Solution Manual for Financial Accounting, 3rd Edition

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Chapter 1: Business, Accounting, and You
Discussion Questions: Key Points
1. The economic events that affect a business are communicated through the accounting
function. Language helps us to make sense of the world around us. If we don’t know the
language, we will be limited in our ability to operate effectively in the business
environment.
2. Valid arguments can be made on both sides of this question. Without technical knowledge
an accountant will not be able to provide much value. Without ethics, however, an
accountant can be dangerous. Accounting exists because of a need for an objective account
of the economic events that affect an entity.
3. Financial statements seek to provide information about the events that have already
occurred. For example, the cost principle is used to carry assets on the books. It is up to the
user to make projections as to how past transactions are likely to affect future events.
4. Reasons why—reliability, objectivity. Disadvantages—relevance, decision-usefulness.
5. Financial statement uses discussed in the text: allow investors and creditors to make
investment decisions, enable suppliers and customers to determine the financial condition of
a business, and report to regulatory agencies.
6. It is a separate legal entity from its owners. Factors—liability of owners for business
activities, taxation, distribution of income.
7. A = L + SE. Assets—things of value a company has. Liabilities—amount a business owes to
third parties. Stockholder’s equity—the amount of assets that is owned by the stockholders.
8. The transactions would have the following effects:
a. A+, SE+
b. A+, L+
c. A+, SE+
d. A+, A-
9. Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash
Flows. The financial statements articulate (join together). The income statement needs to be
prepared in order to produce the net income amount that is reported on the statement of
retained earnings. The ending balance in retained earnings is needed in order to prepare the
balance sheet. The ending balance in cash on the balance sheet and other information is
needed for the statement of cash flows.
10. The financial statements are
a. Balance sheet
b. Statement of retained earnings
c. Statement of cash flows
d. Income statement

(5-10 min.) S 1-5
Assets = Liabilities + Stockholder’s Equity
Accounts Notes Stockholder’s
Cash + Equipment = payable + payable + equity
$13,000 + $35,000 = $9,000 + $5,000 + $34,000
Based on the accounting equation, Beach has $34,000 of equity in the business. Assets of $48,000
($13,000 + $35,000) − Liabilities of $14,000 ($9,000 + $5,000) = Stockholder’s equity of $34,000.
(5-10 min.) S 1-6
Assets = Liabilities + Stockholders’ Equity
Cash + Supplies = + Stockholders’ equity
$36,000 + $1,500 = $9,500 + $28,000
Based on the accounting equation, Boehms has $9,500 of liabilities. Assets of $37,500 ($36,000 +
$1,500) − Stockholders’ equity of $28,000 = Liabilities of $,500
(5-10 min.) S 1-7
Assets = Liabilities + Stockholders’ Equity
Cash = Notes Payable + Common Stock
Investment + $15,000 = + $15,000
Borrowing + 18,000 = + $18,000 + ______
Bal. $33,000 = $18,000 + $15,000

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(5-10 min.) S 1-11
1. d
2. e
3. b
4. a
5. c
(5-10 min.) S 1-12
1. Increased total assets (Cash)
2. No effect on total assets. The increase in Land offset the decrease in Cash.
3. Decreased total assets (Cash)
4. Increased total assets (Machinery and equipment)
5. Increased total assets (Accounts receivable)
6. Decreased total assets (Cash)
7. No effect on total assets. The increase in Cash offset the decrease in Accounts receivable.
8. No effect on total assets. The increase in Cash offset the decrease in Land.
9. Increased total assets (cash)
(5-10 min.) S 1-13
1. True
2. False ( Increase Supplies; decrease Cash)
3. True
4. True
5. True
6. False (Decrease Cash; decrease Accounts payable)
7. True
8. True
9. False (Decrease Cash; increase Expense/decrease Stockholders’ equity)

