Skip to content
Textbook Guides

Solution Manual for Financial Accounting, 16th Edition

Solution Manual for Financial Accounting, 16th Edition simplifies complex textbook exercises with easy-to-understand solutions and step-by-step guides.

Preview 16 of 897 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    1. Some users of accounting information include managers, employees, investors, creditors, customers, and the government. 2. The role of accounting is to provide information for managers to use in operating the business. In addition, accounting provides information to others to use in assessing the economic performance and condition of the business. 3. The corporate form allows the company to obtain large amounts of resources by issuing stock. For this reason, most companies that require large investments in property, plant, and equipment are organized as corporations. 4. No. The business entity concept limits the recording of economic data to transactions directly affecting the activities of the business. The payment of the interest of $4,500 is a personal transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service. 5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent with the cost concept. 6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized in the accounting records because land is recorded on the cost basis. b. Cash would increase by $2,125,000, land would decrease by $900,000, and owner’s equity would increase by $1,225,000. 7. An account receivable is a claim against a customer for goods or services sold. An account payable is an amount owed to a creditor for goods or services purchased. Therefore, an account receivable in the records of the seller is an account payable in the records of the purchaser. 8. (b) The business realized net income of $91,000 ($679,000 – $588,000). 9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000). 10. (a) Net income or net loss (b) Owner’s equity at the end of the period (c) Cash at the end of the period CHAPTER 1 INTRODUCTION TO ACCOUNTING AND BUSINESS DISCUSSION QUESTIONS 1-1

  2. Page 2
  3. Page 3
    Read page 3 as text

    CHAPTER 1 Introduction to Accounting and Business PE 1-1A $597,000. Under the cost concept, the land should be recorded at the cost to Boulder Repair Service. PE 1-1B $369,500. Under the cost concept, the land should be recorded at the cost to Clementine Repair Service. PE 1-2A a. A = L + OE $518,000 = $165,000 + OE OE = $353,000 b. A = L + OE +$86,200 = +$25,000 + OE OE = +$61,200 OE on December 31, 20Y9 = $353,000 + $61,200 = $414,200 PE 1-2B a. A = L + OE $382,000 = $94,000 + OE OE = $288,000 b. A = L + OE –$63,000 = +$35,000 + OE OE = –$98,000 OE on December 31, 20Y9 = $288,000 – $98,000 = $190,000 PE 1-3A (2) Asset (Accounts Receivable) increases by $22,400; Owner’s Equity (Delivery Service Fees) increases by $22,400. (3) Liability (Accounts Payable) decreases by $4,100; Asset (Cash) decreases by $4,100. (4) Asset (Cash) increases by $14,700; Asset (Accounts Receivable) decreases by $14,700. (5) Asset (Cash) decreases by $1,600; Owner’s Equity (Terry Young, Drawing) decreases by $1,600. PRACTICE EXERCISES 1-2

  4. Page 4
    Read page 4 as text

    CHAPTER 1 Introduction to Accounting and Business PE 1-3B (2) Owner’s Equity (Advertising Expense, increases) decreases by $6,750; Asset (Cash) decreases by $6,750. (3) Asset (Supplies) increases by $2,920; Liability (Accounts Payable) increases by $2,920. (4) Asset (Accounts Receivable) increases by $20,460; Owner’s Equity (Delivery Service Fees) increases by $20,460. (5) Asset (Cash) increases by $11,410; Asset (Accounts Receivable) decreases by $11,410. PE 1-4A Fees earned $1,870,000 Expenses: Wages expense $1,115,000 Office expense 343,000 Miscellaneous expense 21,000 Total expenses 1,479,000 Net income $ 391,000 PE 1-4B Fees earned $899,600 Expenses: Wages expense $539,800 Office expense 353,800 Miscellaneous expense 14,400 Total expenses 908,000 Net loss $ (8,400) Income Statement For the Year Ended August 31, 20Y4 Up-in-the-Air Travel Service Income Statement For the Year Ended April 30, 20Y7 Zenith Travel Service 1-3

