Solution Manual for Financial Accounting, 10th Edition
Solution Manual for Financial Accounting, 10th Edition provides expert-verified solutions to help you study smarter.
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Chapter 1 The Financial Statements 1-1
Chapter 1
The Financial Statements
Short Exercises
(5 min.) S 1-1
Computed amounts in boxes
Total Assets = Total Liabilities + Stockholders’ Equity
a. $660,000 = $320,000 + $340,000
b. 135,000 = 57,000 + 78,000
c. 401,000 = 45,000 + 356,000
(5 min.) S 1-2
Ethics is a factor that should be included in every business and
accounting decision, beyond the potential economic and legal
consequences. Ideally, for each decision, honesty and truthfulness
should prevail, considering the rights of others. The decision
guidelines at the end of the chapter spell out the considerations we
should take when making decisions. Simply, we might ask ourselves
three questions: (1) Is the action legal? (2) Who will be affected by
the decision? (3) How will the decision make me feel afterward?
Chapter 1
The Financial Statements
Short Exercises
(5 min.) S 1-1
Computed amounts in boxes
Total Assets = Total Liabilities + Stockholders’ Equity
a. $660,000 = $320,000 + $340,000
b. 135,000 = 57,000 + 78,000
c. 401,000 = 45,000 + 356,000
(5 min.) S 1-2
Ethics is a factor that should be included in every business and
accounting decision, beyond the potential economic and legal
consequences. Ideally, for each decision, honesty and truthfulness
should prevail, considering the rights of others. The decision
guidelines at the end of the chapter spell out the considerations we
should take when making decisions. Simply, we might ask ourselves
three questions: (1) Is the action legal? (2) Who will be affected by
the decision? (3) How will the decision make me feel afterward?
Chapter 1 The Financial Statements 1-1
Chapter 1
The Financial Statements
Short Exercises
(5 min.) S 1-1
Computed amounts in boxes
Total Assets = Total Liabilities + Stockholders’ Equity
a. $660,000 = $320,000 + $340,000
b. 135,000 = 57,000 + 78,000
c. 401,000 = 45,000 + 356,000
(5 min.) S 1-2
Ethics is a factor that should be included in every business and
accounting decision, beyond the potential economic and legal
consequences. Ideally, for each decision, honesty and truthfulness
should prevail, considering the rights of others. The decision
guidelines at the end of the chapter spell out the considerations we
should take when making decisions. Simply, we might ask ourselves
three questions: (1) Is the action legal? (2) Who will be affected by
the decision? (3) How will the decision make me feel afterward?
Chapter 1
The Financial Statements
Short Exercises
(5 min.) S 1-1
Computed amounts in boxes
Total Assets = Total Liabilities + Stockholders’ Equity
a. $660,000 = $320,000 + $340,000
b. 135,000 = 57,000 + 78,000
c. 401,000 = 45,000 + 356,000
(5 min.) S 1-2
Ethics is a factor that should be included in every business and
accounting decision, beyond the potential economic and legal
consequences. Ideally, for each decision, honesty and truthfulness
should prevail, considering the rights of others. The decision
guidelines at the end of the chapter spell out the considerations we
should take when making decisions. Simply, we might ask ourselves
three questions: (1) Is the action legal? (2) Who will be affected by
the decision? (3) How will the decision make me feel afterward?
1-2 Financial Accounting 10/e Solutions Manual
(10 min.) S 1-3
a. Corporation, limited partners of a Limited-liability partnership (LLP)
and Limited-liability company (LLC). If any of these businesses
fails and cannot pay its liabilities, creditors cannot force the
owners to pay the business’s debts from the owners’ personal
assets. Creditors can go after the general partner of a limited
liability partnership.
b. Proprietorship. There is a single owner of the business, so the
owner is 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
their personal assets. A partnership affords more protection for
creditors than a proprietorship because there are two or more
owners to share this liability.
(5 min.) S 1-4
1. The entity assumption applies.
2. Application of the entity assumption will separate Wallace’s
personal assets from the assets of New Age Foods. This will help
Wallace, investors, and lenders know how much assets, liabilities
and equity the business has, and this knowledge will help all
parties evaluate the business realistically.
(10 min.) S 1-3
a. Corporation, limited partners of a Limited-liability partnership (LLP)
and Limited-liability company (LLC). If any of these businesses
fails and cannot pay its liabilities, creditors cannot force the
owners to pay the business’s debts from the owners’ personal
assets. Creditors can go after the general partner of a limited
liability partnership.
b. Proprietorship. There is a single owner of the business, so the
owner is 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
their personal assets. A partnership affords more protection for
creditors than a proprietorship because there are two or more
owners to share this liability.
(5 min.) S 1-4
1. The entity assumption applies.
2. Application of the entity assumption will separate Wallace’s
personal assets from the assets of New Age Foods. This will help
Wallace, investors, and lenders know how much assets, liabilities
and equity the business has, and this knowledge will help all
parties evaluate the business realistically.
Chapter 1 The Financial Statements 1-3
(5-10 min.) S 1-5
a. Stable-monetary-unit assumption
b. Historical cost principle; $300 is value of FAX machine
c. Historical cost principle; the sale price is the amount actually
received from the sale
d. Entity assumption
(5 min.) S 1-6
1. Liabilities = Assets − Owners’ Equity
2. Owners’ Equity = Assets − Liabilities
This way of determining the amount of owners’ equity applies to
any company, your household, or a single IHOP restaurant.
(5 min.) S 1-7
1. Assets are the economic resources of a business that are expected
to produce a benefit in the future.
Owners’ equity represents the insider claims of a business, the
owners’ interest in its assets.
Assets and owners’ equity differ in that assets are resources and
owners’ equity is a claim to assets. Assets must be at least as
large as owners’ equity, so equity can be smaller than assets.
2. Both liabilities and owners’ equity are claims to assets.
Liabilities are the outsider claims to the assets of a business; they
are obligations to pay creditors.
Owners’ equity represents the insider claims to the assets of the
business; they are the owners’ interest in its assets.