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(5-10 min.) S 1-14
Req. 1
1. f. Sold stock to start the business.
2. e. Paid cash to purchase equipment.
3. g. Purchased equipment with a bank loan.
4. a. Earned revenue for services provided, but customer will pay later.
5. d. Paid cash for expenses incurred to operate the business.
6. c. Received cash for revenue earned by providing services.
7. b. Customers paid cash for services completed earlier in the month.
Req. 2
Revenues (transactions “4” and “6”)………………… $2,950
Less: Expenses (transaction “5”)………………..…… 1,350
Net income………………………………………..…. $1,600

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Exercises
(10-15 min.) E 1-15A
Appleway, Corp. $ 48,700 + $13,400 =
1st Choice, Inc. $ 82,000 - $27,000 =
Hamilton, Inc. $127,300 - $88,500 =
(10-15 min.) E 1-16A
Req. 1
Total Total Total
Assets − Stockholders’
Equity
= Liabilities
Beginning….. $91,000 − $7,000 = $84,000
Ending……… $145,000 − $73,000 = $72,000
Decrease during the year = $ 12,000
Req. 2
Possible reasons for the decrease in Liabilities may include:
 Payments were made on account
 Payments were made on a note payable
(10-15 min.) E 1-17A
Req. 1
Total Total Total
Assets − Liabilities = Stockholders’ Equity
Beginning….. $37,000 − $16,000 = $21,000
Ending……… $82,000 − $28,000 = $54,000
Increase during the year = $33,000

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Req. 2
Possible reasons for the increase in Stockholders’ equity may include:
 Sold stock
 Earned net income
(15-20 min.) E 1-18A
Aug. 31, 2014 Sept. 30, 2014
Total assets $135,000 $190,000
- Total liabilities $(81,000) $(145,000)
=
-
=
Stockholders’ equity
Common stock
Retained earnings
$54,000
(25,000)
$29,000
$45,000
(25,000)
$20,000
Assumption A: No dividends were paid
$20,000 ending balance = $29,000 Beg bal + Net income - dividends
$20,000 = $29,000 + Net income - 0
$(9,000) = Net loss
Assumption B: $14,000 of dividends were paid
$20,000 ending balance = $29,000 Beg bal + Net income - dividends
$20,000 = $29,000 + Net income – $14,000
$5,000 = Net income
Assumption C: $6,000 of dividends were paid
$20,000 ending balance = $29,000 Beg bal + Net income - dividends
$20,000 = $29,000 + Net income - $6,000
$(3,000) = Net loss

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(15-20 min.) E 1-19A
Assets = Liabilities + Stockholders’ Equity
Cash +
Medical
supplies + Land
Accounts
payable
Common
stock + Retained Earnings
August
Service
revenue –
Rent
expense
2 + 90,000 + 90,000
6 - 53,000 +530,000
11 + 1,200 + 1,200
15 No entry
17 + 9,400 + 9,400
19 - 2,400 + 2,400
22 + 150 - 150
30 -800 -800
Bal. $43,350 + $1,050 + $53,000 = $400 + $90,000 + $9,400 – $2,400
(10-15 min.) E 1-20A
Req. 1
The business is a corporation, as shown by the fact that it has a common stock account.
Req. 2
Happy Tots Gym, Inc.
Balance Sheet
March 31, 2014
ASSETS LIABILITIES
Cash $ 24,000 Accounts payable $3,300
Accounts receivable 12,500 Note payable 20,000
Supplies 300 Total liabilities 23,300
Office equipment 9,400 STOCKHOLDERS’ EQUITY
Common stock 4,000
Retained earnings 18,900
Total Stockholders’ equity 22,900
Total liabilities and
Total assets $46,200 stockholders’ equity $46,200

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Req. 3
The balance sheet reports the financial position of a company at a given point in time and that
Assets = Liabilities + Stockholders’ Equity.
(15-20 min.) E 1-21A
Req. 1
Account Type of Account Account Type of Account
Office furniture Asset Rent expense Expense
Utilities expense Expense Cash Asset
Accounts payable Liability Office supplies Asset
Notes payable Liability Salaries expense Expense
Service revenue Revenue Salaries payable Liability
Accounts receivable Asset Property tax expense Expense
Supplies expense Expense Equipment Asset
Req. 2
Cole Consulting, Inc.
Income Statement
For the Year Ended December 31, 2014
Service Revenue $116,600
Expenses
Salaries expense $36,700
Rent expense 28,000
Utilities expense 6,300
Supplies expense 2,700
Property tax expense 1,600
Total expenses 75,300
Net income $ 41,300
Results of operations for 2014: Net income of $41,300

