E X E R C I S E S LO 1 EXERCISE 1 1 USERS OF ACCOUNTING INFORMATION AND THEIR

E x e r c i s e s lo 1 exercise 1 1 users of

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E X E R C I S E S LO 1 EXERCISE 1-1 USERS OF ACCOUNTING INFORMATION AND THEIR NEEDS 1. Company management 2. Stockholder 3. Labor union 4. Securities and Exchange Commission 5. Banker 6. Supplier 7. Internal Revenue Service
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CHAPTER 1 • ACCOUNTING AS A FORM OF COMMUNICATION 1-33 LO 2 EXERCISE 1-2 THE ACCOUNTING EQUATION A = L + SE Case 1: $125,000 = $75,000 + SE SE = $50,000 A = L + SE Case 2: $400,000 = L + $100,000 L = $300,000 A = L + SE Case 3: A = $320,000 + $95,000 A = $415,000 LO 2 EXERCISE 1-3 THE ACCOUNTING EQUATION 1. A = L + SE $500,000 = $250,000 + SE SE = $250,000 2. A = L + SE ($500,000 + $100,000) = ($250,000 + $77,000) + SE SE = $273,000 3. A = L + SE A = ($250,000 + $33,000) + ($250,000* – $58,000) A = $283,000 + $192,000 A = $475,000 *From 1. above 4. A = L + SE $1,000,000 = L + $250,000* L = $750,000 *From 1. above
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1-34 FINANCIAL ACCOUNTING SOLUTIONS MANUAL LO 2 EXERCISE 1-4 THE ACCOUNTING EQUATION 1. A = L + SE Beginning of year $100,000 = $80,000 + $20,000 + Net income + $25,000 – Dividends 0 Stockholders’ equity at end of year $45,000 2. A = L + SE End of year $60,000 = $40,000 + $20,000 Reduce by half to beginning of year: divided by 2 Assets, beginning of year $30,000 3. A = L + SE Beginning of year $30,000 = $20,000 + $10,000 Triples during year × 3 Liabilities, end of year $60,000 LO 2 EXERCISE 1-5 CHANGES IN STOCKHOLDERS’ EQUITY 1. First compute the amount of stockholders’ equity at the end of each year. Then, compute the change. A = L + SE 2005: $25,000 = $12,000 + SE SE = $13,000 A = L + SE 2006: $79,000 = $67,000 + SE SE = $12,000 A = L + SE 2007: $184,000 = $137,000 + SE SE = $47,000 Change in stockholders’ equity during 2006: $12,000 – $13,000 = ($1,000 ) Change in stockholders’ equity during 2007: $47,000 – $12,000 = $35,000 2. 2006: ($1,000) = Income – $0 in dividends Net loss = $1,000
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CHAPTER 1 • ACCOUNTING AS A FORM OF COMMUNICATION 1-35 3. 2007: $35,000 = Income – $10,000 in dividends Net Income = $45,000 LO 2 EXERCISE 1-6 THE ACCOUNTING EQUATION (In thousands of dollars) A = L + CS + (Beg. RE + Income Div.) Case 1: 40 = L + 10 + (15 + 8 2) Liabilities = 9 Case 2: A = 15 + 5 + (8 + 7 1) Assets = 34 Case 3: 75 = 25 + 20 + (10 + Income 3) Income = 23 Case 4: 50 = 10 + 15 + (20 + 9 Div.) Dividends = 4 LO 2 EXERCISE 1-7 CLASSIFICATION OF FINANCIAL STATEMENT ITEMS Appears on the Classified as 1. IS E 2. BS A 3. BS L 4. IS R 5. BS SE 6. BS A 7. BS A 8. IS E 9. BS SE
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1-36 FINANCIAL ACCOUNTING SOLUTIONS MANUAL LO 2 EXERCISE 1-8 NET INCOME (OR LOSS) AND RETAINED EARNINGS 1. Revenue Expenses = Net Income $25,000 ($6,500 + $12,000) = $6,500 2. Retained Retained Earnings Net Earnings Beginning of + Income Dividends = End of Year Year $8,500 + $6,500 $3,000 = $ 12,000 3. Total Assets: Cash $13,000 Accounts receivable 4,000 Supplies 500 Office equipment 7,500 Total assets $ 25,000 4. Total Liabilities: Accounts payable $ 5,000 5. Stockholders’ Equity: Capital stock + Retained earnings = Stockholders’ equity $8,000 + $12,000 = $20,000 (Or $25,000 in total assets less $5,000 in total liabilities.) 6. A = L + SE $25,000 = $5,000 + $20,000 LO 2 EXERCISE 1-9 STATEMENT OF RETAINED EARNINGS ACE CORPORATION STATEMENT OF RETAINED EARNINGS FOR THE MONTH ENDED FEBRUARY 28, 2007 Beginning balance, February 1, 2007 $229,800* Add: Net income 14,000** Deduct: Cash dividends 5,000 Ending balance, February 28, 2007 $238,800 *$235,800 + $83,000 – $89,000 **$96,000 – $82,000
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CHAPTER 1 • ACCOUNTING AS A FORM OF COMMUNICATION 1-37 LO 3 EXERCISE 1-10 ACCOUNTING PRINCIPLES AND ASSUMPTIONS 1. Going concern (also economic entity) 2. Cost principle 3. Economic entity 4. Monetary unit 5. Time period LO 5 EXERCISE 1-11 ORGANIZATIONS AND ACCOUNTING 1. Securities and Exchange Commission 2. American Accounting Association 3. Financial Accounting Standards Board 4. American Institute of Certified Public Accountants 5. International Accounting Standards Board M U LT I - C O N C E P T E X E R C I S E S LO 1,2
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