Solution Manual for Financial Accounting, 16th Edition

Preview (16 of 897 Pages)

100%

Purchase to unlock

Loading page image...

1.Some users of accounting information include managers, employees, investors, creditors,customers, and the government.2.The role of accounting is to provide information for managers to use in operating the business.In addition, accounting provides information to others to use in assessing the economicperformance and condition of the business.3.The corporate form allows the company to obtain large amounts of resources by issuing stock.For this reason, most companies that require large investments in property, plant, and equipmentare organized as corporations.4.No. The business entity concept limits the recording of economic data to transactions directlyaffecting the activities of the business. The payment of the interest of $4,500 is a personaltransaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.5.The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistentwith the cost concept.6.a.No. The offer of $2,000,000 and the increase in the assessed value should not be recognizedin the accounting records because land is recorded on the cost basis.b.Cash would increase by $2,125,000, land would decrease by $900,000, and owner’s equitywould increase by $1,225,000.7.An account receivable is a claim against a customer for goods or services sold. An accountpayable is an amount owed to a creditor for goods or services purchased. Therefore, an accountreceivable in the records of the seller is an account payable in the records of the purchaser.8.(b)The business realized net income of $91,000 ($679,000 – $588,000).9.(a)The business incurred a net loss of $75,000 ($640,000 – $715,000).10.(a)Net income or net loss(b)Owner’s equity at the end of the period(c)Cash at the end of the periodCHAPTER 1INTRODUCTION TO ACCOUNTING AND BUSINESSDISCUSSION QUESTIONS1-1

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessPE 1-1A$597,000. Under the cost concept, the land should be recorded at the cost to BoulderRepair Service.PE 1-1B$369,500. Under the cost concept, the land should be recorded at the cost toClementine Repair Service.PE 1-2Aa.A= L + OE$518,000= $165,000 + OEOE= $353,000b.A= L + OE+$86,200= +$25,000 + OEOE= +$61,200OE on December 31, 20Y9= $353,000 + $61,200= $414,200PE 1-2Ba.A= L + OE$382,000= $94,000 + OEOE= $288,000b.A= L + OE–$63,000= +$35,000 + OEOE= –$98,000OE on December 31, 20Y9= $288,000 – $98,000= $190,000PE 1-3A(2)Asset (Accounts Receivable) increases by $22,400;Owner’s Equity (Delivery Service Fees) increases by $22,400.(3)Liability (Accounts Payable) decreases by $4,100;Asset (Cash) decreases by $4,100.(4)Asset (Cash) increases by $14,700;Asset (Accounts Receivable) decreases by $14,700.(5)Asset (Cash) decreases by $1,600;Owner’s Equity (Terry Young, Drawing) decreases by $1,600.PRACTICE EXERCISES1-2

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessPE 1-3B(2)Owner’s Equity (Advertising Expense, increases) decreases by $6,750;Asset (Cash) decreases by $6,750.(3)Asset (Supplies) increases by $2,920;Liability (Accounts Payable) increases by $2,920.(4)Asset (Accounts Receivable) increases by $20,460;Owner’s Equity (Delivery Service Fees) increases by $20,460.(5)Asset (Cash) increases by $11,410;Asset (Accounts Receivable) decreases by $11,410.PE 1-4AFees earned$1,870,000Expenses:Wages expense$1,115,000Office expense343,000Miscellaneous expense21,000Total expenses1,479,000Net income$391,000PE 1-4BFees earned$899,600Expenses:Wages expense$539,800Office expense353,800Miscellaneous expense14,400Total expenses908,000Net loss$(8,400)Income StatementFor the Year Ended August 31, 20Y4Up-in-the-Air Travel ServiceIncome StatementFor the Year Ended April 30, 20Y7Zenith Travel Service1-3

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessPE 1-5AJerome Foley, capital, May 1, 20Y6$876,000Additional investment by owner during year$ 52,000Net income for the year391,000Withdrawals(34,000)Increase in owner’s equity409,000Jerome Foley, capital, April 30, 20Y7$1,285,000PE 1-5BMegan Cox, capital, September 1, 20Y3$456,000Additional investment by owner during year$ 43,200Net loss for the year(8,400)Withdrawals(21,600)Increase in owner’s equity13,200Megan Cox, capital, August 31, 20Y4$469,200PE 1-6ACash$170,000Accounts receivable417,000Supplies16,000Land772,000Total assets$1,375,000Accounts payable$90,000Jerome Foley, capital1,285,000Total liabilities and owner’s equity$1,375,000Owner’s EquityLiabilitiesAssetsUp-in-the-Air Travel ServiceBalance SheetApril 30, 20Y7Zenith Travel ServiceStatement of Owner’s EquityFor the Year Ended August 31, 20Y4Up-in-the-Air Travel ServiceStatement of Owner’s EquityFor the Year Ended April 30, 20Y71-4