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(15-20 min.) E 1-21A Cont.
Req 3
Cole Consulting, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2014
Retained earnings, Jan. 1, 2014 $0
Add: Net income 41,300
Subtotal 41,300
Less: Dividends 32,000
Retained earnings, Dec. 31, 2014 $9,300
The dividends for the year were $32,000. ($0 + $41,300 - $9,300)
(15-20 min.) E 1-22A
Req 1
Earth, Inc.
Beginning:
Assets $ 55,000
− Liabilities 45,000
= Stockholders’ Equity
Req 2
Ending:
Assets $ 114,000
− Liabilities 25,000
= Stockholders’ Equity ˙˝
Req 3
Ending Stockholders’ equity $89,000
- Beginning Stockholders’ equity (10,000)
= Change in Stockholders’ equity 79,000
- Sale of stock 16,000
= Change in retained earnings 63,000
+ Dividends 50,000
= Net income $113,000
Note: The change in Retained earnings equals Net income minus Dividends. So, Dividends are
added back to the change in Retained earnings to arrive at Net income.

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(10-15 min.) E 1-23B
Corner Grocery Corp. $45,000 + $27,900 = ˆ˝
Sampson Hardware, Inc. $104,000 - $44,000 = ˇ
Perfect Cleaners, Inc. $108,800 - $92,600 = ˇ
(10-15 min.) E 1-24B
Req. 1
Total Total Total
Assets − Stockholders’ Equity = Liabilities
Beginning….. $84,000 − $56,000 = $28,000
Ending……… $153,000 − $91,000 = $62,000
Increase during the year = $ 34,000
Req. 2
Possible reasons for the increase in Liabilities may include:
 Made purchases on account
 Borrowed money on a note payable
(10-15 min.) E 1-25B
Req. 1
Total Total Total
Assets − Liabilities = Stockholders’ Equity
Beginning….. $50,000 − $40,000 = $10,000
Ending……… $57,000 − $8,000 = $49,000
Increase during the year = $ 39,000

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(10-15 min.) E 1-25B (cont)
Req. 2
Possible reasons for the increase in Stockholders’ equity may include:
 Sold stock
 Earned net income
(15-20 min.) E 1-26B
Oct. 31, 2014 Nov. 30, 2014
Total assets $127,000 $165,000
- Total liabilities $(92,000) $(119,000)
=
-
=
Stockholders’ equity
Common stock
Retained earnings
$35,000
(15,000)
$20,000
$46,000
(15,000)
$31,000
Assumption A: No dividends were paid.
$31,000 ending balance = $20,000 Beg bal + Net income - Dividends
$31,000 = $20,000 + Net income - 0
$11,000 = Net income
Assumption B: $7,000 of dividends were paid.
$31,000 ending balance = $20,000 Beg bal + Net income - Dividends
$31,000 = $20,000 + Net income – $7,000
$18,000 = Net income
Assumption C: $15,000 of dividends were paid.
$31,000 ending balance = $20,000 Beg bal + Net income - Dividends
$31,000 = $20,000 + Net income - $15,000
$26,000 = Net income