(5-10 min.) S 1-5
a. Stable-monetary-unit assumption
b. Historical cost principle; $300 is value of FAX machine
c. Historical cost principle; the sale price is the amount actually
received from the sale
d. Entity assumption
(5 min.) S 1-6
1. Liabilities = Assets − Owners’ Equity
2. Owners’ Equity = Assets − Liabilities
This way of determining the amount of owners’ equity applies to
any company, your household, or a single IHOP restaurant.
(5 min.) S 1-7
1. Assets are the economic resources of a business that are expected
to produce a benefit in the future.
Owners’ equity represents the insider claims of a business, the
owners’ interest in its assets.
Assets and owners’ equity differ in that assets are resources and
owners’ equity is a claim to assets. Assets must be at least as
large as owners’ equity, so equity can be smaller than assets.
2. Both liabilities and owners’ equity are claims to assets.
Liabilities are the outsider claims to the assets of a business; they
are obligations to pay creditors.
Owners’ equity represents the insider claims to the assets of the
business; they are the owners’ interest in its assets.
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1-4 Financial Accounting 10/e Solutions Manual
(5-10 min.) S 1-8
a. Accounts receivable A g. Notes payable L
b. Long-term debt L h. Retained earnings S
c. Merchandise inventory A i. Land A
d. Prepaid expenses A j. Accounts payable L
e. Accrued expenses payable L k. Common stock S
f. Equipment A l. Supplies A
(5 min.) S 1-9
1. Revenues and expenses
2. Net income (or net loss)
(5 min.) S 1-10
O’Malley Services, Inc.
Income Statement
Year Ended December 31, 2014
(millions)
Revenues ....................................................... $398
Expenses ....................................................... 167
Net income..................................................... $231
(5 min.) S 1-11
Canada Corp.
Statement of Retained Earnings
Year Ended December 31, 2014
(millions)
Retained earnings, December 31, 2013 ....... $286
Add: Net income ($482 − $337) ................... 145
Less: Dividends declared ............................. (59)
Retained earnings, December 31, 2014 ....... $372
(5-10 min.) S 1-8
a. Accounts receivable A g. Notes payable L
b. Long-term debt L h. Retained earnings S
c. Merchandise inventory A i. Land A
d. Prepaid expenses A j. Accounts payable L
e. Accrued expenses payable L k. Common stock S
f. Equipment A l. Supplies A
(5 min.) S 1-9
1. Revenues and expenses
2. Net income (or net loss)
(5 min.) S 1-10
O’Malley Services, Inc.
Income Statement
Year Ended December 31, 2014
(millions)
Revenues ....................................................... $398
Expenses ....................................................... 167
Net income..................................................... $231
(5 min.) S 1-11
Canada Corp.
Statement of Retained Earnings
Year Ended December 31, 2014
(millions)
Retained earnings, December 31, 2013 ....... $286
Add: Net income ($482 − $337) ................... 145
Less: Dividends declared ............................. (59)
Retained earnings, December 31, 2014 ....... $372
Loading page 5...
Chapter 1 The Financial Statements 1-5
(10 min.) S 1-12
Washington Products
Balance Sheet
December 31, 2014
ASSETS
Current assets:
Cash ................................................................................. $ 21,000
Receivables ..................................................................... 17,600
Inventory ......................................................................... 79,000
Total current assets ........................................................ 117,600
Equipment ....................................................................... 185,000
Total assets ..................................................................... $302,600
LIABILITIES
Current liabilities:
Accounts payable ...................................................... $ 25,000
Total current liabilities .............................................. 25,000
Long-term liabilities:
Long-term notes payable .......................................... 169,000
Total liabilities ................................................................. 194,000
STOCKHOLDERS’ EQUITY
Common stock ................................................................ 30,500
Retained earnings ........................................................... 78,100*
Total stockholders’ equity.............................................. 108,600
Total liabilities and stockholders’ equity ...................... $302,600
_____
*Computation of retained earnings:
Total assets ($302,600) − current liabilities ($25,000) − long-term notes
payable ($169,000) − common stock ($30,500) = $78,100
(10 min.) S 1-12
Washington Products
Balance Sheet
December 31, 2014
ASSETS
Current assets:
Cash ................................................................................. $ 21,000
Receivables ..................................................................... 17,600
Inventory ......................................................................... 79,000
Total current assets ........................................................ 117,600
Equipment ....................................................................... 185,000
Total assets ..................................................................... $302,600
LIABILITIES
Current liabilities:
Accounts payable ...................................................... $ 25,000
Total current liabilities .............................................. 25,000
Long-term liabilities:
Long-term notes payable .......................................... 169,000
Total liabilities ................................................................. 194,000
STOCKHOLDERS’ EQUITY
Common stock ................................................................ 30,500
Retained earnings ........................................................... 78,100*
Total stockholders’ equity.............................................. 108,600
Total liabilities and stockholders’ equity ...................... $302,600
_____
*Computation of retained earnings:
Total assets ($302,600) − current liabilities ($25,000) − long-term notes
payable ($169,000) − common stock ($30,500) = $78,100
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1-6 Financial Accounting 10/e Solutions Manual
(10-15 min.) S 1-13
Guling Legal Services, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income .................................................................. $ 75,000
Adjustments to reconcile net income to net cash
provided by operating activities .. ....................... (8,000)
Net cash provided by operating activities ....... 67,000
Cash flows from investing activities:
Purchases of equipment .................... $(29,000)
Net cash used for investing activities .............. (29,000)
Cash flows from financing activities:
Payment of dividends ......................... $(31,000)
Net cash used for financing activities .............. (31,000)
Net increase in cash........................................................ 7,000
Cash balance, December 31, 2013 ................................. 15,000
Cash balance, December 31, 2014 ................................. $ 22,000
(10-15 min.) S 1-13
Guling Legal Services, Inc.