  5. Page 5
    Read page 5 as text

    CHAPTER 1 Introduction to Accounting and Business PE 1-5A Jerome Foley, capital, May 1, 20Y6 $ 876,000 Additional investment by owner during year $ 52,000 Net income for the year 391,000 Withdrawals (34,000) Increase in owner’s equity 409,000 Jerome Foley, capital, April 30, 20Y7 $1,285,000 PE 1-5B Megan Cox, capital, September 1, 20Y3 $456,000 Additional investment by owner during year $ 43,200 Net loss for the year (8,400) Withdrawals (21,600) Increase in owner’s equity 13,200 Megan Cox, capital, August 31, 20Y4 $469,200 PE 1-6A Cash $ 170,000 Accounts receivable 417,000 Supplies 16,000 Land 772,000 Total assets $1,375,000 Accounts payable $ 90,000 Jerome Foley, capital 1,285,000 Total liabilities and owner’s equity $1,375,000 Owner’s Equity Liabilities Assets Up-in-the-Air Travel Service Balance Sheet April 30, 20Y7 Zenith Travel Service Statement of Owner’s Equity For the Year Ended August 31, 20Y4 Up-in-the-Air Travel Service Statement of Owner’s Equity For the Year Ended April 30, 20Y7 1-4

  6. Page 6
    Read page 6 as text

    CHAPTER 1 Introduction to Accounting and Business PE 1-6B Cash $ 54,500 Accounts receivable 90,600 Supplies 5,600 Land 372,000 Total assets $522,700 Accounts payable $ 53,500 Megan Cox, capital 469,200 Total liabilities and owner’s equity $522,700 PE 1-7A Cash flows from (used for) operating activities: Cash received from customers $ 1,803,000 Cash paid for operating expenses (1,479,000) Net cash flows from operating activities $ 324,000 Cash flows from (used for) investing activities: Cash paid for purchase of land (347,000) Cash flows from (used for) financing activities: Cash received from owner as investment $ 52,000 Cash withdrawals by owner (34,000) Net cash flows from financing activities 18,000 Net decrease in cash $ (5,000) Cash balance, May 1, 20Y6 175,000 Cash balance, April 30, 20Y7 $ 170,000 For the Year Ended April 30, 20Y7 Zenith Travel Service Balance Sheet August 31, 20Y4 Owner’s Equity Assets Liabilities Up-in-the-Air Travel Service Statement of Cash Flows 1-5

  7. Page 7
    Read page 7 as text

    CHAPTER 1 Introduction to Accounting and Business PE 1-7B Cash flows from (used for) operating activities: Cash received from customers Cash paid for operating expenses Net cash flows used for operating activities Cash flows from (used for) investing activities: Cash paid for purchase of land Cash flows from (used for) financing activities: Cash received from owner as investment Cash withdrawals by owner Net cash flows from financing activities Net decrease in cash Cash balance, September 1, 20Y3 Cash balance, August 31, 20Y4 PE 1-8A a. Dec. 31, Dec. 31, 20Y6 20Y5 Total liabilities……………………………………………… $598,000 $569,900 Total owner’s equity………………………………………… $460,000 $410,000 Ratio of liabilities to owner’s equity……………………… 1.30 1.39 * $598,000 ÷ $460,000 ** $569,900 ÷ $410,000 b. Decreased PE 1-8B a. Dec. 31, Dec. 31, 20Y6 20Y5 Total liabilities……………………………………………… $4,042,000 $3,096,000 Total owner’s equity………………………………………… $4,300,000 $3,600,000 Ratio of liabilities to owner’s equity……………………… 0.94 0.86 * $4,042,000 ÷ $4,300,000 ** $3,096,000 ÷ $3,600,000 b. Increased $ 54,500 106,900 Zenith Travel Service Statement of Cash Flows For the Year Ended August 31, 20Y4 $(14,000) $(52,400) 21,600 $ 43,200 (21,600) (60,000) $ 881,000 (895,000) * ** * ** 1-6

