Accounting Warren 23rd Edition Solutions Manual
Accounting Warren 23rd Edition Solutions Manual
Accounting Warren 23rd Edition Solutions Manual
Solutions Manual
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PRACTICE EXERCISES
PE 1–1A
$81,000. Under the cost concept, the land should be recorded at the cost to Snap
Repair Service.
PE 1–1B
$44,000. Under the cost concept, the land should be recorded at the cost to Terrier
Repair Service.
PE 1–2A
a. A = L + OE b. A = L + OE
$475,000 = $115,000 + OE +$90,000 = $28,000 + OE
OE = $360,000 OE = +$62,000
OE on December 31, 2010 =
$422,000 = $360,000 + $62,000
PE 1–2B
a. A = L + OE b. A = L + OE
$750,000 = $293,000 + OE +$75,000 = –$30,000 + OE
OE = $457,000 OE = +$105,000
OE on December 31, 2010 =
$562,000 = $457,000 + $105,000
PE 1–3A
2
PE 1–3B
PE 1–4A
PE 1–4B
3
PE 1–5A
PE 1–5B
PE 1–6A
4
PE 1–6B
PE 1–7A
5
PE 1–7B
6
EXERCISES
Ex. 1–1
Ex. 1–2
As in many ethics issues, there is no one right answer. A fired researcher at the
company reported on this issue in these terms: “The company covered up the first
report, and the local newspaper uncovered the company’s secret. The company
was forced to not locate here (Collier County). It became patently clear that doing
the least that is legally allowed is not enough.”
Ex. 1–3
1. C 5. B 9. X
2. C 6. C 10. J
3. X 7. B
4. C 8. J
Ex. 1–4
Ex. 1–5
7
Ex. 1–6
Ex. 1–7
Ex. 1–8
a. (2) liability
b. (1) asset
c. (3) owner’s equity
d. (1) asset
e. (1) asset
f. (3) owner’s equity
Ex. 1–9
8
Ex. 1–10
Ex. 1–11
1. (b) decrease
2. (a) increase
3. (a) increase
4. (b) decrease
Ex. 1–12
1. c
2. e
3. e
4. c
5. a
6. c
7. d
8. a
9. e
10. e
9
Ex. 1–13
Ex. 1–14
No. It would be incorrect to say that the business had incurred a net loss of $25,000.
The excess of the withdrawals over the net income for the period is a decrease in
the amount of owner’s equity in the business.
10
Ex. 1–15
Jupiter
Owner’s equity at end of year
($1,296,000 – $540,000) ................................................... $756,000
Deduct owner’s equity at beginning of year
($810,000 – $324,000) ...................................................... 486,000
Net income (increase in owner’s equity) ................... $270,000
Mercury
Increase in owner’s equity (as determined for Jupiter) ... $270,000
Add withdrawals .................................................................. 72,000
Net income ....................................................................... $342,000
Saturn
Increase in owner’s equity (as determined for Jupiter) ... $270,000
Deduct additional investment ............................................ 162,000
Net income ....................................................................... $108,000
Venus
Increase in owner’s equity (as determined for Jupiter) ... $270,000
Deduct additional investment ............................................ 162,000
$108,000
Add withdrawals .................................................................. 72,000
Net income ....................................................................... $180,000
Ex. 1–16
Ex. 1–17
11
Ex. 1–18
TEFLON COMPANY
Statement of Owner’s Equity
For the Month Ended April 30, 2010
Hedi Fry, capital, April 1, 2010 ................................... $715,320
Net income for the month ........................................... $93,780
Less withdrawals ........................................................ 10,000
Increase in owner’s equity ......................................... 83,780
Hedi Fry, capital, April 30, 2010 ................................. $799,100
Ex. 1–19
RELAX SERVICES
Income Statement
For the Month Ended May 31, 2010
Fees earned ................................................................. $363,200
Expenses:
Wages expense........................................................ $187,000
Rent expense ........................................................... 36,000
Supplies expense .................................................... 11,500
Miscellaneous expense ........................................... 12,100
Total expenses..................................................... 246,600
Net income ................................................................... $116,600
12
Ex. 1–20
In each case, solve for a single unknown, using the following equation:
Owner’s equity (beginning) + Investments – Withdrawals + Revenues – Expenses
= Owner’s equity (ending)
13
Ex. 1–21
a.