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(15-20 min.) E 1-27B
Assets = Liabilities + Stockholders’ Equity
Cash +
Medical
supplies + Land
Accounts
payable
Common
stock + Retained Earnings
March
Service
revenue –
Rent
expense
2 + 45,000 + 45,000
6 - 20,000 + 20,000
11 + 1,000 + 1,000
15 No entry required
17 + 11,000 + 11,000
19 - 1,700 + 1,700
22 + 350 - 350
30 -700 - 700
Bal. $33,950 + $650 + $20,000 = $300 + $45,000 + $11,000 – $1,700
(10-15 min.) E 1-28B
Req. 1
The business is a corporation, as shown by the fact that it has a common stock account.
Req. 2
Julie’s Coffee Shop, Inc.
Balance Sheet
October 31, 2014
ASSETS LIABILITIES
Cash $ 19,000 Accounts payable $800
Accounts receivable 1,400 Note payable 4,000
Supplies 750 Total liabilities 4,800
Office equipment 14,200 STOCKHOLDERS’ EQUITY
Common stock 18,000
Retained earnings 12,550
Total Stockholders’ equity 30,550
Total liabilities and
Total assets $35,350 stockholders’ equity $35,350

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Req. 3
The balance sheet reports the financial position of a company at a given point in time and that
Assets = Liabilities + Stockholders’ Equity.
(15-20 min.) E 1-29B
Req. 1
Account Type of Account Account Type of Account
Office furniture Asset Rent expense Expense
Utilities expense Expense Cash Asset
Accounts payable Liability Office supplies Asset
Notes payable Liability Salaries expense Expense
Service revenue Revenue Salaries payable Liability
Accounts receivable Asset Property tax expense Expense
Supplies expense Expense Equipment Asset
Req. 2
Alden Consulting, Inc.
Income Statement
For the Year Ended December 31, 2014
Service Revenue $161,000
Expenses
Salaries expense $43,000
Rent expense 18,000
Utilities expense 12,600
Supplies expense 3,400
Property tax expense 2,400
Total expenses 79,400
Net income $ 81,600
Results of operations for 2014: Net income of $81,600.

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(15-20 min.) E 1-29B Cont.
Req 3
Alden Consulting, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2014
Retained earnings, Jan. 1, 2014 $0
Add: Net income 81,600
Subtotal 81,600
Less: Dividends 60,000
Retained earnings, Dec. 31, 2014 $21,600
The dividends for the year were $60,000 ($0 + $81,600 - $21,600).
(15-20 min.) E 1-30B
Req 1
Hastings, Inc.
Beginning:
Assets $ 83,000
− Liabilities 36,000
= Stockholders’ Equity ˆ
Req 2
Ending:
Assets $ 162,000
− Liabilities 31,000
= Stockholders’ Equity
Req 3
Ending Stockholders’ equity $131,000
- Beginning Stockholders’ equity 47,000
= Change in Stockholders’ equity 84,000
- Sale of stock 20,000
= Change in retained earnings 64,000
+ Dividends 71,000
= Net income $135,000
Note: The change in Retained earnings equals Net income minus Dividends. So, Dividends are
added back to the change in Retained earnings to arrive at Net income.

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Problems
(20-25 min.) P 1-31A
Req. 1
Assets = Liabilities + Stockholders’ Equity
Cash +
Accounts
receivable + Supplies +
Office
furniture
Accounts
payable
Common
stock + Retained Earnings
April
Service
revenue –
Rent
expense – Dividends
3 *
5 + 50,000 + 50,000
Bal. $50,000 + $0 + $0 + $0 = $0 + $50,000 + $0 – $0 – $0
7 -600 + 600
Bal. $49,400 + $0 + $600 + $0 = $0 + $50,000 + $0 – $0 – $0
9 +4,300 +4,300
Bal. $49,400 + $0 + $600 + $4,300 = $4,300 + $50,000 + $0 – $0 – $0
10 *
14 **
20 +5,400 +5,400
Bal. $49,400 + $5,400 + $600 + $4,300 = $4,300 + $50,000 + $5,400 – $0 – $0
27 -1,300 +1,300
Bal. $48,100 + $5,400 + $600 + $4,300 = $4,300 + $50,000 + $5,400 – $1,300 – $0
30 -2,000 +2,000
Bal. $46,100 + $5,400 + $600 + $4,300 = $4,300 + $50,000 + $5,400 – $1,300 – $2,000

