ch04 - CHAPTER 4 THE MECHANICS OF FINANCIAL ACCOUNTING...

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CHAPTER 4 THE MECHANICS OF FINANCIAL ACCOUNTING BRIEF EXERCISES BE4–1 Transaction Assets = Liabilities + Stockholders’ Equity Paid $3,656 to purchase + 3,656 property, plant and equip. - 3,656 Issued common stock + 967 = + 967 for $967 Recorded depreciation -4,651 = -4,651 of $4,651 Net effect -3,684 = -3,684 b. The transaction to purchase property, plant and equipment does not appear to affect the accounting equation. This is because both sides of the transaction affect the asset side of the balance sheet. Intel pays cash for p,p,&e; this reduces cash and increases fixed assets. All of the other transactions affect both sides of the balance sheet. BE4–2 Transaction Assets = Liabilities + Stockholders’ Equity Borrowed $350 from banks, + 350 = +350 issuing long-term debt Paid cash dividends of $208 - 208 = - 208 Issued common stock for $28 + 28 = +28 Paid $250 to reduce long-term debt -250 = -250 ___ Net effect - 80 = +100 -180 b. The net effect on the company’s long-term debt balance is to increase it by $100. Two sources that could have provided the cash to finance the net effect of these four transactions are funds from operations and funds from investing activities. All of the transactions shown here are financing activities, which show a use of $80 for financing activities. BE4–3 1
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Transaction Assets = Liabilities + Stockholders’ Equity Recognized revenues +953 = +953 of $953, in exchange for accounts receivable. Paid $431 for sales and -431 = -431 marketing. Issued common stock for $78 +78 = +78 Purchased marketable -1,166 securities for $1,166 +1,166 = _____ Net effect +600 = +600 b. The first and second transactions would be reflected on the income statement. Yahoo would show $953 of revenue on the income statement. Yahoo would also show sales and marketing expense of $431. All of these transactions would directly or indirectly be reflected on the statement of cash flows. The first two transactions would be netted in the cash from operations section, the third transaction would be in the financing section and the fourth transaction would be in the operations section. EXERCISES E4–1 Assets = Liabilities + Stockholders' Equity (1) + 30,000 + 30,000 (2) 20,000 + 20,000 (3) + 9,000 +9,000 (4) + 8,000 + 8,000 (5) 5,500 5,500 (6) 500 500 Total 41,000 9,000 32,000 Note: Transactions (4), (5), and (6) are initially recorded in temporary accounts and are closed into the Retained Earnings account, which is part of stockholders' equity. E4–2 Assets = Liabilities + Stockholders' Equity Accounts Notes Contributed Retained Cash + Receivable + Land = Payable + Capital + Earnings (1) + 30,000 +30,000 (2) – 20,000 +20,000
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(3) + 9,000 +9,000 (4) +8,000 + 8,000 (5) 5,500 5,500 (6) 500 500 Total 13,000 8,000 20,000 9,000 30,000 2,000 Note: Transactions (4), (5), and (6) are initially recorded in temporary accounts and are closed into the Retained Earnings account, which is part of stockholders' equity. E4–3
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This note was uploaded on 03/25/2009 for the course FIN FIN504 taught by Professor Byungjinkwak during the Spring '09 term at Korea Advanced Institute of Science and Technology.

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ch04 - CHAPTER 4 THE MECHANICS OF FINANCIAL ACCOUNTING...

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