PLEXIGLASS INTERIORS
Balance Sheet
October 31, 2010
Assets Liabilities
Cash ................................. $180,000 Accounts payable .......... $ 46,200
Accounts receivable ....... 102,000
Supplies ........................... 9,000 Owner’s Equity
Claudia Symonds, capital 244,800
Total liabilities and
Total assets ..................... $291,000 owner’s equity ............ $291,000
PLEXIGLASS INTERIORS
Balance Sheet
November 30, 2010
Assets Liabilities
Cash ................................. $306,000 Accounts payable .......... $ 49,800
Accounts receivable ....... 117,375
Supplies ........................... 7,500 Owner’s Equity
Claudia Symonds, capital 381,075
Total liabilities and
Total assets ..................... $430,875 owner’s equity ............ $430,875
14
Ex. 1–22
Balance sheet: a, b, c, d, f, g, h, i, j, k, m
Income statement: e, l, n, o
Ex. 1–23
1. c–financing activity
2. b–investing activity
3. a–operating activity
4. a–operating activity
Ex. 1–24
15
Ex. 1–25
1. All financial statements should contain the name of the business in their
heading. The statement of owner’s equity is incorrectly headed as “Steffy
Owen” rather than Driftwood Realty. The heading of the balance sheet needs
the name of the business.
2. The income statement and statement of owner’s equity cover a period of time
and should be labeled “For the Month Ended August 31, 2010.”
3. The year in the heading for the statement of owner’s equity should be 2010
rather than 2009.
4. The balance sheet should be labeled as of “August 31, 2010,” rather than “For
the Month Ended August 31, 2010.”
5. In the income statement, the miscellaneous expense amount should be listed
as the last expense.
6. In the income statement, the total expenses are incorrectly subtracted from the
sales commissions, resulting in an incorrect net income amount. The correct
net income should be $44,100. This also affects the statement of owner’s equity
and the amount of Steffy Owen, capital, that appears on the balance sheet.
7. In the statement of owner’s equity, the additional investment should be added
first to Steffy Owen, capital, as of August 1, 2010. The net income should be
presented next, followed by the amount of withdrawals, which is subtracted
from the net income to yield a net increase in owner’s equity.
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 balance
sheet.
10. The balance sheet assets should equal the sum of the liabilities and owner’s
equity.
16
Ex. 1–25 Concluded
DRIFTWOOD REALTY
Income Statement
For the Month Ended August 31, 2010
Sales commissions ............................................................ $467,100
Expenses:
Office salaries expense .............................................. $291,600
Rent expense ............................................................... 99,000
Automobile expense ................................................... 22,500
Supplies expense ........................................................ 2,700
Miscellaneous expense .............................................. 7,200
Total expenses......................................................... 423,000
Net income .......................................................................... $ 44,100
DRIFTWOOD REALTY
Statement of Owner’s Equity
For the Month Ended August 31, 2010
Steffy Owen, capital, August 1, 2010 ................................ $ 93,600
Additional investment during August .............................. $22,500
Net income for August ....................................................... 44,100
$66,600
Less withdrawals during August ...................................... 18,000
Increase in owner’s equity ................................................ 48,600
Steffy Owen, capital, August 31, 2010 .............................. $142,200
DRIFTWOOD REALTY
Balance Sheet
August 31, 2010
Assets Liabilities
Cash ................................. $ 29,700 Accounts payable .......... $ 34,200
Accounts receivable ....... 128,700
Supplies ........................... 18,000 Owner’s Equity
Steffy Owen, capital ....... 142,200
Total liabilities and
Total assets ..................... $176,400 owner’s equity ............ $176,400
17
Ex. 1–26
Ex. 1–27
18
PROBLEMS
Prob. 1–1A
1.
