SM_Chap002 - Chapter 2 Reporting Investing and Financing...

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Unformatted text preview: Chapter 2 Reporting Investing and Financing Results on the Balance Sheet ANSWERS TO QUESTIONS 1. (a) An asset is a resource owned by a company that has measurable value and is expected to provide future benefits. (b) A current asset is an asset that will be used up or turned into cash within the next 12 months . (c) A liability is a debt or obligation arising from past transactions or events, which the company is likely to pay , settle , or fulfill by sacrificing resources in the future. (d) A current liability is a debt or obligation that will be paid, settled, or fulfilled within one year . (e) Contributed capital includes the amount of financing (cash and sometimes other assets) provided to the company by stockholders in exchange for shares of stock . (f) Retained earnings are the cumulative earnings of a company that have not yet been distributed to the owners and instead are reinvested in the business. 2-1 ANSWERS TO MINI-EXERCISES M2-1 Debit Credit Assets Increases Decreases Liabilities Decreases Increases Stockholders Equity Decreases Increases M2-2 Increase Decrease Assets Debit Credit Liabilities Credit Debit Stockholders Equity Credit Debit M2-3 (1) D (2) C (3) A (4) I (5) F (6) B M2-4 (1) CL (2) CL (3) CA (4) NCA (5) CA (6) SE (7) NCA (8) CL (9) NCA (10) CL (11) SE (12) CA (13) CL M2-5 Req. 1 Req. 2 Category Normal Balance 1) CA Debit 2) CL Credit 3) SE Credit 4) NCL Credit 5) CL Credit 6) NCA Debit 7) SE Credit 8) CL Credit 9) CA Debit M2-7 1) Yes 2) No 3) Yes 4) No 5) No 6) Yes M2-17 2-2 CHARLIES CRISPY CHICKEN Balance Sheet At September 30, 2010 Assets Liabilities Current Assets Current Liabilities Cash $ 1,800 Accounts Payable $ 2,000 Food Ingredients 400 Wages Payable 200 Kitchen Supplies 1,400 Utilities Payable 300 Total Current Assets 3,600 Total Current Liabilities 2,500 Bank Loan Payable 10,000 Note Payable 15,000 Total Liabilities 27,500 Restaurant Booths 25,000 Kitchen Equipment 13,000 Stockholders Equity Land 8,900 Contributed Capital 20,000 Retained Earnings 3,000 Total Stockholders Equity 23,000 Total Assets $ 50,500 Total Liabilities & Stockholders Equity $50,500 2-3 ANSWERS TO EXERCISES E2-11 a. dr Cash (+A)......................................................................... 60,000 cr Contributed Capital (+SE)........................................... 60,000 b. dr Cash (+A)......................................................................... 20,000 cr Notes Payable (+L)..................................................... 20,000 d. dr Equipment (+A)................................................................Equipment (+A)....
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SM_Chap002 - Chapter 2 Reporting Investing and Financing...

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