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Unformatted text preview: Chapter 1 sample test 1. In its first year, the First Corporation acquired $50,000 of resources. During its second year, the corporation acquired an additional $15,000 of resources. Determine the dollar amount of the company’s total sources of resources at the end of its second year. The key to this problem is to recognize that resources equal sources of resources. Even though the problem does not present any information related to sources of resources, it does give enough information to determine total resources. Since resources equal sources of resources, once total resources are determined, total sources of resources are also known. At the end of its second year, the company's resources will be $65,000. Since resources equal sources of resources, its sources of resources will also be $65,000 at the end of its second year. Year Resources = Sources of Resources 1 + $50,000 = + $50,000 2 + $15,000 = + $15,000 Totals $65,000 = $65,000 See text exercise 1.1 for similar material. 2. At the end of February, the Second Corporation’s total resources were $1,500,000. $500,000 of resources had been invested by owners. $700,000 of resources had been generated through management’s operation of the business. What is the dollar amount of resources borrowed by the corporation? The key to this problem is to recognize that companies obtain resources from three sources: Borrowing, owners, and management. Total resources are known to be $1,500,000. Since resources equal sources of resources, total sources of resources must also be $1,500,000. Of the company's $1,500,000 sources of resources, $1,200,000 relate to owners ($500,000) and management ($700,000). The other $300,000 ($1,500,000 - $1,200,000) of resources must have come from borrowing. Resources = Sources of Resources Resources = Borrowed Resources + Owner Invested Resources + Management Generated Resources $1,500,000 = X + $500,000 + $700,000 $1,500,000 = X + $1,200,000 X = $1,500,000 - $1,200,000 X = $300,000 See text exercise 1.2 for similar material. 3. On March 3, the Third Corporation’s owners invest $45,000 cash in the corporation. How does this event affect the company’s resources and sources of resources? The key to this problem is to recognize that companies obtain resources from three sources: Borrowing, owners, and management. When the company receives the $45,000 cash, its resources increase. Since the cash came from owners, the company's sources of resources increase as well. Resources = Sources of Resources Resources = Borrowed Resources + Owner Invested Resources + Management Generated Resources + $45,000 = $0 + + $45,000 + $0 See text exercise 1.3 for similar material....
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.
- Spring '11
- Financial Accounting