Owner’s
Assets = Liabilities + Equity
Jean Jean
Accts. Accts. Howard, Howard, Fees Rent Sal. Supp. Auto Misc.
Cash + Rec. + Supplies = Payable + Capital – Drawing + Earned – Exp. – Exp. – Exp. – Exp. – Exp.
a. + 50,000 + 50,000
b. + 1,600 + 1,600
Bal. 50,000 1,600 1,600 50,000
c. – 500 – 500
Bal. 49,500 1,600 1,100 50,000
d. + 9,250 + 9,250
Bal. 58,750 1,600 1,100 50,000 9,250
e. – 2,500 – 2,500
Bal. 56,250 1,600 1,100 50,000 9,250 – 2,500
f. – 1,200 – 900 – 300
Bal. 55,050 1,600 1,100 50,000 9,250 – 2,500 – 900 – 300
g. – 1,900 – 1,900
Bal. 53,150 1,600 1,100 50,000 9,250 – 2,500 – 1,900 – 900 – 300
h. – 1,050 – 1,050
Bal. 53,150 550 1,100 50,000 9,250 – 2,500 – 1,900 – 1,050 – 900 – 300
i. + 11,150 + 11,150
Bal. 53,150 11,150 550 1,100 50,000 20,400 – 2,500 – 1,900 – 1,050 – 900 – 300
j. – 2,700 – 2,700
Bal. 50,450 11,150 550 1,100 50,000 – 2,700 20,400 – 2,500 – 1,900 – 1,050 – 900 – 300
2. Owner’s equity is the right of owners to the assets of the business. These rights are increased by owner’s
investments and revenues and decreased by owner’s withdrawals and expenses.
19
Prob. 1–2A
20
Prob. 1–3A
1.
OMH COMPUTER SERVICES
Income Statement
For the Month Ended July 31, 2010
Fees earned ........................................................................ $ 50,250
Expenses:
Salaries expense ......................................................... $ 12,000
Rent expense ............................................................... 8,000
Auto expense............................................................... 3,875
Supplies expense ........................................................ 1,525
Miscellaneous expense .............................................. 1,875
Total expenses......................................................... 27,275
Net income .......................................................................... $ 22,975
2.
OMH COMPUTER SERVICES
Statement of Owner’s Equity
For the Month Ended July 31, 2010
Doug Van Buren, capital, July 1, 2010 .............................. $ 0
Investment on July 1, 2010 ................................................ $30,000
Net income for July ............................................................ 22,975
$52,975
Less withdrawals................................................................ 7,500
Increase in owner’s equity ................................................ 45,475
Doug Van Buren, capital, July 31, 2010 ............................ $45,475
3.
OMH COMPUTER SERVICES
Balance Sheet
July 31, 2010
Assets Liabilities
Cash ................................. $ 25,000 Accounts payable .......... $ 1,350
Accounts receivable ....... 20,750
Supplies ........................... 1,075 Owner’s Equity
Doug Van Buren, capital 45,475
Total liabilities and
Total assets ..................... $ 46,825 owner’s equity ............ $ 46,825
21
Prob. 1–3A Concluded
4. (Optional)
OMH COMPUTER SERVICES
Statement of Cash Flows
For the Month Ended July 31, 2010
Cash flows from operating activities:
Cash received from customers .................................. $ 29,500
Deduct cash payments for expenses
and payments to creditors ...................................... 27,000*
Net cash flow from operating activities..................... $ 2,500
Cash flows from investing activities: ............................... 0
Cash flows from financing activities:
Cash received as owner’s investment ...................... $ 30,000
Deduct cash withdrawal by owner ............................. 7,500
Net cash flow from financing activities ..................... 22,500
Net cash flow and July 31, 2010, cash balance ............... $ 25,000
*$8,000 + $1,250 + $5,750 + $12,000
22
Prob. 1–4A
1.
Owner’s
Assets = Liabilities + Equity
23
Prob. 1–4A Concluded
2.