Statement of Cash Flows
Year Ended December 31, 2014
Cash flows from operating activities:
Net income .................................................................. $ 75,000
Adjustments to reconcile net income to net cash
provided by operating activities .. ....................... (8,000)
Net cash provided by operating activities ....... 67,000
Cash flows from investing activities:
Purchases of equipment .................... $(29,000)
Net cash used for investing activities .............. (29,000)
Cash flows from financing activities:
Payment of dividends ......................... $(31,000)
Net cash used for financing activities .............. (31,000)
Net increase in cash........................................................ 7,000
Cash balance, December 31, 2013 ................................. 15,000
Cash balance, December 31, 2014 ................................. $ 22,000
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Chapter 1 The Financial Statements 1-7
(10 min.) S 1-14
a. Accounts payable BS
b. Inventory BS
c. Interest revenue IS
d. Long-term debt BS
e. Net cash used for financing activities SCF
f. Salary expense IS
g. Cash BS, SCF
h. Dividends SRE, SCF
i. Increase or decrease in cash SCF
j. Net income IS, SRE, SCF
k. Net cash provided by operating activities SCF
l. Retained earnings SRE, BS
m. Sales revenue IS
n. Common stock BS
(10 min.) S 1-14
a. Accounts payable BS
b. Inventory BS
c. Interest revenue IS
d. Long-term debt BS
e. Net cash used for financing activities SCF
f. Salary expense IS
g. Cash BS, SCF
h. Dividends SRE, SCF
i. Increase or decrease in cash SCF
j. Net income IS, SRE, SCF
k. Net cash provided by operating activities SCF
l. Retained earnings SRE, BS
m. Sales revenue IS
n. Common stock BS
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1-8 Financial Accounting 10/e Solutions Manual
(15-20 min.) S 1-15
a. Paying large dividends will cause retained earnings to be low.
b. Heavy investing activity and paying off debts can result in a cash
shortage even if net income has been high.
c. The single best source of cash for a business is operating activities.
This source of cash is best because it results from the core
operations of the business. Operating activities should be the main
source of cash for a business.
d. Borrowing, issuing stock, and selling land, buildings, and equipment
can bring in cash even when the company has experienced losses.
Reducing accounts receivable and inventory can also increase cash
flow.
(15-20 min.) S 1-15
a. Paying large dividends will cause retained earnings to be low.
b. Heavy investing activity and paying off debts can result in a cash
shortage even if net income has been high.
c. The single best source of cash for a business is operating activities.
This source of cash is best because it results from the core
operations of the business. Operating activities should be the main
source of cash for a business.
d. Borrowing, issuing stock, and selling land, buildings, and equipment
can bring in cash even when the company has experienced losses.
Reducing accounts receivable and inventory can also increase cash
flow.
Loading page 9...
Chapter 1 The Financial Statements 1-9
Exercises
(10-15 min.) E 1-16A
Amounts in billions; (computed amounts in boxes)
Stockholders’
Assets = Liabilities + Equity
Beautiful Florals $83 $ 47 $36
Corner Groceries 26 7 19
State Bank 33 11 22
Corner Groceries appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
assets ($7/$26 = .27). Stated differently, Corner Groceries’ equity is
the highest percentage of company assets ($19/$26 = .73).
Liabilities as a percent of total assets:
Beautiful Florals $47/$83 = 0.57
Corner Groceries $7/$26 = 0.27
State Bank $11/$33 = 0.33
(10-15 min.) E 1-17A
Req. 1
(Amounts in millions)
Assets = Liabilities +
Stockholders’
Equity
$180 $105
300 280
110
Total $590 = $385 + $205
Req. 2 Resources
to work with
Req. 3 Amount
owed to
creditors
Req. 4 Actually
owned by company
stockholders
Exercises
(10-15 min.) E 1-16A
Amounts in billions; (computed amounts in boxes)
Stockholders’
Assets = Liabilities + Equity
Beautiful Florals $83 $ 47 $36
Corner Groceries 26 7 19
State Bank 33 11 22
Corner Groceries appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
assets ($7/$26 = .27). Stated differently, Corner Groceries’ equity is
the highest percentage of company assets ($19/$26 = .73).
Liabilities as a percent of total assets:
Beautiful Florals $47/$83 = 0.57
Corner Groceries $7/$26 = 0.27
State Bank $11/$33 = 0.33
(10-15 min.) E 1-17A
Req. 1
(Amounts in millions)
Assets = Liabilities +
Stockholders’
Equity
$180 $105
300 280
110
Total $590 = $385 + $205
Req. 2 Resources
to work with
Req. 3 Amount
owed to
creditors
Req. 4 Actually
owned by company
stockholders
Loading page 10...
1-10 Financial Accounting 10/e Solutions Manual
(10-20 min.) E 1-18A
Situation
1 2 3
(Millions)
Total stockholders’ equity,
January 31, 2014 ($52 − $14) ................... $38 $38 $38
Add: Issuances of stock ............................... 7 -0- 29
Net income ................................................ 8* 20* -0-
Less: Dividends declared ............................. -0- (5) (8)
Net loss ..................................................... -0- -0- (6)*
Total stockholders’ equity,
January 31, 2015 ($76 − $23) ................... $53 $53 $53
_____
*Must solve for these amounts.
(10-20 min.) E 1-18A
Situation
1 2 3
(Millions)
Total stockholders’ equity,
January 31, 2014 ($52 − $14) ................... $38 $38 $38
Add: Issuances of stock ............................... 7 -0- 29
Net income ................................................ 8* 20* -0-
Less: Dividends declared ............................. -0- (5) (8)
Net loss ..................................................... -0- -0- (6)*
Total stockholders’ equity,
January 31, 2015 ($76 − $23) ................... $53 $53 $53
_____
*Must solve for these amounts.
Loading page 11...
Chapter 1 The Financial Statements 1-11
(10-15 min.) E 1-19A
a. Income statement
b. Statement of retained earnings, Statement of cash flows
c. Balance sheet, Statement of cash flows
d. Balance sheet
e. Income statement
f. Statement of cash flows
g. Statement of cash flows
h. Balance sheet
i. Income statement
j. Income statement, Statement of retained earnings, Statement of
cash flows
k. Balance sheet
l. Balance sheet, Statement of retained earnings
m. Balance sheet
n. Balance sheet
(10-15 min.) E 1-19A
a. Income statement
b. Statement of retained earnings, Statement of cash flows
c. Balance sheet, Statement of cash flows
d. Balance sheet
e. Income statement
f. Statement of cash flows
g. Statement of cash flows
h. Balance sheet
i. Income statement
j. Income statement, Statement of retained earnings, Statement of
cash flows
k. Balance sheet
l. Balance sheet, Statement of retained earnings
m. Balance sheet
n. Balance sheet
Loading page 12...