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(25-30 min.) P 1-32A
Req. 1
Assets = Liabilities + Stockholders’ Equity
Cash +
Accounts
receivable + Supplies + Equipment
Accounts
payable
Common
stock + Retained Earnings
Nov.
Service
revenue –
Salaries
expense – Dividends
Beg.
bal. $1,660 + $3,210 + $0 + $26,000 = $4,700 + $21,640 + $6,300 – $1,770 – $0
a. + 20,000 + 20,000
Bal. $21,660 + $3,210 + $0 + $26,000 = $4,700 + $41,640 + $6,300 – $1,770 – $0
b. -4,700 -4,700
Bal. $16,960 + $3,210 + $0 + $26,000 = $0 + $41,640 + $6,300 – $1,770 – $0
c. + 4,000 + 4,000
Bal. $20,960 + $3,210 + $0 + $26,000 = $0 + $41,640 + $10,300 – $1,770 – $0
d. + 1,100 - 1,100
Bal. $22,060 + $2,110 + $0 + $26,000 = $0 + $41,640 + $10,300 – $1,770 – $0
e. + 500 + 500
Bal. $22,060 + $2,110 + $500 + $26,000 = $500 + $41,640 + $10,300 – $1,770 – $0
f. + 3,500 + 3,500
Bal. $22,060 + $5,610 + $500 + $26,000 = $500 + $41,640 + $13,800 – $1,770 – $0
g. +8,000 + 8,000
Bal. $30,060 + $5,610 + $500 + $26,000 = $500 + $49,640 + $13,800 – $1,770 – $0
h. - 2,300 + 2,300
Bal. $27,760 + $5,610 + $500 + $26,000 = $500 + $49,640 + $13,800 – $4,070 – $0
i. +180 - 180
Bal. $27,940 + $5,610 + $320 + $26,000 = $500 + $49,640 + $13,800 – $4,070 – $0
j. -700 +700
Bal. $27,240 + $5,610 + $320 + $26,000 = $500 + $49,640 + $13,800 – $4,070 – $700

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(25-30 min.) P 1-32A (cont.)
Req. 2
Interiors by Dennise Inc.
Income Statement
Month Ended November 30, 2014
Revenues
Service revenue $13,800
Expenses
Salaries expense 4,070
Net income $9,730
Req. 3
Interiors by Dennise, Inc.
Statement of Retained Earnings
Month Ended November 30, 2014
Retained earnings, November 1, 2014 $0
Add: Net income 9,730
Subtotal 9,730
Less: Dividends 700
Retained earnings, November 30, 2014 $9,030
Req.4
Interiors by Dennise, Inc.
Balance Sheet
November 30, 2014
ASSETS LIABILITIES
Cash $ 27,240 Accounts payable $ 500
Accounts receivable 5,610
Supplies 320 STOCKHOLDERS’ EQUITY
Equipment 26,000 Common stock 49,640
Retained earnings 9,030
Total Stockholders’ equity 58,670
Total liabilities and
Total assets $59,170 stockholder’s equity $59,170

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(20-25 min.) P 1-33A
a.
The Classy Chassis, Inc.
Income Statement
Year Ended December 31, 2014
Service revenue $106,000
Expenses
Salaries expense $38,000
Insurance expense 4,600
Advertising expense 3,500
Total expenses 46,100
Net Income $59,900
b.
The Classy Chassis, Inc.
Statement of Retained Earnings
Year Ended December 31, 2014
Retained earnings, December 31, 2013 $32,400
Add: Net income 59,900
Subtotal 92,300
Less: Dividends 25,000
Retained earnings, December 31, 2014 $67,300
c.
The Classy Chassis, Inc.
Balance Sheet
December 31, 2014
ASSETS LIABILITIES
Cash $14,800 Accounts payable $ 2,400
Accounts receivable 12,500 Notes payable 10,000
Equipment 82,400 Total liabilities 12,400
STOCKHOLDERS’ EQUITY
Common stock 30,000
Retained earnings 67,300
Total stockholders’ equity 97,300
Total liabilities and
Total assets $109,700 stockholders’ equity $109,700