COYOTE REALTY
Income Statement
For the Month Ended April 30, 2010
Sales commissions ............................................................ $24,000
Expenses:
Office salaries expense .............................................. $3,600
Rent expense ............................................................... 3,200
Automobile expense ................................................... 1,200
Supplies expense ........................................................ 750
Miscellaneous expense .............................................. 800
Total expenses......................................................... 9,550
Net income .......................................................................... $14,450
COYOTE REALTY
Statement of Owner’s Equity
For the Month Ended April 30, 2010
Ryan Barnes, capital, April 1, 2010 ................................... $ 0
Investment on April 1, 2010 ............................................... $25,000
Net income for April ........................................................... 14,450
$39,450
Less withdrawals................................................................ 3,000
Increase in owner’s equity ................................................ 36,450
Ryan Barnes, capital, April 30, 2010 ................................. $36,450
COYOTE REALTY
Balance Sheet
April 30, 2010
Assets Liabilities
Cash ................................. $36,800 Accounts payable .......... $ 500
Supplies ........................... 150
Owner’s Equity
Ryan Barnes, capital...... 36,450
Total liabilities and
Total assets ..................... $36,950 owner’s equity ............ $36,950
24
Prob. 1–5A
1.
Assets = Liabilities + Owner’s Equity
Accounts Accounts
Cash + Receivable + Supplies + Land = Payable + Maria Acosta, Capital
34,200 + 40,000 + 5,000 + 50,000 = 16,400 + Maria Acosta, Capital
129,200 = 16,400 + Maria Acosta, Capital
112,800 = Maria Acosta, Capital
25
Prob. 1–5A Continued
2.
Owner’s
Assets = Liabilities + Equity
Maria Maria
Accounts Accounts Acosta, Acosta,
Cash + Receivable + Supplies + Land = Payable + Capital – Drawing
26
Prob. 1–5A Continued
Bal.
a.
Bal.
b.
Bal.
c. – 4,500
Bal. – 4,500
d. + 18,250
Bal. 18,250 – 4,500
e.
Bal. 18,250 – 4,500
f.
Bal. 18,250 – 4,500
g. + 31,750
Bal. 50,000 – 4,500
h.
Bal. 50,000 – 4,500
i. – 14,800
Bal. 50,000 – 14,800 – 4,500
j. – 8,200 – 1,875 – 1,575 – 850
Bal. 50,000 – 14,800 – 8,200 – 4,500 – 1,875 – 1,575 – 850
k. – 4,250
Bal. 50,000 – 14,800 – 8,200 – 4,500 – 4,250 – 1,875 – 1,575 – 850
l.
Bal. 50,000 – 14,800 – 8,200 – 4,500 – 4,250 – 1,875 – 1,575 – 850
27
Prob. 1–5A Continued
3.
COLFAX DRY CLEANERS
Income Statement
For the Month Ended November 30, 2010
Dry cleaning revenue ......................................................... $50,000
Expenses:
Dry cleaning expense ................................................. $ 14,800
Wages expense ........................................................... 8,200
Rent expense ............................................................... 4,500
Supplies expense ........................................................ 4,250
Truck expense ............................................................. 1,875
Utilities expense .......................................................... 1,575
Miscellaneous expense .............................................. 850
Total expenses......................................................... 36,050
Net income .......................................................................... $13,950
28
Prob. 1–5A Concluded
4. (Optional)
COLFAX DRY CLEANERS
Statement of Cash Flows
For the Month Ended November 30, 2010
Cash flows from operating activities:
Cash received from customers .................................. $ 59,550*
Deduct cash payments for expenses
and payments to creditors ...................................... 26,000**
Net cash flow from operating activities..................... $ 33,550
Cash flows from investing activities:
Purchase of land ......................................................... (30,000)
Cash flows from financing activities:
Cash received as owner’s investment ...................... $ 35,000
Deduct cash withdrawal by owner ............................. 10,000
Net cash flow from financing activities ..................... 25,000
Increase in cash ................................................................. $ 28,550
Cash balance, November 1, 2010 ...................................... 34,200
Cash balance, November 30, 2010 .................................... $ 62,750
*$31,750 + $27,800
**$4,500 + $9,000 + $12,500
29
Prob. 1–6A
30
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31
Prob. 1–1B
1.