1-12 Financial Accounting 10/e Solutions Manual
(10-20 min.) E 1-20A
Alan Sanders Realty Company
Balance Sheet
July 31, 2014
(Amounts in millions)
ASSETS LIABILITIES
Cash $ 1.8 Current liabilities $ 2.1
Receivables 0.6 Long-term liabilities 102.2
Investment assets 135.6 Total liabilities 104.3
Property and equipment, net 1.9 STOCKHOLDERS’
EQUITYOther assets 10.7
Common stock 21.8
Retained earnings 24.5*
Total stockholders’ equity 46.3
Total assets $150.6
Total liabilities and
stockholders’ equity $150.6
_____
*Computation of retained earnings:
Total assets ($150.6) − Total liabilities ($104.3) − Common stock
($21.8) = $24.5
(10-20 min.) E 1-20A
Alan Sanders Realty Company
Balance Sheet
July 31, 2014
(Amounts in millions)
ASSETS LIABILITIES
Cash $ 1.8 Current liabilities $ 2.1
Receivables 0.6 Long-term liabilities 102.2
Investment assets 135.6 Total liabilities 104.3
Property and equipment, net 1.9 STOCKHOLDERS’
EQUITYOther assets 10.7
Common stock 21.8
Retained earnings 24.5*
Total stockholders’ equity 46.3
Total assets $150.6
Total liabilities and
stockholders’ equity $150.6
_____
*Computation of retained earnings:
Total assets ($150.6) − Total liabilities ($104.3) − Common stock
($21.8) = $24.5
Loading page 13...
Chapter 1 The Financial Statements 1-13
(15-25 min.) E 1-21A
Req. 1
Alan Sanders Realty Company
Income Statement
Year Ended July 31, 2014
(Amounts in millions)
Total revenue................................................................ $37.8
Expenses:
Salary and other employee expenses ................... $13.8
Other expenses....................................................... 5.3
Interest expense ..................................................... 0.6
Total expenses........................................................ 19.7
Net income.................................................................... $18.1
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Alan Sanders Realty Company
Statement of Retained Earnings
Year Ended July 31, 2014
(Amounts in millions)
Retained earnings, beginning of year .................................... $16.9
Add: Net income for the year (Req. 1) .................................... 18.1
Subtotal 35.0
Less: Dividends declared........................................................ 10.5
Retained earnings, end of year (from Exercise 1-20A) ......... $24.5
(15-25 min.) E 1-21A
Req. 1
Alan Sanders Realty Company
Income Statement
Year Ended July 31, 2014
(Amounts in millions)
Total revenue................................................................ $37.8
Expenses:
Salary and other employee expenses ................... $13.8
Other expenses....................................................... 5.3
Interest expense ..................................................... 0.6
Total expenses........................................................ 19.7
Net income.................................................................... $18.1
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Alan Sanders Realty Company
Statement of Retained Earnings
Year Ended July 31, 2014
(Amounts in millions)
Retained earnings, beginning of year .................................... $16.9
Add: Net income for the year (Req. 1) .................................... 18.1
Subtotal 35.0
Less: Dividends declared........................................................ 10.5
Retained earnings, end of year (from Exercise 1-20A) ......... $24.5
Loading page 14...
1-14 Financial Accounting 10/e Solutions Manual
(15-20 min.) E 1-22A
Island Coffee Roasters Corp.
Income Statement
For the Month Ended August 31, 2015
Revenue:
Service revenue ............................................ $272,600
Expenses:
Salary expense.............................................. $78,500
Utilities expense ........................................... 5,200
Rent expense ................................................ 1,800
Total expenses .............................................. 85,500
Net income ......................................................... $187,100
Island Coffee Roasters Corp.
Statement of Retained Earnings
For the Month Ended August 31, 2015
Retained earnings, August 1, 2015 .......................... $ -0-
Add: Net income for the month ................................ 187,100
Subtotal 187,100
Less: Dividends declared ......................................... (2,400)
Retained earnings, August 31, 2015 ........................ $184,700
(15-20 min.) E 1-22A
Island Coffee Roasters Corp.
Income Statement
For the Month Ended August 31, 2015
Revenue:
Service revenue ............................................ $272,600
Expenses:
Salary expense.............................................. $78,500
Utilities expense ........................................... 5,200
Rent expense ................................................ 1,800
Total expenses .............................................. 85,500
Net income ......................................................... $187,100
Island Coffee Roasters Corp.
Statement of Retained Earnings
For the Month Ended August 31, 2015
Retained earnings, August 1, 2015 .......................... $ -0-
Add: Net income for the month ................................ 187,100
Subtotal 187,100
Less: Dividends declared ......................................... (2,400)
Retained earnings, August 31, 2015 ........................ $184,700
Loading page 15...
Chapter 1 The Financial Statements 1-15
(15-20 min.) E 1-23A
Island Coffee Roasters Corp.
Balance Sheet
August 31, 2015
Assets Liabilities
Cash ............................ $ 5,500 Accounts payable ..................... $ 8,800
Office supplies ........... 7,400
Equipment .................. 205,000 Stockholders’ Equity
Common stock .......................... 24,400
Retained earnings..................... 184,700
Total stockholders’ equity 209,100
Total liabilities and
Total assets ................ $217,900 stockholders’ equity .............. $217,900
(15-20 min.) E 1-23A
Island Coffee Roasters Corp.
Balance Sheet
August 31, 2015
Assets Liabilities
Cash ............................ $ 5,500 Accounts payable ..................... $ 8,800
Office supplies ........... 7,400
Equipment .................. 205,000 Stockholders’ Equity
Common stock .......................... 24,400
Retained earnings..................... 184,700
Total stockholders’ equity 209,100
Total liabilities and
Total assets ................ $217,900 stockholders’ equity .............. $217,900
Loading page 16...
1-16 Financial Accounting 10/e Solutions Manual
(15-20 min.) E 1-24A
Island Coffee Roasters Corp.
