pratt_8e_chapter_4_solns - 122 Chapter 5 CHAPTER 4 THE...

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122 Chapter 5 CHAPTER 4 THE MECHANICS OF FINANCIAL ACCOUNTING BRIEF EXERCISES BE4–1 Transaction Assets = Liabilities + Stockholders’ Equity Paid $5,197 to purchase + 5,197 property, plant and equip. - 5,197 Issued common stock +1,105 = +1,105 for $1,105 Recorded depreciation -4,360 = -4,360 of $4,360 Net effect -3,255 = -3,255 b. The transaction to purchase property, plant and equipment does not appear to affect the accounting equation. This is because both sides of the transaction affect the asset side of the balance sheet. Intel pays cash for p,p,&e; this reduces cash and increases fixed assets. All of the other transactions affect both sides of the balance sheet. BE4–2 Transaction Assets = Liabilities + Stockholders’ Equity Repaid $15 , - 15 = - 15 of long-term debt Paid cash dividends of $201 - 201 = - 201 Repurchased common stock -379 = -379 for $379 Net effect -595 = - 15 -580 b. Both transactions reduce assets and equity and can be viewed as alternate ways to return cash to shareholders, by either paying cash in the form of dividends or paying cash in return for shares.
BE4–3 Transaction Assets = Liabilities + Stockholders’ Equity Recognized revenues +6,426 = +6,426 of $6,426, in exchange for accounts receivable. Paid $1,322 for sales and -1,322 = -1,322 marketing. Issued common stock for $3638 +363 = +363 Purchased marketable -2,317 securities for $2,317 +2,317 = _____ Net effect +5,467 = +5,467 b. The first and second transactions would be reflected on the income statement. Yahoo would show $6,426 of revenue on the income statement. Yahoo would also show sales and marketing expense of $1,322. The last three transactions would be reflected on the statement of cash flows. The first transaction does not involve cash and therefore would not directly show on the cash flow statement. Paying cash for marketing expenses would be shown in the operating section; the third transaction would be in the financing section; and the fourth transaction would be in the operating section. EXERCISES E4–1 Assets = Liabilities + Stockholders' Equity (1) + 30,000 + 30,000 (2) – 20,000 + 20,000 (3) + 9,000 +9,000 (4) + 8,000 + 8,000 (5) 5,500 5,500 (6) 500 500 Total 41,000 9,000 32,000 Note: Transactions (4), (5), and (6) are initially recorded in temporary accounts and are closed into the Retained Earnings account, which is part of stockholders' equity.
E4–2 Assets = Liabilities + Stockholders' Equity Accounts Notes Contributed Retained Cash + Receivable + Land = Payable + Capital + Earnings (1) +30,000 +30,000 (2) – 20,000 +20,000 (3) + 9,000 +9,000 (4) +8,000 + 8,000 (5) 5,500 5,500 (6) 500 500 Total 13,000 8,000 20,000 9,000 30,000 2,000 Note: Transactions (4), (5), and (6) are initially recorded in temporary accounts and are closed into the Retained Earnings account, which is part of stockholders' equity. E4–3 X Company Income Statement For the Year Ended Revenues .................................................................................................. $ 8,000 Operating expenses .................................................................................. 5,500 Net income ................................................................................................ $ 2,500 X Company Statement of Stockholders’ Equity For the Year Ended Contributed Retained Capital Earnings Beginning balance $ 0 $ 0 Net income 2,500 Dividends (500) Owner contribution 30,000 _______ Ending balance $ 30,000 $ 2,000 X Company Balance Sheet As of Assets Liabilities and Stockholders' Equity Cash ..................................... $ 13,000 Notes payable ........................ $ 9,000 Accounts receivable ............. 8,000 Contributed capital ................. 30,000 Land ..................................... 20,000 Retained earnings .................. 2,000 Total liabilities and Total assets .......................... $41,000 stockholders' equity ........... $ 41,000 E4–3 Concluded X Company Statement of Cash Flows

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