Owner’s
Assets = Liabilities + Equity
Rhea Rhea
Accts. Accts. Quade, Quade, Fees Rent Sal. Supp. Auto Misc.
Cash + Rec. + Supplies = Payable + Capital – Drawing + Earned – Exp. – Exp. – Exp. – Exp. – Exp.
a. + 30,000 + 30,000
b. + 1,750 + 1,750
Bal. 30,000 1,750 1,750 30,000
c. + 3,600 + 3,600
Bal. 33,600 1,750 1,750 30,000 3,600
d. – 1,300 – 1,300
Bal. 32,300 1,750 1,750 30,000 3,600 – 1,300
e. – 500 – 500
Bal. 31,800 1,750 1,250 30,000 3,600 – 1,300
f. + 4,800 + 4,800
Bal. 31,800 4,800 1,750 1,250 30,000 8,400 – 1,300
g. – 700 – 500 – 200
Bal. 31,100 4,800 1,750 1,250 30,000 8,400 – 1,300 – 500 – 200
h. – 1,000 – 1,000
Bal. 30,100 4,800 1,750 1,250 30,000 8,400 – 1,300 – 1,000 – 500 – 200
i. – 950 – 950
Bal. 30,100 4,800 800 1,250 30,000 8,400 – 1,300 – 1,000 – 950 – 500 – 200
j. – 2,000 – 2,000
Bal. 28,100 4,800 800 1,250 30,000 – 2,000 8,400 – 1,300 – 1,000 – 950 – 500 – 200
2. Owner’s equity is the right of owners to the assets of the business. These rights are increased by owner’s
investments and revenues and decreased by owner’s withdrawals and expenses.
32
Prob. 1–2B
33
Prob. 1–3B
1.
FAIR PLAY FINANCIAL SERVICES
Income Statement
For the Month Ended January 31, 2010
Fees earned ........................................................................ $39,500
Expenses:
Salaries expense ......................................................... $ 16,000
Rent expense ............................................................... 7,500
Auto expense............................................................... 4,500
Supplies expense ........................................................ 1,500
Miscellaneous expense .............................................. 1,200
Total expenses......................................................... 30,700
Net income .......................................................................... $ 8,800
2.
FAIR PLAY FINANCIAL SERVICES
Statement of Owner’s Equity
For the Month Ended January 31, 2010
Ashley Rhymer, January 1, 2010 ...................................... $ 0
Investment on January 1, 2010 ......................................... $15,000
Net income for January ..................................................... 8,800
$23,800
Less withdrawals................................................................ 5,000
Increase in owner’s equity ................................................ 18,800
Ashley Rhymer, capital, January 31, 2010 ....................... $18,800
3.
FAIR PLAY FINANCIAL SERVICES
Balance Sheet
January 31, 2010
Assets Liabilities
Cash ................................. $ 8,200 Accounts payable .......... $ 1,580
Accounts receivable ....... 11,500
Supplies ........................... 680 Owner’s Equity
Ashley Rhymer, capital . 18,800
Total liabilities and
Total assets ..................... $ 20,380 owner’s equity ............ $ 20,380
34
Prob. 1–3B Concluded
4. (Optional)
FAIR PLAY FINANCIAL SERVICES
Statement of Cash Flows
For the Month Ended January 31, 2010
Cash flows from operating activities:
Cash received from customers .................................. $ 28,000
Deduct cash payments for expenses
and payments to creditors ...................................... 29,800*
Net cash flow used for operating activities ............. $ (1,800)
Cash flows from investing activities ................................ 0
Cash flows from financing activities:
Cash received as owner’s investment ...................... $ 15,000
Deduct cash withdrawal by owner ............................. 5,000
Net cash flow from financing activities ..................... 10,000
Net cash flow and January 31, 2010, cash balance ......... $ 8,200
*$600 + $7,500 + $5,700 + $16,000
35
Prob. 1–4B
1.