Statement of Cash Flows
For the Month Ended August 31, 2015
Cash flows from operating activities:
Net income ............................................................ $187,100
Adjustments to reconcile net income to net
cash provided by operating activities ............. 1,400
Net cash provided by operating activities .... 188,500
Cash flows from investing activities:
Acquisition of equipment .................................... $(205,000)
Net cash used for investing activities........... (205,000)
Cash flows from financing activities:
Issuance (sale) of stock to owners .................... $ 24,400
Payment of dividends .......................................... (2,400)
Net cash provided by financing activities .... 22,000
Net increase in cash ................................................. $ 5,500
Cash balance, August 1, 2015 ................................. 0
Cash balance, August 31, 2015 ............................... $ 5,500
(15-20 min.) E 1-24A
Island Coffee Roasters Corp.
Statement of Cash Flows
For the Month Ended August 31, 2015
Cash flows from operating activities:
Net income ............................................................ $187,100
Adjustments to reconcile net income to net
cash provided by operating activities ............. 1,400
Net cash provided by operating activities .... 188,500
Cash flows from investing activities:
Acquisition of equipment .................................... $(205,000)
Net cash used for investing activities........... (205,000)
Cash flows from financing activities:
Issuance (sale) of stock to owners .................... $ 24,400
Payment of dividends .......................................... (2,400)
Net cash provided by financing activities .... 22,000
Net increase in cash ................................................. $ 5,500
Cash balance, August 1, 2015 ................................. 0
Cash balance, August 31, 2015 ............................... $ 5,500
Loading page 17...
Chapter 1 The Financial Statements 1-17
(10-15 min.) E 1-25A
TO: Owner of Island Coffee Roasters Corp.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position,
and cash flows
Your first month of operations was successful. Revenues totaled
$272,600 and net income was $187,100. These operating results look
very strong.
The company was able to pay a $2,400 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $217,900 and liabilities
of only $8,800. Your stockholders’ equity is $209,100.
Operating activities generated cash of $188,500, which is
respectable. Operating activities are the main source of cash, which is
expected for a thriving company. You ended the month with cash of
$5,500. Based on the above facts, I believe you should stay in
business.
Student responses may vary.
(10-15 min.) E 1-25A
TO: Owner of Island Coffee Roasters Corp.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position,
and cash flows
Your first month of operations was successful. Revenues totaled
$272,600 and net income was $187,100. These operating results look
very strong.
The company was able to pay a $2,400 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $217,900 and liabilities
of only $8,800. Your stockholders’ equity is $209,100.
Operating activities generated cash of $188,500, which is
respectable. Operating activities are the main source of cash, which is
expected for a thriving company. You ended the month with cash of
$5,500. Based on the above facts, I believe you should stay in
business.
Student responses may vary.
Loading page 18...
1-18 Financial Accounting 10/e Solutions Manual
(10-15 min.) E 1-26B
Amounts in billions; (computed amounts in boxes)
Stockholders’
Assets = Liabilities + Equity
Clayton Homes $38 $ 17 $21
Howard Automotive 70 24 46
Bella Boutique 51 15 36
Bella Boutique appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
assets ($15/$51 = .29). Stated differently, Bella Boutique’s equity is the
highest percentage of company assets ($36/$51 = .71).
Liabilities as a percent of total assets:
Clayton Homes $17/$38 = 0.45
Howard Automotive $24/$70 = 0.34
Bella Boutique $15/$51 = 0.29
(10-15 min.) E 1-27B
Req. 1
(Amounts in millions)
Assets = Liabilities +
Stockholders’
Equity
$208 $156
338 100
107
Total $653 = $256 + $397
Req. 2 Resources
to work with
Req. 3 Amount
owed to
creditors
Req. 4 Actually
owned by company
stockholders
(10-15 min.) E 1-26B
Amounts in billions; (computed amounts in boxes)
Stockholders’
Assets = Liabilities + Equity
Clayton Homes $38 $ 17 $21
Howard Automotive 70 24 46
Bella Boutique 51 15 36
Bella Boutique appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
assets ($15/$51 = .29). Stated differently, Bella Boutique’s equity is the
highest percentage of company assets ($36/$51 = .71).
Liabilities as a percent of total assets:
Clayton Homes $17/$38 = 0.45
Howard Automotive $24/$70 = 0.34
Bella Boutique $15/$51 = 0.29
(10-15 min.) E 1-27B
Req. 1
(Amounts in millions)
Assets = Liabilities +
Stockholders’
Equity
$208 $156
338 100
107
Total $653 = $256 + $397
Req. 2 Resources
to work with
Req. 3 Amount
owed to
creditors
Req. 4 Actually
owned by company
stockholders
Loading page 19...
Chapter 1 The Financial Statements 1-19
(10-20 min.) E 1-28B
Situation
1 2 3
Millions
Total stockholders’ equity,
January 31, 2014 ($29 − $11) ................... $18 $18 $18
Add: Issuances of stock ................................... 6 -0- 31
Net income ............................................... 11* 22* -0-
Less: Dividends declared ................................. -0- (5) (3)
Net loss .................................................... -0- -0- (11)*
Total stockholders’ equity,
January 31, 2015 ($48 − $13) ................... $35 $35 $35
_____
*Must solve for these amounts.
(10-20 min.) E 1-28B
Situation
1 2 3
Millions
Total stockholders’ equity,
January 31, 2014 ($29 − $11) ................... $18 $18 $18
Add: Issuances of stock ................................... 6 -0- 31
Net income ............................................... 11* 22* -0-
Less: Dividends declared ................................. -0- (5) (3)
Net loss .................................................... -0- -0- (11)*
Total stockholders’ equity,
January 31, 2015 ($48 − $13) ................... $35 $35 $35
_____
*Must solve for these amounts.
Loading page 20...
