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Financial Accountin - Chapter 1 The Financial Statements...

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Chapter 1 The Financial Statements Short Exercises (5 min.) S 1-1 Computed amounts in boxes Total Assets = Total Liabilities + Stockholders’ Equity a. $300,000 = $150,000 + $150,000 b. 290,000 = 90,000 + 200,000 c. 220,000 = 100,000 + 120,000 (5 min.) S 1-2 Standards of professional conduct are designed to produce relevant and reliable information for decision making . People need relevant and reliable information in order to make wise decisions. Chapter 1 The Financial Statements 1
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(5 min.) S 1-3 1. The entity concept applies. 2. Application of the entity concept will separate Novak’s personal assets from the assets of YUM! Brands. This will help Novak, investors, and lenders know how much in assets the business controls, and this knowledge will help all parties evaluate the business realistically. (5 min.) S 1-4 1. Owners’ Equity = Assets Liabilities This way of determining the amount of owners’ equity applies to any company, your household, or a single IHOP restaurant. 2. Liabilities = Assets Owners’ Equity Financial Accounting 7/e Solutions Manual 2
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(5 min.) S 1-5 1. Assets are the economic resources of a business that are expected to produce a benefit in the future. Owners’ equity represents the insider claims of a business, the owners’ interest in its assets. Assets and owners’ equity differ in that assets are resources and owners’ equity is a claim to assets . Assets must be at least as large as owners’ equity, so equity can be smaller than assets. 2. Both liabilities and owners’ equity are claims to assets . Liabilities are the outsider claims to the assets of a business; they are obligations to pay creditors. Owners’ equity represents the insider claims to the assets of the business; they are the owners’ interest in its assets. Chapter 1 The Financial Statements 3
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(5-10 min.) S 1-6 a. Accounts payable L g. Accounts receivable A b. Common stock E h. Long-term debt L c. Supplies A i. Merchandise inventory A d. Retained earnings E j. Notes payable L e. Land A k. Expenses payable L f. Prepaid expenses A l. Equipment A (5 min.) S 1-7 1. Revenues and expenses 2. Net income (or net loss) Financial Accounting 7/e Solutions Manual 4
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(5 min.) S 1-8 Split Second Wireless, Inc. Income Statement Year Ended December 31, 2009 Millions Revenues…………………………………….. $ 90 Expenses…………………………………….. 20 Net income…………………………………... $ 70 (5 min.) S 1-9 Nextel Corp. Statement of Retained Earnings Year Ended December 31, 2008 Millions Retained earnings: Balance, beginning of year…………... $200 Net income ($400 $300)…….………. 100 Less: Dividends………………………... (40 ) Balance, end of year…………………... $260 Chapter 1 The Financial Statements 5
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(10 min.) S 1-10 Womack Travel Services Balance Sheet December 31, 2008 ASSETS Current assets: Cash…………………………………………………… $ 13,000 Receivables…………………………………………... 2,000 Inventory……………………………………………… 40,000 Total current assets………………………………… 55,000 Equipment……………………………………………….
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