Owner’s
Assets = Liabilities + Equity
36
Prob. 1–4B Concluded
2.
ROYAL REALTY
Income Statement
For the Month Ended August 31, 2010
Sales commissions ............................................................ $28,750
Expenses:
Office salaries expense .............................................. $10,000
Rent expense ............................................................... 4,200
Automobile expense ................................................... 2,500
Supplies expense ........................................................ 1,650
Miscellaneous expense .............................................. 1,200
Total expenses......................................................... 19,550
Net income .......................................................................... $ 9,200
ROYAL REALTY
Statement of Owner’s Equity
For the Month Ended August 31, 2010
Tanja Zier, capital, August 1, 2010 .................................... $ 0
Investment on August 1, 2010 ........................................... $20,000
Net income for August ....................................................... 9,200
$29,200
Less withdrawals................................................................ 5,000
Increase in owner’s equity ................................................ 24,200
Tanja Zier, capital, August 31, 2010 .................................. $24,200
ROYAL REALTY
Balance Sheet
August 31, 2010
Assets Liabilities
Cash ................................. $24,250 Accounts payable .......... $ 1,050
Supplies ........................... 1,000
Owner’s Equity
Tanja Zier, capital........... 24,200
Total liabilities and
Total assets ..................... $25,250 owner’s equity ............ $25,250
37
Prob. 1–5B
1.
Assets = Liabilities + Owner’s Equity
Accounts Accounts
Cash + Receivable + Supplies + Land = Payable + Peyton Keyes, Capital
17,000 + 31,000 + 3,200 + 36,000 = 10,400 + Peyton Keyes, Capital
87,200 = 10,400 + Peyton Keyes, Capital
76,800 = Peyton Keyes, Capital
38
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39
Prob. 1–5B Continued
2.
Owner’s
Assets = Liabilities + Equity
Peyton Peyton
Accounts Accounts Keyes, Keyes,
Cash + Receivable + Supplies + Land = Payable + Capital – Drawing
40
Prob. 1–5B Continued
Bal.
a.
Bal.
b.
Bal.
c. + 19,500
Bal. 19,500
d. – 3,000
Bal. 19,500 – 3,000
e.
Bal. 19,500 – 3,000
f.
Bal. 19,500 – 3,000
g. + 24,750
Bal. 44,250 – 3,000
h. – 8,200
Bal. 44,250 – 8,200 – 3,000
i. – 5,100 – 1,200 – 800 – 950
Bal. 44,250 – 8,200 – 5,100 – 3,000 – 1,200 – 800 – 950
j.
Bal. 44,250 – 8,200 – 5,100 – 3,000 – 1,200 – 800 – 950
k. – 2,950
Bal. 44,250 – 8,200 – 5,100 – 3,000 – 2,950 – 1,200 – 800 – 950
l.
Bal. 44,250 – 8,200 – 5,100 – 3,000 – 2,950 – 1,200 – 800 – 950
41
Prob. 1–5B Continued
3.
SWAN DRY CLEANERS
Income Statement
For the Month Ended July 31, 2010
Dry cleaning revenue ......................................................... $ 44,250
Expenses:
Dry cleaning expense ................................................. $8,200
Wages expense ........................................................... 5,100
Rent expense ............................................................... 3,000
Supplies expense ........................................................ 2,950
Truck expense ............................................................. 1,200
Utilities expense .......................................................... 800
Miscellaneous expense .............................................. 950
Total expenses......................................................... 22,200
Net income .......................................................................... $ 22,050
42
Prob. 1–5B Concluded
4. (Optional)
SWAN DRY CLEANERS
Statement of Cash Flows
For the Month Ended July 31, 2010
Cash flows from operating activities:
Cash received from customers .................................. $46,250*
Deduct cash payments for expenses
and payments to creditors ...................................... 16,150**
Net cash flow from operating activities..................... $ 30,100
Cash flows from investing activities:
Purchase of land ......................................................... (24,000)
Cash flows from financing activities:
Cash received as owner’s investment ...................... $25,000
Deduct cash withdrawal by owner ............................. 18,000
Net cash flow from financing activities ..................... 7,000
Increase in cash ................................................................. $ 13,100
Cash balance, July 1, 2010 ................................................ 17,000
Cash balance, July 31, 2010 .............................................. $ 30,100
*$19,500 + $26,750
**$3,000 + $5,100 + $8,050
43
Prob. 1–6B
44
CONTINUING PROBLEM
1.