1-20 Financial Accounting 10/e Solutions Manual
(10-15 min.) E 1-29B
a. Income statement, Statement of retained earnings, Statement of
cash flows
b. Balance sheet
c. Statement of cash flows
d. Statement of cash flows
e. Income statement
f. Balance sheet, Statement of cash flows
g. Balance sheet, Statement of retained earnings
h. Income statement
i. Balance sheet
j. Income statement
k. Balance sheet
l. Statement of retained earnings, Statement of cash flows
m. Balance sheet
n. Balance sheet
(10-15 min.) E 1-29B
a. Income statement, Statement of retained earnings, Statement of
cash flows
b. Balance sheet
c. Statement of cash flows
d. Statement of cash flows
e. Income statement
f. Balance sheet, Statement of cash flows
g. Balance sheet, Statement of retained earnings
h. Income statement
i. Balance sheet
j. Income statement
k. Balance sheet
l. Statement of retained earnings, Statement of cash flows
m. Balance sheet
n. Balance sheet
Loading page 21...
Chapter 1 The Financial Statements 1-21
(10-20 min.) E 1-30B
Diaz Design Company
Balance Sheet
July 31, 2014
(Amounts in millions)
ASSETS LIABILITIES
Cash $ 4.7 Current liabilities $ 5.3
Receivables 1.6 Long-term liabilities 99.5
Investment assets 108.9 Total liabilities 104.8
Property and
equipment, net 57.6
STOCKHOLDERS’
EQUITY
Other assets 31.7 Common stock 21.5
Retained earnings 78.2*
Total stockholders’ equity 99.7
______ Total liabilities and
Total assets $204.5 stockholders’ equity $204.5
_____
*Computation of retained earnings:
Total assets ($204.5) − Total liabilities ($104.8) − Common stock
($21.5) = $78.2
(10-20 min.) E 1-30B
Diaz Design Company
Balance Sheet
July 31, 2014
(Amounts in millions)
ASSETS LIABILITIES
Cash $ 4.7 Current liabilities $ 5.3
Receivables 1.6 Long-term liabilities 99.5
Investment assets 108.9 Total liabilities 104.8
Property and
equipment, net 57.6
STOCKHOLDERS’
EQUITY
Other assets 31.7 Common stock 21.5
Retained earnings 78.2*
Total stockholders’ equity 99.7
______ Total liabilities and
Total assets $204.5 stockholders’ equity $204.5
_____
*Computation of retained earnings:
Total assets ($204.5) − Total liabilities ($104.8) − Common stock
($21.5) = $78.2
Loading page 22...
1-22 Financial Accounting 10/e Solutions Manual
(15-25 min.) E 1-31B
Req. 1
Diaz Design Company
Income Statement
Year Ended July 31, 2014
(Amounts in millions)
Total revenue............................................................... $41.4
Expenses:
Salary and other employee expenses .................. $ 13.6
Other expenses...................................................... 2.9
Interest expense .................................................... 0.3
Total expenses....................................................... 16.8
Net income................................................................... $24.6
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Diaz Design Company
Statement of Retained Earnings
Year Ended July 31, 2014
(Amounts in millions)
Retained earnings, beginning of year ..................................... $55.1
Add: Net income for the year (Req. 1) ..................................... 24.6
Subtotal 79.7
Less: Dividends declared......................................................... 1.5
Retained earnings, end of year (from Exercise 1-30B) .......... $78.2
(15-25 min.) E 1-31B
Req. 1
Diaz Design Company
Income Statement
Year Ended July 31, 2014
(Amounts in millions)
Total revenue............................................................... $41.4
Expenses:
Salary and other employee expenses .................. $ 13.6
Other expenses...................................................... 2.9
Interest expense .................................................... 0.3
Total expenses....................................................... 16.8
Net income................................................................... $24.6
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Diaz Design Company
Statement of Retained Earnings
Year Ended July 31, 2014
(Amounts in millions)
Retained earnings, beginning of year ..................................... $55.1
Add: Net income for the year (Req. 1) ..................................... 24.6
Subtotal 79.7
Less: Dividends declared......................................................... 1.5
Retained earnings, end of year (from Exercise 1-30B) .......... $78.2
Loading page 23...
Chapter 1 The Financial Statements 1-23
(15-20 min.) E 1-32B
Office Plus Copy Center, Inc.
Income Statement
For the Month Ended May 31, 2014
Revenue:
Service revenue ………………………... $450,300
Expenses:
Salary expense …………………………. $230,000
Utilities expense ……………………….. 10,500
Rent expense …………………………… 3,700
Total expenses …………………………. 244,200
Net income ……………………………………... $206,100
Office Plus Copy Center, Inc.
Statement of Retained Earnings
For the Month Ended May 31, 2014
Retained earnings, May 1, 2014 ................................ $ -0-
Add: Net income ........................................................ 206,100
Subtotal 206,100
Less: Dividends declared .......................................... (12,500)
Retained earnings, May 31, 2014 .............................. $193,600
(15-20 min.) E 1-32B
Office Plus Copy Center, Inc.
Income Statement
For the Month Ended May 31, 2014
Revenue:
Service revenue ………………………... $450,300
Expenses:
Salary expense …………………………. $230,000
Utilities expense ……………………….. 10,500
Rent expense …………………………… 3,700
Total expenses …………………………. 244,200
Net income ……………………………………... $206,100
Office Plus Copy Center, Inc.
Statement of Retained Earnings
For the Month Ended May 31, 2014
Retained earnings, May 1, 2014 ................................ $ -0-
Add: Net income ........................................................ 206,100
Subtotal 206,100
Less: Dividends declared .......................................... (12,500)
Retained earnings, May 31, 2014 .............................. $193,600
Loading page 24...
1-24 Financial Accounting 10/e Solutions Manual
(15-20 min.) E 1-33B
Office Plus Copy Center, Inc.
Balance Sheet
May 31, 2014
Assets Liabilities
Cash ....................... $ 20,300 Accounts payable.................. $ 33,800
Office supplies ...... 4,400 Stockholders’ Equity
Equipment ............. 402,700 Common stock ...................... 200,000
Retained earnings ................. 193,600
Total stockholders’ equity .... 393,600
Total assets ........... $427,400
Total liabilities and
stockholders’ equity ......... $427,400
(15-20 min.) E 1-34B
Office Plus Copy Center, Inc.
