Chap001 Solution Manual

Revenue recognition principle a 2 information is

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Revenue recognition principle A 2. Information is based on actual costs incurred in transactions. Cost principle C 3. Usually created by a pronouncement from an authoritative body. Specific accounting principle H 4. Financial statements reflect the assumption that the business continues operating. Going-concern assumption D 5. A company reports details behind financial statements that would impact users' decisions. Full disclosure principle B 6. A company records the expenses incurred to generate the revenues reported. Matching (expense recognition) principle E 7. Derived from long-used and generally accepted accounting practices. General accounting principle F 8. Every business is accounted for separately from its owner or owners. Business entity assumption` Exercise 1-7 (10 minutes) a. Corporation e. Partnership b. Corporation f. Sole proprietorship c. Sole proprietorship g. Sole proprietorship d. Corporation 1-13

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Chapter 01 - Accounting in Business Exercise 1-8 (20 minutes) a. Using the accounting equation: Assets = Liabilities + Equity \$123,000 = \$53,000 + ? Thus, equity = \$70,000 b. Using the accounting equation at the beginning of the year: Assets = Liabilities + Equity \$200,000 = ? + \$150,000 Thus, beginning liabilities = \$50,000 Using the accounting equation at the end of the year: Assets = Liabilities + Equity \$200,000 + \$70,000 = \$50,000 + \$30,000 + ? \$270,000 = \$80,000 + ? Thus, ending equity = \$190,000 Alternative approach to solving part (b): Assets(\$70,000) = Liabilities(\$30,000) + Equity(?) where “ ” refers to “change in.” Thus: Ending Equity = \$150,000 + \$40,000 = \$190,000 c. Using the accounting equation at the end of the year: Assets = Liabilities + Equity \$180,000 = \$60,000 - \$10,000 + ? \$180,000 = \$50,000 + \$130,000 Using the accounting equation at the beginning of the year: Assets = Liabilities + Equity \$180,000 - \$80,000 = \$60,000 + ? \$100,000 = \$60,000 + ? Thus : Beginning Equity = \$40,000 1-14
Chapter 01 - Accounting in Business Exercise 1-9 (10 minutes) Assets = Liabilities + Equity (a) \$95,000 = \$30,000 + \$65,000 \$89,000 = \$22,000 + (b) 67,000 \$132,000 = (c) \$112,000 + \$20,000 Exercise 1-10 (15 minutes) Examples of transactions that fit each case include: a. Business acquires office supplies (or some other asset) for cash (or some other asset). Another example is collection of cash from a receivable. b. Business pays an account payable (or some other liability) with cash (or some other asset). c. Business signs a note payable to extend the due date on an account payable. d. Business purchases equipment (or some other asset) on credit. e. Cash withdrawals (or some other asset) paid to the owner(s) of the business; OR, the business incurs an expense paid in cash. f. Business incurs an expense that is not yet paid (for example, when employees earn wages that are not yet paid). g. Owner(s) invest cash (or some other asset) in the business; OR, the business earns revenue and accepts cash (or another asset). 1-15

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Chapter 01 - Accounting in Business Exercise 1-11 (30 minutes) Cash + Accounts Receivable + Equip- ment = Accounts Payable + L. Gold, Capital L. Gold, Withdrawals + Revenues Expenses a. +\$50,000 + \$10,000 = + \$60,000 b. 1,600 ______ ______ \$1,600 Bal. 48,400 + + 10,000 = + 60,000 1,600 c. _______ + 12,000 +\$12,000 ______ _____ Bal. 48,400 + + 22,000 = 12,000 + 60,000 1,600 d. + 2,000 ______ _______ ______ + \$2,000 _____ Bal.
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