  8. Page 8
    Read page 8 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-1 a. 1. manufacturing 6. service 11. service 2. manufacturing 7. service 12. service 3. manufacturing 8. service 13. manufacturing 4. service 9. manufacturing 14. service 5. merchandise 10. merchandise 15. merchandise b. The accounting equation is relevant to all of the companies. It serves as the basis of the accounting information system. Ex. 1-2 As in many ethics issues, there is no one right answer. Oftentimes, disclosing only what is legally required may not be enough. In this case, it would be best for the company’s chief executive officer to disclose both reports to the county representatives. In doing so, the chief executive officer could point out any flaws or deficiencies in the fired researcher’s report. Ex. 1-3 a. 1. K 5. B 9. X 2. G 6. B 10. B 3. B 7. X 4. K 8. G b. A business transaction is an economic event or condition that directly changes an entity’s financial condition or results of operations. Ex. 1-4 Dunkin’s stockholders’ equity: $3,457 – $4,170 = ($713) Starbucks’ stockholders’ equity: $24,156 – $22,981 = $1,175 Ex. 1-5 Dollar Tree’s stockholders’ equity: $13,501 – $7,858 = $5,643 Target’s stockholders’ equity: $41,290 – $29,993 = $11,297 EXERCISES 1-7

  9. Page 9
    Read page 9 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-6 a. $4,474,000 ($633,000 + $3,841,000) b. $387,500 ($6,124,500 – $5,737,000) c. $1,232,900 ($1,981,800 – $748,900) Ex. 1-7 a. $494,000 ($659,000 – $165,000) b. $555,000 ($494,000 + $88,000 – $27,000) c. $330,000 ($494,000 – $151,000 – $13,000) d. $662,000 ($494,000 + $152,000 + $16,000) e. Net income: $92,000 ($782,000 – $196,000 – $494,000) Ex. 1-8 a. (1) asset b. (2) liability c. (1) asset d. (3) owner’s equity (revenue) e. (1) asset f. (3) owner’s equity (expense) g. (1) asset Ex. 1-9 a. Increases assets and increases owner’s equity. b. Decreases assets and decreases owner’s equity. c. Increases assets and decreases assets. d. Increases assets and increases liabilities. e. Increases assets and increases owner’s equity. Ex. 1-10 a. (1) Total assets increased $183,000 ($298,000 – $115,000). (2) No change in liabilities. (3) Owner’s equity increased $183,000. b. (1) Total assets decreased $80,000. (2) Total liabilities decreased $80,000. (3) No change in owner’s equity. c. No. It is false that a transaction always affects at least two elements (Assets, Liabilities, or Owner’s Equity) of the accounting equation. Some transactions affect only one element of the accounting equation. For example, purchasing supplies for cash only affects assets. 1-8

  10. Page 10
    Read page 10 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-11 1. (b) decrease 2. (a) increase 3. (b) decrease 4. (a) increase Ex. 1-12 1. c 6. c 2. a 7. d 3. e 8. a 4. e 9. e 5. c 10. e Ex. 1-13 a. (1) Provided catering services for cash, $71,800. (2) Purchase of land for cash, $15,000. (3) Payment of cash for expenses, $47,500. (4) Purchase of supplies on account, $1,100. (5) Withdrawal of cash by owner, $5,000. (6) Payment of cash to creditors, $4,000. (7) Recognition of cost of supplies used, $1,500. b. $300 ($40,300 – $40,000) c. $17,800 (–$5,000 + $71,800 – $49,000) d. $22,800 ($71,800 – $49,000) e. $17,800 ($22,800 – $5,000) Ex. 1-14 No. It would be incorrect to say that the business had incurred a net loss of $8,000. The excess of the withdrawals over the net income for the period is a decrease in the amount of owner’s equity in the business. 1-9