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(25-30 min.) P 1-34A
Req. 1
Account Type of Account Account Type of Account
Accounts payable Liability Interest expense Stockholders’ equity
Accounts receivable Asset Land Asset
Advertising expense Stockholders’ equity Note payable Liability
Building Asset Property tax expense Stockholders’ equity
Cash Asset Rent expense Stockholders’ equity
Common stock Stockholders’ equity Salaries expense Stockholders’ equity
Dividends Stockholders’ equity Salaries payable Liability
Equipment Asset Service revenue Stockholders’ equity
Insurance expense Stockholders’ equity Supplies Asset
Req. 2
Fast and Fit, Inc.
Income Statement
Year Ended March 31, 2014
Service revenue $166,000
Expenses
Salaries expense $92,000
Rent expense 23,000
Advertising expense 15,000
Interest expense 6,000
Property tax expense 3,500
Insurance expense 2,300
Total expenses 141,800
Net Income $ 24,200
Fast and Fit, Inc.
Statement of Retained Earnings
Year Ended March 31, 2014
Retained earnings, March 31, 2013 $132,700
Add: Net income 24,200
Subtotal 156,900
Less: Dividends 28,000
Retained earnings, March 31, 2014 $128,900

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(continued) P 1-34A
Req. 3
Fast and Fit, Inc.
Balance Sheet
March 31, 2014
ASSETS LIABILITIES
Cash $16,000 Accounts payable $ 16,000
Accounts receivable 22,000 Salaries payable 3,000
Supplies 1,900 Notes payable 62,000
Land 35,000 Total liabilities 81,000
Equipment 45,000
Building 125,000 STOCKHOLDERS’ EQUITY
Common stock 35,000
Retained earnings 128,900
Total stockholders’ equity 163,900
Total liabilities and
Total assets $244,900 stockholders’ equity $244,900
Req. 4
a. $24,200 (Net profit = net income).
b. Decrease of $3,800 ($24,200 Net income minus $28,000 Dividends).
c. $244,900 (Total economic resources = total assets).
d. $ 81,000 (Total owed = total liabilities).

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(20-25 min.) P 1-35A
Baldwin Realty, Inc.
Balance Sheet
April 30, 2014
ASSETS LIABILITIES
Cash $9,100 Accounts payable $ 650
Accounts receivable 2,300 Salaries payable 1,800
Supplies 700 Notes payable 6,000
Equipment 21,000 Total liabilities 8,450
STOCKHOLDERS’ EQUITY
Common stock 15,000
Retained earnings 9,650
Total stockholders’ equity 24,650
Total liabilities and
Total assets $33,100 stockholders’ equity $33,100

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(20-25 min.) P 1-36B
Req. 1
Assets = Liabilities + Stockholders’ Equity
Cash +
Accounts
receivable + Supplies +
Office
furniture
Accounts
payable
Common
stock + Retained Earnings
June
Service
revenue –
Rent
expense – Dividends
3 *
5 + 70,000 + 70,000
Bal. $70,000 + $0 + $0 + $0 = $0 + $70,000 + $0 – $0 – $0
7 -1,300 + 1,300
Bal. $68,700 + $0 + $1,300 + $0 = $0 + $70,000 + $0 – $0 – $0
9 +3,500 +3,500
Bal. $68,700 + $0 + $1,300 + $3,500 = $3,500 + $70,000 + $0 – $0 – $0
10 *
14 **
20 +3,800 +3,800
Bal. $68,700 + $3,800 + $1,300 + $3,500 = $3,500 + $70,000 + $3,800 – $0 – $0
27 -2,400 +2,400
Bal. $66,300 + $3,800 + $1,300 + $3,500 = $3,500 + $70,000 + $3,800 – $2,400 – $0
30 -700 + 700
Bal. $65,600 + $3,800 + $1,300 + $3,500 = $3,500 + $70,000 + $3,800 – $2,400 – $700

