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# Chap002 - Financial Statements and Accounting...

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Unformatted text preview: Financial Statements and Accounting Concepts/Principles SOLUTIONS: E2-1. Category Financial Statement(s) Cash............................................................................ A BS Accounts payable....................................................... L BS Common stock........................................................... OE BS Depreciation expense................................................. E IS Net sales..................................................................... R IS Income tax expense.................................................... E IS Short-term investments.............................................. A BS Gain on sale of land................................................... G IS Retained earnings....................................................... OE BS Dividends payable...................................................... L BS Accounts receivable................................................... A BS Short-term debt.......................................................... L BS E2-2. Category Financial Statement(s) Accumulated depreciation......................................... A BS Long-term debt.................................. ............... L BS Equipment.................................................................. A BS Loss on sale of short-term investments...................... LS IS Net income................................................................. OE IS Merchandise inventory............................................... A BS Other accrued liabilities............................................. L BS Dividends paid....................................................................... OE Neither* Cost of goods sold...................................................... E IS Additional paid-in capital.......................................... OE BS Interest income........................................................... R IS Selling expenses......................................................... E IS Trick question! “Dividends paid” appear only on the Statement of Changes in Owners’ Equity. Dividends paid are distributions of earnings that reduce retained earnings on the balance sheet. Dividends paid are not expenses, and do not appear on the income statement. E2-3. Use the accounting equation to solve for the missing information. Firm A: Chapter 2 A = L + PIC + ( Beg. RE + NI - DIV = End. RE ) \$420,000 = \$215,000 + \$75,000 + ( \$78,000 + ? - \$50,000 = ? ) In this case, the ending balance of retained earnings must be determined first: \$420,000 = \$215,000 + \$75,000 + End. RE. Retained earnings, 12/31/02 = \$130,000 Once the ending balance of retained earnings is known, net income can be determined: \$78,000 + NI - \$50,000 = \$130,000 Net income for 2002 = \$102,000 Firm B: A = L + PIC + ( Beg.RE + NI - DIV = End. RE ) \$540,000 = \$145,000 + ? + ( ? + \$83,000 - \$19,000 = \$310,000) \$540,000 = \$145,000 + PIC + \$310,000 Paid-in capital, 12/31/02 = \$85,000 Beg. RE + \$83,000 -...
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Chap002 - Financial Statements and Accounting...

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