  11. Page 11
    Read page 11 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-15 Owner’s equity at end of year ($928,000 – $352,000)…………………………… $576,000 Deduct owner’s equity at beginning of year ($605,000 – $237,000)………… 368,000 Net income (increase in owner’s equity)……………………………………… $208,000 Increase in owner’s equity (as determined for Dakota)……………………… $208,000 Add withdrawals……………………………………………………………………… 40,000 Net income (increase in owner’s equity)……………………………………… $248,000 Increase in owner’s equity (as determined for Dakota)……………………… $208,000 Deduct additional investment……………………………………………………… 66,000 Net income (increase in owner’s equity)……………………………………… $142,000 Increase in owner’s equity (as determined for Dakota)……………………… $208,000 Deduct additional investment……………………………………………………… 66,000 $142,000 Add withdrawals……………………………………………………………………… 40,000 Net income (increase in owner’s equity)……………………………………… $182,000 Ex. 1-16 Balance sheet items: 1, 2, 3, 4, 6, 8, 10 Ex. 1-17 Income statement items: 5, 7, 9 Iowa Dakota Jersey Carolina 1-10

  12. Page 12
    Read page 12 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-18 a. Brian Walinsky, capital, April 1, 20Y7 $373,000 Net income for April $161,000 Withdrawals (24,000) Increase in owner’s equity 137,000 Brian Walinsky, capital, April 30, 20Y7 $510,000 b. The statement of owner’s equity is prepared before the April 30, 20Y7, balance sheet because Brian Walinsky, Capital as of April 30, 20Y7, is needed for the balance sheet. Ex. 1-19 Fees earned $627,600 Expenses: Wages expense $440,800 Rent expense 28,100 Supplies expense 6,800 Miscellaneous expense 9,300 Total expenses 485,000 Net income $142,600 Income Statement For the Month Ended August 31, 20Y2 Pegasus Product Company Statement of Owner’s Equity For the Month Ended April 30, 20Y7 Hermes Services 1-11

  13. Page 13
    Read page 13 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-20 In each case, solve for a single unknown, using the following equation: Owner’s Equity (beginning) + Investments – Withdrawals + Revenues – Expenses = Owner’s Equity (ending) Freeman Owner’s equity at end of year ($1,260,000 – $330,000)……………… $930,000 Owner’s equity at beginning of year ($900,000 – $360,000)………… 540,000 Increase in owner’s equity………………………………………………… $390,000 Deduct increase due to net income ($570,000 – $240,000)………… 330,000 Increase due to additional investment less withdrawals…………… $ 60,000 Add withdrawals………………………………………………….………… 75,000 Additional investment in the business……………………………… (a) $135,000 Heyward Owner’s equity at end of year ($675,000 – $220,000)………………… $455,000 Owner’s equity at beginning of year ($490,000 – $260,000)………… 230,000 Increase in owner’s equity………………………………………………… $225,000 Add withdrawals………………………………………………….………… 32,000 Increase due to additional investment and net income……………… $257,000 Deduct additional investment…………………………………………… 150,000 Increase due to net income……………………………………………… $107,000 Add expenses………………………………………………….…………… 128,000 Revenue………………………………………………….…………………(b) $235,000 Jones Owner’s equity at end of year ($100,000 – $80,000)…………………… $ 20,000 Owner’s equity at beginning of year ($115,000 – $81,000)…………… 34,000 Decrease in owner’s equity……………………………………………… $(14,000) Add decrease due to net loss ($115,000 – $122,500)………………… (7,500) Decrease due to withdrawals less additional investment…………… $ (6,500) Deduct additional investment…………………………………………… 10,000 Withdrawals from the business……………………………………… (c) $(16,500) Ramirez Owner’s equity at end of year ($270,000 – $136,000)………………… $134,000 Add decrease due to net loss ($115,000 – $128,000)………………… (13,000) Add withdrawals………………………………………………….………… 39,000 Beginning owner’s equity plus additional investment ……………… $186,000 Deduct additional investment…………………………………………… 55,000 Owner’s equity at beginning of year…………………………………… $131,000 Add liabilities at beginning of year……………………………………… 120,000 Assets at beginning of year…………………………………………… (d) $251,000 1-12