Assets = Liabilities + Owner’s Equity
Lee Lee
Accounts Accounts Chang, Chang, Fees
Cash + Receivable + Supplies = Payable + Capital – Drawing + Earned
45
Continuing Problem Continued
June 1
2
Bal.
June 2 – 750
Bal. – 750
June 4
Bal. – 750
June 6 – 600
Bal. – 750 – 600
June 8 – 500
Bal. – 750 – 500 – 600
June 12 – 250
Bal. – 250 – 750 – 500 – 600
June 13
Bal. – 250 – 750 – 500 – 600
June 16
Bal. – 250 – 750 – 500 – 600
June 22
Bal. – 250 – 750 – 500 – 600
June 25
Bal. – 250 – 750 – 500 – 600
June 29 – 240
Bal. – 490 – 750 – 500 – 600
June 30
Bal. – 490 – 750 – 500 – 600
June 30 – 400
Bal. – 490 – 750 – 500 – 600 – 400
June 30 – 300
Bal. – 490 – 750 – 500 – 600 – 400 – 300
June 30 – 180
Bal. – 490 – 750 – 500 – 600 – 400 – 300 – 180
June 30 – 150
Bal. – 490 – 750 – 500 – 600 – 400 – 300 – 180 – 150
June 30 – 800
Bal. – 1,290 – 750 – 500 – 600 – 400 – 300 – 180 – 150
June 30
Bal. – 1,290 – 750 – 500 – 600 – 400 – 300 – 180 – 150
46
Continuing Problem Concluded
2.
MUSIC DEPOT
Income Statement
For the Month Ended June 30, 2010
Fees earned ........................................................................ $5,650
Expenses:
Music expense............................................................. $1,290
Office rent expense ..................................................... 750
Advertising expense ................................................... 600
Equipment rent expense............................................. 500
Wages expense ........................................................... 400
Utilities expense .......................................................... 300
Supplies expense ........................................................ 180
Miscellaneous expense .............................................. 150
Total expenses......................................................... 4,170
Net income .......................................................................... $1,480
3.
MUSIC DEPOT
Statement of Owner’s Equity
For the Month Ended June 30, 2010
Lee Chang, capital, June 1, 2010 ...................................... $ 0
Investment on June 1, 2010 ............................................... $8,000
Net income for June ........................................................... 1,480
$9,480
Less withdrawals................................................................ 200
Increase in owner’s equity ................................................ 9,280
Lee Chang, capital, June 30, 2010 .................................... $9,280
4.
MUSIC DEPOT
Balance Sheet
June 30, 2010
Assets Liabilities
Cash ................................. $8,010 Accounts payable .......... $ 250
Accounts receivable ....... 1,350
Supplies ........................... 170 Owner’s Equity
Lee Chang, capital ......... 9,280
Total liabilities and
Total assets ..................... $9,530 owner’s equity ............ $9,530
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SPECIAL ACTIVITIES
Activity 1–1
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Activity 1–1 Concluded
c. Both bankers and business owners share the common interest of the
business doing well and being successful. If the business is successful, the
bankers will receive their loan payments on time with interest, and the
owners will increase their personal wealth.
Activity 1–2
The difference in the two bank balances, $45,000 ($75,000 – $30,000), may not be
pure profit from an accounting perspective. To determine the accounting profit for
the six-month period, the revenues for the period would need to be matched with
the related expenses. The revenues minus the expenses would indicate whether
the business generated net income (profit) or a net loss for the period. Using only
the difference between the two bank account balances ignores such factors as
amounts due from customers (receivables), liabilities (accounts payable) that need
to be paid for wages or other operating expenses, additional
investments that Dr. Hendley may have made in the business during the period, or
withdrawals during the period that Dr. Hendley might have taken for personal
reasons unrelated to the business.