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(25-30 min.) P 1-37B
Req. 1
Assets = Liabilities + Stockholders’ Equity
Cash +
Accounts
receivable + Supplies + Equipment
Accounts
payable
Common
stock + Retained Earnings
June
Service
revenue –
Salaries
expense – Dividends
Beg.
bal. $1,680 + $4,130 + $0 + $32,000 = $3,100 + $30,000 + $9,170 – $4,460 – $0
a. +10,000 + 10,000
Bal. $11,680 + $4,130 + $0 + $32,000 = $3,100 + $40,000 + $9,170 – $14,460 – $0
b. -3,100 -3,100
Bal. $8,580 + $4,130 + $0 + $32,000 = $0 + $40,000 + $9,170 – $4,460 – $0
c. + 2,500 + 2,500
Bal. $11,080 + $4,130 + $0 + $32,000 = $0 + $40,000 + $11,670 – $4,460 – $0
d. +2,130 - 2,130
Bal. $13,210 + $2,000 + $0 + $32,000 = $0 + $40,000 + $11,670 – $4,460 – $0
e. + 850 + 850
Bal. $13,210 + $2,000 + $850 + $32,000 = $850 + $40,000 + $11,670 – $4,460 – $0
f. 6,200 + 6,200
Bal. $13,210 + $8,200 + $850 + $32,000 = $850 + $40,000 + $17,870 – $4,460 – $0
g. +7,000 +7,000
Bal. $20,210 + $8,200 + $850 + $32,000 = $850 + $47,000 + $17,870 – $4,460 – $0
h. - 4,600 + 4,600
Bal. $15,610 + $8,200 + $850 + $32,000 = $850 + $47,000 + $17,870 – $9,060 – $0
i. +250 - 250
Bal. $15,860 + $8,200 + $600 + $32,000 = $850 + $47,000 + $17,870 – $9,060 – $0
j. -1,500 +1,500
Bal. $14,360 + $8,200 + $600 + $32,000 = $850 + $47,000 + $17,870 – $9,060 – $1,500

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(25-30 min.) P 1-37B (cont.)
Req. 2
Interiors by Jill, Inc.
Income Statement
Month Ended June 30, 2014
Revenues
Service revenue $17,870
Expenses
Salaries expense 9,060
Net income $8,810
Req. 3
Interiors by Jill, Inc.
Statement of Retained Earnings
Month Ended June 30, 2014
Retained earnings, June 1, 2014 $0
Add: Net income 8,810
Subtotal 8,810
Less: Dividends 1,500
Retained earnings, June 30, 2014 $7,310
Req.4
Interiors by Jill, Inc.
Balance Sheet
June 30, 2014
ASSETS LIABILITIES
Cash $ 14,360 Accounts payable $ 850
Accounts receivable 8,200
Supplies 600 STOCKHOLDERS’ EQUITY
Equipment 32,000 Common stock 47,000
Retained earnings 7,310
Total Stockholders’ equity 54,310
Total liabilities and
Total assets $55,160 stockholder’s equity $55,160

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(20-25 min.) P 1-38B
a.
McKnight, Inc.
Income Statement
Year Ended December 31, 2014
Service revenue $88,000
Expenses
Salaries expense $13,000
Insurance expense 8,000
Advertising expense 5,500
Total expenses 26,500
Net Income $61,500
b.
McKnight, Inc.
Statement of Retained Earnings
Year Ended December 31, 2014
Retained earnings, December 31, 2013 $23,500
Add: Net income 61,500
Subtotal 85,000
Less: Dividends 40,000
Retained earnings, December 31, 2014 $45,000
c.
McKnight, Inc.
Balance Sheet
December 31, 2014
ASSETS LIABILITIES
Cash $17,000 Accounts payable $ 9,000
Accounts receivable 8,000 Note payable 16,000
Equipment 65,000 Total liabilities 25,000
STOCKHOLDERS’ EQUITY
Common stock 20,000
Retained earnings 45,000
Total stockholders’ equity 65,000
Total liabilities and
Total assets $90,000 stockholders’ equity $90,000

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Solution Manual for Financial Accounting, 3rd Edition

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