Statement of Cash Flows
For the Month Ended May 31, 2014
Cash flows from operating activities:
Net income ............................................................. $206,100
Adjustments to reconcile net income to net
cash provided by operations ........................... 29,400
Net cash provided by operating activities 235,500
Cash flows from investing activities:
Acquisition of equipment ................................. $(402,700)
Net cash used for investing activities ........ (402,700)
Cash flows from financing activities:
Issuance (sale) of stock to owners .................. $ 200,000
Payment of dividends ....................................... (12,500)
Net cash provided by financing activities.. 187,500
Net increase in cash .............................................. $ 20,300
Cash balance, May 1, 2014 ................................... 0
Cash balance, May 31, 2014 ................................. $ 20,300
(15-20 min.) E 1-33B
Office Plus Copy Center, Inc.
Balance Sheet
May 31, 2014
Assets Liabilities
Cash ....................... $ 20,300 Accounts payable.................. $ 33,800
Office supplies ...... 4,400 Stockholders’ Equity
Equipment ............. 402,700 Common stock ...................... 200,000
Retained earnings ................. 193,600
Total stockholders’ equity .... 393,600
Total assets ........... $427,400
Total liabilities and
stockholders’ equity ......... $427,400
(15-20 min.) E 1-34B
Office Plus Copy Center, Inc.
Statement of Cash Flows
For the Month Ended May 31, 2014
Cash flows from operating activities:
Net income ............................................................. $206,100
Adjustments to reconcile net income to net
cash provided by operations ........................... 29,400
Net cash provided by operating activities 235,500
Cash flows from investing activities:
Acquisition of equipment ................................. $(402,700)
Net cash used for investing activities ........ (402,700)
Cash flows from financing activities:
Issuance (sale) of stock to owners .................. $ 200,000
Payment of dividends ....................................... (12,500)
Net cash provided by financing activities.. 187,500
Net increase in cash .............................................. $ 20,300
Cash balance, May 1, 2014 ................................... 0
Cash balance, May 31, 2014 ................................. $ 20,300
Loading page 25...
Chapter 1 The Financial Statements 1-25
(10-15 min.) E 1-35B
TO: Owner of Office Plus Copy Center, Inc.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position, and
cash flows
Your first month of operations was successful. Revenues totaled
$450,300 and net income was $206,100. These operating results look
very strong.
The company was able to pay a $12,500 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $427,400 and liabilities
of only $33,800. Your stockholders’ equity is $393,600.
Operating activities generated cash of $235,500, which is
respectable. Operating activities are the main source of cash, which is
expected for a thriving company. You ended the month with cash of
$20,300. Based on the above facts, I believe you should stay in
business.
Student responses may vary.
(10-15 min.) E 1-35B
TO: Owner of Office Plus Copy Center, Inc.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position, and
cash flows
Your first month of operations was successful. Revenues totaled
$450,300 and net income was $206,100. These operating results look
very strong.
The company was able to pay a $12,500 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $427,400 and liabilities
of only $33,800. Your stockholders’ equity is $393,600.
Operating activities generated cash of $235,500, which is
respectable. Operating activities are the main source of cash, which is
expected for a thriving company. You ended the month with cash of
$20,300. Based on the above facts, I believe you should stay in
business.
Student responses may vary.
Loading page 26...
1-26 Financial Accounting 10/e Solutions Manual
Quiz
Q1-36 a
Q1-37 b
Q1-38 a
Q1-39 d Stockholders’
Assets = Liabilities + Equity
+ $84,000 = + $26,000 + + $58,000
Q1-40 c
Q1-41 c
Q1-42 b
Q1-43 d
Q1-44 b
Q1-45 c [$285,000 − $209,000 − $86,000 − $27,000 = $(37,000)]
Q1-46 a ($350,000 + $183,750 − $78,750 = $455,000)
Q1-47 d
Q1-48 c
Q1-49 a Stockholders’
Assets = Liabilities + Equity
Beg. $150,000 = $24,000* + $126,000
Changes + 70,000
End. $232,000* = $94,000* + $138,000
_____
*Must solve for these amounts.
Q1-50 b Assets − Liabilities = Stockholders’ equity
Beg. bal. $350,000 − $126,000 = $224,000
+ Net income + X
− Dividends − 56,000
End. bal. $570,000 − $229,000 = $341,000
$224,000 + X - $56,000 = $341,000; X = $173,000
Quiz
Q1-36 a
Q1-37 b
Q1-38 a
Q1-39 d Stockholders’
Assets = Liabilities + Equity
+ $84,000 = + $26,000 + + $58,000
Q1-40 c
Q1-41 c
Q1-42 b
Q1-43 d
Q1-44 b
Q1-45 c [$285,000 − $209,000 − $86,000 − $27,000 = $(37,000)]
Q1-46 a ($350,000 + $183,750 − $78,750 = $455,000)
Q1-47 d
Q1-48 c
Q1-49 a Stockholders’
Assets = Liabilities + Equity
Beg. $150,000 = $24,000* + $126,000
Changes + 70,000
End. $232,000* = $94,000* + $138,000
_____
*Must solve for these amounts.
Q1-50 b Assets − Liabilities = Stockholders’ equity
Beg. bal. $350,000 − $126,000 = $224,000
+ Net income + X
− Dividends − 56,000
End. bal. $570,000 − $229,000 = $341,000
$224,000 + X - $56,000 = $341,000; X = $173,000
Loading page 27...
Chapter 1 The Financial Statements 1-27
Problems
(30 min.) P 1-51A
Req. 1
Computed amounts in boxes.
Diamond
Co.
Hagar Inc. Lowell
Corp.
BALANCE SHEET Millions
Beginning:
Assets ............................................ $101 $54 $13
Liabilities........................................ 63 22 4
Common stock .............................. 6 5 3
Retained earnings ......................... 32 27 6
Ending:
Assets ............................................ $108 $85 $16
Liabilities........................................ 65 32 3
Common stock .............................. 6 18 4
Retained earnings ......................... 37 35 9
INCOME STATEMENT
Revenues ....................................... $340 $170 $21
Expenses ....................................... 331 156 18
Net income ..................................... $ 9 $ 14 $ 3
STATEMENT OF RETAINED EARNINGS
Beginning RE................................. $32 $27 $ 6
+ Net income ..................................... 9 14 3
− Dividends declared ....................... (4) (6) 0
= Ending RE ...................................... $37 $35 $ 9
Problems
(30 min.) P 1-51A
Req. 1
Computed amounts in boxes.