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessPE 1-6BCash$ 54,500Accounts receivable90,600Supplies5,600Land372,000Total assets$522,700Accounts payable$ 53,500Megan Cox, capital469,200Total liabilities and owner’s equity$522,700PE 1-7ACash flows from (used for) operating activities:Cash received from customers$ 1,803,000Cash paid for operating expenses(1,479,000)Net cash flows from operating activities$ 324,000Cash flows from (used for) investing activities:Cash paid for purchase of land(347,000)Cash flows from (used for) financing activities:Cash received from owner as investment$52,000Cash withdrawals by owner(34,000)Net cash flows from financing activities18,000Net decrease in cash$(5,000)Cash balance, May 1, 20Y6175,000Cash balance, April 30, 20Y7$ 170,000For the Year Ended April 30, 20Y7Zenith Travel ServiceBalance SheetAugust 31, 20Y4Owner’s EquityAssetsLiabilitiesUp-in-the-Air Travel ServiceStatement of Cash Flows1-5

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessPE 1-7BCash flows from (used for) operating activities:Cash received from customersCash paid for operating expensesNet cash flows used for operating activitiesCash flows from (used for) investing activities:Cash paid for purchase of landCash flows from (used for) financing activities:Cash received from owner as investmentCash withdrawals by ownerNet cash flows from financing activitiesNet decrease in cashCash balance, September 1, 20Y3Cash balance, August 31, 20Y4PE 1-8Aa.Dec. 31,Dec. 31,20Y620Y5Total liabilities………………………………………………$598,000$569,900Total owner’s equity…………………………………………$460,000$410,000Ratio of liabilities to owner’s equity………………………1.301.39*$598,000 ÷ $460,000**$569,900 ÷ $410,000b.DecreasedPE 1-8Ba.Dec. 31,Dec. 31,20Y620Y5Total liabilities………………………………………………$4,042,000$3,096,000Total owner’s equity…………………………………………$4,300,000$3,600,000Ratio of liabilities to owner’s equity………………………0.940.86*$4,042,000 ÷ $4,300,000**$3,096,000 ÷ $3,600,000b.Increased$ 54,500106,900Zenith Travel ServiceStatement of Cash FlowsFor the Year Ended August 31, 20Y4$(14,000)$(52,400)21,600$43,200(21,600)(60,000)$ 881,000(895,000)******1-6

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-1a.1.manufacturing6.service11.service2.manufacturing7.service12.service3.manufacturing8.service13.manufacturing4.service9.manufacturing14.service5.merchandise10.merchandise15.merchandiseb.The accounting equation is relevant to all of the companies. It serves as the basisof the accounting information system.Ex. 1-2As in many ethics issues, there is no one right answer. Oftentimes, disclosingonly what is legally required may not be enough. In this case, it would be bestfor the company’s chief executive officer to disclose both reports to the countyrepresentatives. In doing so, the chief executive officer could point out any flawsor deficiencies in the fired researcher’s report.Ex. 1-3a.1.K5.B9.X2.G6.B10.B3.B7.X4.K8.Gb.A business transaction is an economic event or condition that directlychanges an entity’s financial condition or results of operations.Ex. 1-4Dunkin’s stockholders’ equity: $3,457 – $4,170 = ($713)Starbucks’ stockholders’ equity: $24,156 – $22,981 = $1,175Ex. 1-5Dollar Tree’s stockholders’ equity: $13,501 – $7,858 = $5,643Target’s stockholders’ equity: $41,290 – $29,993 = $11,297EXERCISES1-7

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-6a.$4,474,000 ($633,000 + $3,841,000)b.$387,500 ($6,124,500 – $5,737,000)c.$1,232,900 ($1,981,800 – $748,900)Ex. 1-7a.$494,000 ($659,000 – $165,000)b.$555,000 ($494,000 + $88,000 – $27,000)c.$330,000 ($494,000 – $151,000 – $13,000)d.$662,000 ($494,000 + $152,000 + $16,000)e.Net income: $92,000 ($782,000 – $196,000 – $494,000)Ex. 1-8a.(1)assetb.(2)liabilityc.(1)assetd.(3)owner’s equity (revenue)e.(1)assetf.(3)owner’s equity (expense)g.(1)assetEx. 1-9a.Increases assets and increases owner’s equity.b.Decreases assets and decreases owner’s equity.c.Increases assets and decreases assets.d.Increases assets and increases liabilities.e.Increases assets and increases owner’s equity.Ex. 1-10a.(1)Total assets increased $183,000 ($298,000 – $115,000).(2)No change in liabilities.(3)Owner’s equity increased $183,000.b.(1)Total assets decreased $80,000.(2)Total liabilities decreased $80,000.(3)No change in owner’s equity.c.No. It is false that a transaction always affects at least two elements (Assets,Liabilities, or Owner’s Equity) of the accounting equation. Some transactionsaffect only one element of the accounting equation. For example, purchasingsupplies for cash only affects assets.1-8

