Hmwk+01-14-08

Hmwk+01-14-08 - Homework Solutions for CHAPTER 1...

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Homework Solutions for 1/14/08 CHAPTER 1 Introduction to Financial Statements ANSWERS TO QUESTIONS 7. The three types of business activity are financing activities, investing activities, and operating activities. Financing activities include borrowing money and selling shares of stock. Investing activities include the purchase and sale of property, plant, and equipment. Operating activities include selling goods, performing services, and purchasing inventory. 8. (a) Income statement. (d) Balance sheet. (b) Balance sheet. (e) Balance sheet. (c) Income statement. (f) Balance sheet. SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1-1 (a) P Shared control, tax advantages, increased skills and resources (b) SP Simple to set up and maintains control with founder (c) C Easier to transfer ownership and raise funds, no personal liability BRIEF EXERCISE 1-2 (a) 4 Investors in common stock (b) 3 Marketing managers (c) 2 Creditors (d) 5 Chief Financial Officer (e) 1 Internal Revenue Service BRIEF EXERCISE 1-3 O (a) Cash received from customers. F (b) Cash paid to stockholders (dividends). F (c) Cash received from issuing new common stock. O (d) Cash paid to suppliers. I (e) Cash paid to purchase a new office building. BRIEF EXERCISE 1-4 1/14/08
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E (a) Advertising expense R (b) Service revenue E (c) Insurance expense E (d) Salaries expense D (e) Dividends R (f) Rent revenue E (g) Utilities expense NSE (h) Paid cash to purchase equipment C (i) Received cash from investors in exchange for common stock. BRIEF EXERCISE 1-7 I (a) Revenue during the period. B (b) Supplies on hand at the end of the year. C (c) Cash received from issuing new bonds during the period. B (d) Total debts outstanding at the end of the period. BRIEF EXERCISE 1-9 (a) ($900,000 + $150,000) – ($500,000 – $80,000) = $630,000 (Stockholders’ equity) (b) ($500,000 + $100,000) + ($900,000 – $500,000 – $70,000) = $930,000 (Assets) (c) ($900,000 – $90,000) – ($900,000 – $500,000 + $110,000) = $300,000 (Liabilities) SOLUTIONS TO EXERCISES EXERCISE 1-7 Motzek Corporation is distributing nearly all of this year’s net income as dividends. This suggests that
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Hmwk+01-14-08 - Homework Solutions for CHAPTER 1...

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