Office equipment........................ 19,200 Equity
Furniture ..................................... 13,200 Bee Cummins, capital ............ 57,000
Total assets ................................ $86,400 Total liabilities and equity ...... $ 86,400
Loading page 29...
Last revised: October 26, 2012
1-29
Problem 1-3A (concluded)
Analysis component:
$29,400 or 34.03% (calculated as $29,400/$86,400 × 100) of the assets are financed by
debt. $57,000 or 65.97% (calculated as $57,000/$86,400 × 100) of the assets are financed
by Bee Cummins, the owner.
Problem 1-4A (60 minutes) Part 1
LeCLAIRE DELIVERY SERVICES
Balance Sheet
December 31, 2013
Assets Liabilities
Cash..................................... $ 26,250 Accounts payable....................... $ 3,750
Accounts receivable ........... 14,250
Office supplies .................... 2,250
Trucks.................................. 27,000 Equity
Office equipment................. 69,000 Jess LeClaire, capital................. 135,0001
Total assets $138,750 Total liabilities and equity.......... $138,750
______________________
Calculations:
1. $138,750 – $3,750 = $135,000 (calculation of unknown amount)
1-29
Problem 1-3A (concluded)
Analysis component:
$29,400 or 34.03% (calculated as $29,400/$86,400 × 100) of the assets are financed by
debt. $57,000 or 65.97% (calculated as $57,000/$86,400 × 100) of the assets are financed
by Bee Cummins, the owner.
Problem 1-4A (60 minutes) Part 1
LeCLAIRE DELIVERY SERVICES
Balance Sheet
December 31, 2013
Assets Liabilities
Cash..................................... $ 26,250 Accounts payable....................... $ 3,750
Accounts receivable ........... 14,250
Office supplies .................... 2,250
Trucks.................................. 27,000 Equity
Office equipment................. 69,000 Jess LeClaire, capital................. 135,0001
Total assets $138,750 Total liabilities and equity.......... $138,750
______________________
Calculations:
1. $138,750 – $3,750 = $135,000 (calculation of unknown amount)
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Last revised: October 26, 2012
1-30
Problem 1-4A (concluded) Part 1
LeCLAIRE DELIVERY SERVICES
Balance Sheet
December 31, 2014
Assets Liabilities
Cash..................................... $ 9,375 Accounts payable....................... $ 18,750
Accounts receivable ........... 11,175 Notes payable............................. 52,500
Office supplies .................... 1,650 Total liabilities ...................... $ 71,250
Trucks.................................. 27,000
Office equipment................. 73,500
Land ..................................... 22,500 Equity
Building ............................... 90,000 Jess LeClaire, capital................. 163,9502
Total assets ......................... $235,200 Total liabilities and equity.......... $235,200
Calculations:
2. $235,200 – $71,250 = $163,950
Part 2
Calculation of net income for 2014:
Jess LeClaire, Capital December 31, 2013 $135,000
+ Owner investment 17,500
+ Net income (loss) ?
– Owner withdrawals 18,000
= Jess LeClaire, capital December 31, 2014 $163,950
OR
$135,000 + $17,500 + ? - $18,000 = $163,950; ? = $29,450
Analysis component:
Assets increased by $96,450 ($235,200 - $138,750). $67,500 of the increase in assets
were financed by an increase in debt (total liabilities went from $3,750 at December 31,
2013 to $71,250 at December 31, 2014). The remaining $28,950 increase in assets
($96,450 - $67,500) resulted from equity financing (equity increased to $163,950 at
December 31, 2014 from $135,000 at December 31, 2013 because of $17,500 owner
investment plus $29,450 net income less $18,000 of withdrawals during 2014).
1-30
Problem 1-4A (concluded) Part 1
LeCLAIRE DELIVERY SERVICES
Balance Sheet
December 31, 2014
Assets Liabilities
Cash..................................... $ 9,375 Accounts payable....................... $ 18,750
Accounts receivable ........... 11,175 Notes payable............................. 52,500
Office supplies .................... 1,650 Total liabilities ...................... $ 71,250
Trucks.................................. 27,000
Office equipment................. 73,500
Land ..................................... 22,500 Equity
Building ............................... 90,000 Jess LeClaire, capital................. 163,9502
Total assets ......................... $235,200 Total liabilities and equity.......... $235,200
Calculations:
2. $235,200 – $71,250 = $163,950
Part 2
Calculation of net income for 2014:
Jess LeClaire, Capital December 31, 2013 $135,000
+ Owner investment 17,500
+ Net income (loss) ?
– Owner withdrawals 18,000
= Jess LeClaire, capital December 31, 2014 $163,950
OR
$135,000 + $17,500 + ? - $18,000 = $163,950; ? = $29,450
Analysis component:
Assets increased by $96,450 ($235,200 - $138,750). $67,500 of the increase in assets
were financed by an increase in debt (total liabilities went from $3,750 at December 31,
2013 to $71,250 at December 31, 2014). The remaining $28,950 increase in assets
($96,450 - $67,500) resulted from equity financing (equity increased to $163,950 at
December 31, 2014 from $135,000 at December 31, 2013 because of $17,500 owner
investment plus $29,450 net income less $18,000 of withdrawals during 2014).
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Subject
Accounting