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-111.(b) decrease2.(a) increase3.(b) decrease4.(a) increaseEx. 1-121.c6.c2.a7.d3.e8.a4.e9.e5.c10.eEx. 1-13a.(1) Provided catering services for cash, $71,800.(2) Purchase of land for cash, $15,000.(3) Payment of cash for expenses, $47,500.(4) Purchase of supplies on account, $1,100.(5) Withdrawal of cash by owner, $5,000.(6) Payment of cash to creditors, $4,000.(7) Recognition of cost of supplies used, $1,500.b.$300 ($40,300 – $40,000)c.$17,800 (–$5,000 + $71,800 – $49,000)d.$22,800 ($71,800 – $49,000)e.$17,800 ($22,800 – $5,000)Ex. 1-14No. It would be incorrect to say that the business had incurred a net loss of$8,000. The excess of the withdrawals over the net income for the period is adecrease in the amount of owner’s equity in the business.1-9

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-15Owner’s equity at end of year ($928,000 – $352,000)……………………………$576,000Deduct owner’s equity at beginning of year ($605,000 – $237,000)…………368,000Net income (increase in owner’s equity)………………………………………$208,000Increase in owner’s equity (as determined for Dakota)………………………$208,000Add withdrawals………………………………………………………………………40,000Net income (increase in owner’s equity)………………………………………$248,000Increase in owner’s equity (as determined for Dakota)………………………$208,000Deduct additional investment………………………………………………………66,000Net income (increase in owner’s equity)………………………………………$142,000Increase in owner’s equity (as determined for Dakota)………………………$208,000Deduct additional investment………………………………………………………66,000$142,000Add withdrawals………………………………………………………………………40,000Net income (increase in owner’s equity)………………………………………$182,000Ex. 1-16Balance sheet items: 1, 2, 3, 4, 6, 8, 10Ex. 1-17Income statement items: 5, 7, 9IowaDakotaJerseyCarolina1-10

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-18a.Brian Walinsky, capital, April 1, 20Y7$373,000Net income for April$161,000Withdrawals(24,000)Increase in owner’s equity137,000Brian Walinsky, capital, April 30, 20Y7$510,000b.The statement of owner’s equity is prepared before the April 30, 20Y7, balancesheet because Brian Walinsky, Capital as of April 30, 20Y7, is needed for thebalance sheet.Ex. 1-19Fees earned$627,600Expenses:Wages expense$440,800Rent expense28,100Supplies expense6,800Miscellaneous expense9,300Total expenses485,000Net income$142,600Income StatementFor the Month Ended August 31, 20Y2Pegasus Product CompanyStatement of Owner’s EquityFor the Month Ended April 30, 20Y7Hermes Services1-11

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-20In each case, solve for a single unknown, using the following equation:Owner’s Equity (beginning) + Investments – Withdrawals + Revenues – Expenses= Owner’s Equity (ending)FreemanOwner’s equity at end of year ($1,260,000 – $330,000)………………$930,000Owner’s equity at beginning of year ($900,000 – $360,000)…………540,000Increase in owner’s equity…………………………………………………$390,000Deduct increase due to net income ($570,000 – $240,000)…………330,000Increase due to additional investment less withdrawals……………$ 60,000Add withdrawals………………………………………………….…………75,000Additional investment in the business……………………………… (a)$135,000HeywardOwner’s equity at end of year ($675,000 – $220,000)…………………$455,000Owner’s equity at beginning of year ($490,000 – $260,000)…………230,000Increase in owner’s equity…………………………………………………$225,000Add withdrawals………………………………………………….…………32,000Increase due to additional investment and net income………………$257,000Deduct additional investment……………………………………………150,000Increase due to net income………………………………………………$107,000Add expenses………………………………………………….……………128,000Revenue………………………………………………….…………………(b)$235,000JonesOwner’s equity at end of year ($100,000 – $80,000)……………………$ 20,000Owner’s equity at beginning of year ($115,000 – $81,000)……………34,000Decrease in owner’s equity………………………………………………$(14,000)Add decrease due to net loss ($115,000 – $122,500)…………………(7,500)Decrease due to withdrawals less additional investment……………$ (6,500)Deduct additional investment……………………………………………10,000Withdrawals from the business……………………………………… (c)$(16,500)RamirezOwner’s equity at end of year ($270,000 – $136,000)…………………$134,000Add decrease due to net loss ($115,000 – $128,000)…………………(13,000)Add withdrawals………………………………………………….…………39,000Beginning owner’s equity plus additional investment ………………$186,000Deduct additional investment……………………………………………55,000Owner’s equity at beginning of year……………………………………$131,000Add liabilities at beginning of year………………………………………120,000Assets at beginning of year…………………………………………… (d)$251,0001-12

