CHAPTER%2002%20SOLUTIONS%202008

# CHAPTER%2002%20SOLUTIONS%202008 - Solutions to chapter 2...

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Solutions to chapter 2 2-13. \$125,000 - 85,000 = 40,000 (Ending Equity) \$110,000 – 80,000 = 30,000 (Beginning Equity) \$40,000 – 30,000 – 8,000 = 2,000 (Ending Retained Earnings) \$2,000 + 3,000 = 5,000 (Net Income) 2-14. a. \$448,800 + 2,160 + 4,800 = 455,760 b. \$ 42,720 + 261,840 – 32,640 = 271,920 c. \$26,400 + 38,880 + 63,360 + 1,200 = 129,840 d. \$455,760 – 271,920 – 129,840 = 54,000 e. \$96,000 + 54,000 – 105,600 = 44,400 2-17 Cash Basis: Cash sales \$80,000 Cash collections on credit sales 15,000 Less: Payments to suppliers 0 Wages paid (18,000) Rent paid (13,000) Office supplies paid ( 6,000) INCOME \$58,000 Accrual Basis: Revenue Cash sales \$80,000 Credit sales 20,000 Expenses Cost of Goods Sold (60,000) Wages expense (17,800) Rent expense (12,000)

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Office supplies expense ( 5,600) net income \$ 4,600 2-24 Assets = Liabilities + Shareholders’ Equity 1) +28,000 (cash) = + 48,500(common shares) +20,500 (equipment) 2) -1,600 (cash) = -1,600 [retained earnings(rent expense)] 3) +580 (supplies) = +580 (accounts payable) 4) +2,400 (cash) = +2,400 [retained earnings(sales revenue)] 5) -580(cash) = -580(accounts payable) 6) +700 = +700[retained earnings(sales (accounts receivable) revenue)] 7) -1,000(cash) = -1,000[retained earnings(dividends)] 8) +350(cash) -350(accounts receivable) 9) = +150(accounts payable) -150[retained earnings(advertising expense)] 10) -80(cash) = -80[retained earnings(telephone expense)] 11) -3,200(cash) +3,200(prepaid rent)
2-26 a) Paying rent in advance results in an increase in assets (a prepaid rent account) and a decrease in assets (cash). Later, when the warehouse is used, the assets (prepaid rent) should be decreased and shareholders’ equity should decrease (rent expense will increase). b) The purchase of equipment will increase the assets (equipment) and decrease the assets (cash). Over its life, the equipment will have to be amortized, resulting in a decrease in the carrying amount of the assets (equipment) and a decrease in shareholders’ equity (amortization

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## This note was uploaded on 08/06/2009 for the course MANAGEMENT MGCR 211 taught by Professor Zajdman during the Summer '09 term at McGill.

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CHAPTER%2002%20SOLUTIONS%202008 - Solutions to chapter 2...

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