Some businesses that have few, if any, receivables or payables may use a “cash”
basis of accounting. The cash basis of accounting ignores receivables and
payables because they are assumed to be insignificant in amount. However, even
with the cash basis of accounting, additional investments during the period and
any withdrawals during the period have to be considered in determining the net
income (profit) or net loss for the period.
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Activity 1–3
1.
Owner’s
Assets = Liabilities + Equity
Amber Amber
Accts. Keck, Keck, Service Salary Rent Supplies Misc.
Cash + Supplies = Payable + Capital – Drawing + Revenue – Expense – Expense – Expense – Expense
a. + 1,250 + 1,250
b. – 250 + 250
Bal. 1,000 250 1,250
c. – 150 – 150
Bal. 850 250 1,250 – 150
d. – 100 + 100 – 200
Bal. 750 250 100 1,250 – 350
e. + 1,500 + 1,500
Bal. 2,250 250 100 1,250 1,500 – 350
f. + 400 + 400
Bal. 2,650 250 100 1,250 1,900 – 350
g. – 600 – 600
Bal. 2,050 250 100 1,250 1,900 – 600 – 350
h. – 120 – 120
Bal. 1,930 250 100 1,250 1,900 – 600 – 350 – 120
i. + 800 + 800
Bal. 2,730 250 100 1,250 2,700 – 600 – 350 – 120
j. – 100 – 100
Bal. 2,730 150 100 1,250 2,700 – 600 – 350 – 100 – 120
k. – 270 – 270
Bal. 2,460 150 100 1,250 – 270 2,700 – 600 – 350 – 100 – 120
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Activity 1–3 Continued
2.
DEUCE
Income Statement
For the Month Ended June 30, 2009
Service revenue .................................................................. $2,700
Expenses:
Salary expense ............................................................ $600
Rent expense ............................................................... 350
Supplies expense ........................................................ 100
Miscellaneous expense .............................................. 120
Total expenses......................................................... 1,170
Net income .......................................................................... $1,530
3.
DEUCE
Statement of Owner’s Equity
For the Month Ended June 30, 2009
Amber Keck, capital, June 1, 2009 .................................... $ 0
Investment on June 1, 2009 ............................................... $1,250
Net income for June ........................................................... 1,530
$2,780
Less withdrawals................................................................ 270
Increase in owner’s equity ................................................ 2,510
Amber Keck, capital, June 30, 2009 .................................. $2,510
4.
DEUCE
Balance Sheet
June 30, 2009
Assets Liabilities
Cash ................................. $2,460 Accounts payable .......... $ 100
Supplies ........................... 150
Owner’s Equity
Amber Keck, capital....... 2,510
Total liabilities and
Total assets ..................... $2,610 owner’s equity ............ $2,610
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Activity 1–3 Concluded
5. a. Deuce would provide Amber with $570 more income per month than
working as a waitress. This amount is computed as follows:
Activity 1–4
Note to Instructors: The purpose of this activity is to familiarize students with the
certification requirements and their online availability.
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Activity 1–5
Start-up companies normally experience negative cash flows from operating and
investing activities. Also, start-up companies normally have positive cash flows
from financing activities—activities from raising capital.
Activity 1–6
As can be seen from the balance sheet data in the case, Enron was financed largely
by debt as compared to equity. Specifically, Enron’s stockholders’ equity
represented only 17.5% ($11,470 divided by $65,503) of Enron’s total assets. The
remainder of Enron’s total assets, 82.5%, was financed by debt. When a company
is financed largely by debt, it is said to be highly leveraged.
Note to Instructors: The role of the auditors and board of directors of Enron might
also be discussed. However, these topics are not covered in Chapter 1 but are
covered in later chapters.
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