Diamond
Co.
Hagar Inc. Lowell
Corp.
BALANCE SHEET Millions
Beginning:
Assets ............................................ $101 $54 $13
Liabilities........................................ 63 22 4
Common stock .............................. 6 5 3
Retained earnings ......................... 32 27 6
Ending:
Assets ............................................ $108 $85 $16
Liabilities........................................ 65 32 3
Common stock .............................. 6 18 4
Retained earnings ......................... 37 35 9
INCOME STATEMENT
Revenues ....................................... $340 $170 $21
Expenses ....................................... 331 156 18
Net income ..................................... $ 9 $ 14 $ 3
STATEMENT OF RETAINED EARNINGS
Beginning RE................................. $32 $27 $ 6
+ Net income ..................................... 9 14 3
− Dividends declared ....................... (4) (6) 0
= Ending RE ...................................... $37 $35 $ 9
Loading page 28...
1-28 Financial Accounting 10/e Solutions Manual
(continued) P 1-51A
Req. 2
Diamond Co. Hagar Inc. Lowell Corp.
Millions
Net income ................. $9 $14 $3
Highest
% of net income $9 = 2.6% $14 = 8.2% $3 = 14.3%
to revenues .......... $340 $170 $21
Highest
(continued) P 1-51A
Req. 2
Diamond Co. Hagar Inc. Lowell Corp.
Millions
Net income ................. $9 $14 $3
Highest
% of net income $9 = 2.6% $14 = 8.2% $3 = 14.3%
to revenues .......... $340 $170 $21
Highest
Loading page 29...
Chapter 1 The Financial Statements 1-29
(20-25 min.) P 1-52A
Req. 1
Philly Automotive, Inc.
Balance Sheet
June 30, 2014
ASSETS LIABILITIES
Cash $ 44,100 Accounts payable $ 18,800
Accounts receivable 5,800 Note payable 122,400
Notes receivable 33,400 Total liabilities 141,200
Office supplies 1,700 STOCKHOLDERS’
Land 184,700 EQUITY
Equipment 78,300 Stockholders’ equity 206,800*
Total liabilities and
Total assets $348,000 stockholders’ equity $348,000
_____
*Total assets ($348,000) − Total liabilities ($141,200) = Stockholders’ equity
($206,800).
Req. 2
Philly Automotive, Inc. is in better (not worse) financial position than
the erroneous balance sheet reports. Although total assets ($348,000)
are $19,900 lower than originally reported ($367,900), liabilities are
substantially lower than originally reported, and stockholders’ equity
is $7,500 higher than reported originally.
Req. 3
The following accounts are not reported on the balance sheet
because they are expenses. These accounts are reported on the
income statement.
Advertising expense
Utilities expense
Salary expense
Interest expense
(20-25 min.) P 1-52A
Req. 1
Philly Automotive, Inc.
Balance Sheet
June 30, 2014
ASSETS LIABILITIES
Cash $ 44,100 Accounts payable $ 18,800
Accounts receivable 5,800 Note payable 122,400
Notes receivable 33,400 Total liabilities 141,200
Office supplies 1,700 STOCKHOLDERS’
Land 184,700 EQUITY
Equipment 78,300 Stockholders’ equity 206,800*
Total liabilities and
Total assets $348,000 stockholders’ equity $348,000
_____
*Total assets ($348,000) − Total liabilities ($141,200) = Stockholders’ equity
($206,800).
Req. 2
Philly Automotive, Inc. is in better (not worse) financial position than
the erroneous balance sheet reports. Although total assets ($348,000)
are $19,900 lower than originally reported ($367,900), liabilities are
substantially lower than originally reported, and stockholders’ equity
is $7,500 higher than reported originally.
Req. 3
The following accounts are not reported on the balance sheet
because they are expenses. These accounts are reported on the
income statement.
Advertising expense
Utilities expense
Salary expense
Interest expense
Loading page 30...
1-30 Financial Accounting 10/e Solutions Manual
(20-25 min.) P 1-53A
Req. 1
Jose Alvarado, Realtor, Inc.
Balance Sheet
April 30, 2015
ASSETS LIABILITIES
Cash $ 43,000 Accounts payable $ 15,000
Office supplies 2,000 Note payable 128,000
Land 150,000 Total liabilities 143,000
Furniture 19,800 STOCKHOLDERS’
Franchise 16,000 EQUITY
Common stock 60,000
Retained earnings 27,800*
Total stockholders’ equity 87,800
Total liabilities and
Total assets $230,800 stockholders’ equity $230,800
_____
*Total assets ($230,800) − Total liabilities ($143,000) − Common stock
($60,000) = Retained earnings ($27,800).
Req. 2
It appears that the business can pay its debts. Total assets exceed
total liabilities.
Req. 3
Personal items not reported on the balance sheet of the business:
a. Personal cash ($18,000)
b. Personal account payable ($7,500)
g. Personal residence ($361,000) and mortgage payable
($197,000)
(20-25 min.) P 1-53A
Req. 1
Jose Alvarado, Realtor, Inc.
Balance Sheet
April 30, 2015
ASSETS LIABILITIES
Cash $ 43,000 Accounts payable $ 15,000
Office supplies 2,000 Note payable 128,000
Land 150,000 Total liabilities 143,000
Furniture 19,800 STOCKHOLDERS’
Franchise 16,000 EQUITY
Common stock 60,000
Retained earnings 27,800*
Total stockholders’ equity 87,800
Total liabilities and
Total assets $230,800 stockholders’ equity $230,800
_____
*Total assets ($230,800) − Total liabilities ($143,000) − Common stock
($60,000) = Retained earnings ($27,800).
Req. 2
It appears that the business can pay its debts. Total assets exceed
total liabilities.
Req. 3
Personal items not reported on the balance sheet of the business:
a. Personal cash ($18,000)
b. Personal account payable ($7,500)
g. Personal residence ($361,000) and mortgage payable
($197,000)
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