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-21a.Cash$290,000Accounts receivable720,000Supplies30,000Total assets$1,040,000Accounts payable$280,000David Patel, capital760,000Total liabilities and owner’s equity$1,040,000Cash$340,000Accounts receivable870,000Supplies32,000Total assets$1,242,000Accounts payable$360,000David Patel, capital882,000Total liabilities and owner’s equity$1,242,000b.Owner’s equity, March 31………………………………………………………$882,000Owner’s equity, February 29…………………….……………………………760,000Net income……………………………………………………………………$122,000c.Owner’s equity, March 31………………………………………………………$882,000Owner’s equity, February 29…………………….……………………………760,000Increase in owner’s equity…………………………………………………$122,000Add withdrawal……………………………………………………………………50,000Net income……………………………………………………………………$172,000AssetsLiabilitiesOwner’s EquityAssetsLiabilitiesMarch 31, 20Y0Rockwell InteriorsBalance SheetFebruary 29, 20Y0Rockwell InteriorsBalance SheetOwner’s Equity1-13

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-22a.Balance sheet: 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 13Income statement: 5, 12, 14, 15b.Yes. An item can appear on more than one financial statement. For example,cash appears on both the balance sheet and statement of cash flows. However,the same item cannot appear on both the income statement and balance sheet.c.Yes. The accounting equation is relevant to all companies, including ExxonMobil Corporation.Ex. 1-231.(a) operating activity2.(a) operating activity3.(b) investing activity4.(c) financing activityEx. 1-24Cash flows from (used for) operating activities:Cash received from customersCash paid for operating expensesNet cash flows from operating activitiesCash flows from (used for) investing activities:Cash paid for purchase of landCash flows from (used for) financing activities:Cash received from owner as investmentCash withdrawals by ownerNet cash flows from financing activitiesNet increase in cashCash balance, June 1, 20Y5Cash balance, May 31, 20Y6Ethos Consulting GroupStatement of Cash FlowsFor the Year Ended May 31, 20Y6$162,500(475,000)$ 637,500$175,500$117,50058,000(17,500)45,000(90,000)$62,5001-14

Loading page image...

CHAPTER 1Introduction to Accounting and BusinessEx. 1-251.All financial statements should contain the name of the business in theirheading. The statement of owner’s equity is incorrectly headed as “OmarFarah” rather than We-Sell Realty. The heading of the balance sheet needsthe name of the business.2.The income statement and statement of owner’s equity cover a period of timeand should be labeled “For the Month Ended August 31, 20Y9.”3.The year in the heading for the statement of owner’s equity should be 20Y9rather than 20Y8.4.The balance sheet should be labeled “August 31, 20Y9,” rather than “For theMonth Ended August 31, 20Y9.”5.In the income statement, the miscellaneous expense amount should be listedas the last expense.6.In the income statement, the total expenses are incorrectly subtracted fromthe sales commissions, resulting in an incorrect net income amount. Thecorrect net income should be $24,150. This also affects the statement ofowner’s equity and the amount of Omar Farah, Capital, that appears onthe balance sheet.7.In the statement of owner’s equity, the additional investment should be addedfirst to Omar Farah, capital, as of August 1, 20Y9. The net income should bepresented next, followed by the amount of withdrawals, which is subtractedfrom the net income to yield the increase in owner’s equity. The increase inowner’s equity is added to Omar Farah, capital on August 1, 20Y9, to determineOmar Farah, capital on August 31, 20Y9.8.Accounts payable should be listed as a liability on the balance sheet.9.Accounts receivable and supplies should be listed as assets on the balancesheet.10.The balance sheet assets should equal the sum of the liabilities and owner’sequity.1-15

Preview Mode

This document has 897 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Accounting

Master Managerial Accounting Techniques

Controlling and Reporting of Real Assets

Sarbanes Oxley Act, GAAP and IFRS

Accounting Audit Final Exam MCQs 2015

Team A Week 5 Problems

IFRS or US GAAP Which is the Best Reporting Standard

Understanding Key Concepts in Managerial Accounting

Financial Reporting, Regulations, and Corporate Governance

Midterm Exam on Governmental and Not-for-Profit Accounting

Company

Explore

Study Tools