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# Ch02 - CHAPTER 2 THE BALANCE SHEET INCOME STATEMENT AND...

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CHAPTER 2 THE BALANCE SHEET, INCOME STATEMENT, AND STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FULFILLMENT OF LEARNING OBJECTIVES Learning Objective Review Question Discussion Question Exercise Problem 1. Prepare a balance sheet. 1-17 2,3,5 1-4,13 1,2,4- 6 2. Construct an income statement. 18,19,23 1 5,7,13 1,3-6 3. Compute net sales, cost of goods sold, and gross margin for a merchandiser. 20-22 4 6 3-5 4. Calculate cost of raw materials used, cost of goods manufactured, and cost of goods sold for a manufacturer 24-27 6 8-11 6 5. Prepare a statement of changes in stockholders’ (owner’s) equity. 28,29 12 4,5,7

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Ketz--BS, IS, and SCSE Page 2-2 ATTRIBUTES OF EXERCISES AND PROBLEMS Exercise/ Problem Description Difficulty Level Estimate Time (minutes) EXERCISES 1 Assets on the balance sheet Simple 10-15 2 Liabilities on the balance sheet Simple 10-15 3 Stockholders’ equity on the balance sheet Simple 5-10 4 Balance sheet Simple 10-15 5 Income statement Simple 10-15 6 Cost of goods sold Simple 10-15 7 Earnings per share Simple 5-10 8 Cost of raw materials used Medium 10-15 9 Cost of goods manufactured Medium 10-15 10 Cost of goods sold—manufacturer Simple 5-10 11 Manufacturing COGS Medium 15-20 12 Owners’ equity in a partnership Medium 10-15 13 Income statement and balance sheet for a bank Difficult 15-25 PROBLEMS 1 Deciding whether an account goes on the balance sheet or the income statement Medium 20-30 2 Balance sheet Medium 20-30 3 Income statement with COGS Medium 20-30 4 Balance sheet, income statement, and statement of owner’s equity Medium 20-30 5 Balance sheet, income statement, and statement of owner’s equity Difficult 30-45 6 Balance sheet, income statement, and statement of owner’s equity of a manufacturer Difficult 40-60 7 Statement of changes in stockholders’ equity Medium 30-40
Ketz--BS, IS, and SCSE Page 2-3 ANSWERS TO REVIEW QUESTIONS 1. Businesses fall into three broad categories: service companies, merchandisers, and manufacturers. Service companies provide services to customers. Merchandisers buy goods from distributors and wholesalers and resell them. Manufacturers make the goods and sell them. 2. A sole proprietorship is an unincorporated business with a single owner. A partnership is an unincorporated business with more than one owner. A corporation is a business entity licensed by a state government, and it receives various rights and responsibilities. 3. A balance sheet is a financial statement that shows the assets of the firm, its liabilities, and its stockholders' (owner's) equity. It utilizes the accounting identity that states that assets equal liabilities plus stockholders' equity. 4. Assets are resources owned or controlled by the firm that probably has future economic value; liabilities are obligations of the firm that can be discharged by disbursing assets, by providing services in the future, or by creating new obligations; and stockholders' equity is the residual interest that stockholders have in the assets of the corporation.

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Ch02 - CHAPTER 2 THE BALANCE SHEET INCOME STATEMENT AND...

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