  14. Page 14
    Read page 14 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-21 a. Cash $ 290,000 Accounts receivable 720,000 Supplies 30,000 Total assets $1,040,000 Accounts payable $ 280,000 David Patel, capital 760,000 Total liabilities and owner’s equity $1,040,000 Cash $ 340,000 Accounts receivable 870,000 Supplies 32,000 Total assets $1,242,000 Accounts payable $ 360,000 David Patel, capital 882,000 Total liabilities and owner’s equity $1,242,000 b. Owner’s equity, March 31……………………………………………………… $882,000 Owner’s equity, February 29…………………….…………………………… 760,000 Net income…………………………………………………………………… $122,000 c. Owner’s equity, March 31……………………………………………………… $882,000 Owner’s equity, February 29…………………….…………………………… 760,000 Increase in owner’s equity………………………………………………… $122,000 Add withdrawal…………………………………………………………………… 50,000 Net income…………………………………………………………………… $172,000 Assets Liabilities Owner’s Equity Assets Liabilities March 31, 20Y0 Rockwell Interiors Balance Sheet February 29, 20Y0 Rockwell Interiors Balance Sheet Owner’s Equity 1-13

  15. Page 15
    Read page 15 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-22 a. Balance sheet: 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 13 Income statement: 5, 12, 14, 15 b. Yes. An item can appear on more than one financial statement. For example, cash appears on both the balance sheet and statement of cash flows. However, the same item cannot appear on both the income statement and balance sheet. c. Yes. The accounting equation is relevant to all companies, including Exxon Mobil Corporation. Ex. 1-23 1. (a) operating activity 2. (a) operating activity 3. (b) investing activity 4. (c) financing activity Ex. 1-24 Cash flows from (used for) operating activities: Cash received from customers Cash paid for operating expenses Net cash flows from operating activities Cash flows from (used for) investing activities: Cash paid for purchase of land Cash flows from (used for) financing activities: Cash received from owner as investment Cash withdrawals by owner Net cash flows from financing activities Net increase in cash Cash balance, June 1, 20Y5 Cash balance, May 31, 20Y6 Ethos Consulting Group Statement of Cash Flows For the Year Ended May 31, 20Y6 $162,500 (475,000) $ 637,500 $175,500 $117,500 58,000 (17,500) 45,000 (90,000) $ 62,500 1-14

  16. Page 16
    Read page 16 as text

    CHAPTER 1 Introduction to Accounting and Business Ex. 1-25 1. All financial statements should contain the name of the business in their heading. The statement of owner’s equity is incorrectly headed as “Omar Farah” rather than We-Sell Realty. The heading of the balance sheet needs the name of the business. 2. The income statement and statement of owner’s equity cover a period of time and should be labeled “For the Month Ended August 31, 20Y9.” 3. The year in the heading for the statement of owner’s equity should be 20Y9 rather than 20Y8. 4. The balance sheet should be labeled “August 31, 20Y9,” rather than “For the Month Ended August 31, 20Y9.” 5. In the income statement, the miscellaneous expense amount should be listed as the last expense. 6. In the income statement, the total expenses are incorrectly subtracted from the sales commissions, resulting in an incorrect net income amount. The correct net income should be $24,150. This also affects the statement of owner’s equity and the amount of Omar Farah, Capital, that appears on the balance sheet. 7. In the statement of owner’s equity, the additional investment should be added first to Omar Farah, capital, as of August 1, 20Y9. The net income should be presented next, followed by the amount of withdrawals, which is subtracted from the net income to yield the increase in owner’s equity. The increase in owner’s equity is added to Omar Farah, capital on August 1, 20Y9, to determine Omar Farah, capital on August 31, 20Y9. 8. Accounts payable should be listed as a liability on the balance sheet. 9. Accounts receivable and supplies should be listed as assets on the balance sheet. 10. The balance sheet assets should equal the sum of the liabilities and owner’s equity. 1-15

881 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Accounting study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.