Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 11Chapter 1Accountingin BusinessQUESTIONS1.The purpose of accounting is to provide decision makers with relevant and reliableinformation to help them make better decisions. Examples include information forpeople making investments, loans, and business plans.2.Technology reduces the time, effort, and cost of recordkeeping. There is still ademand for people who can design accounting systems, supervise their operation,analyze complex transactions, and interpret reports. Demand also exists for peoplewho can effectively use computers to prepare and analyze accounting reports.Technology will never substitute for qualified people with abilities to prepare, use,analyze, and interpret accounting information.3.External users and their uses of accounting information include: (a) lenders, tomeasure the risk and return of loans; (b) shareholders, to assess whether to buy,sell, or hold their shares; (c) directors, to oversee their interests in the organization;(d) employees and labor unions, to judge the fairness of wages and assess futureemployment opportunities; and (e) regulators, to determine whether the organizationiscomplyingwithregulations.Otherusersarevoters,legislators,governmentofficials, contributors to nonprofits, suppliers and customers.4.Businessownersandmanagersuseaccountinginformationtohelpanswerquestions such as: What resources does an organization own? What debts areowed? How much income is earned? Are expenses reasonable for the level ofsales? Are customers’ accounts being promptly collected?5.Service businesses include:Standard and Poor’s, Dun & Bradstreet, Merrill Lynch,Southwest Airlines, CitiCorp, Humana, Charles Schwab, and Prudential.Businessesoffering products include Nike, Reebok, Gap, Apple Computer, Ford Motor Co.,Philip Morris, Coca-Cola, Best Buy, and Circuit City.6.The internal role of accounting is to serve the organization’s internal operatingfunctions.Itdoesthisbyprovidingusefulinformationforinternalusersincompleting their tasks more effectively and efficiently. By providing this information,accounting helps the organization reach its overall goals.7.Accountingprofessionalsoffermanyservicesincludingauditing,managementadvice, tax planning, business valuation, and money management.8.Marketing managers are likely interested ininformation such assales volume,advertisingcosts,promotioncosts,salariesofsalespersonnel,andsalescommissions.

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition29.Accounting is described as a service activity because it serves decision makers byproviding information to help them make better business decisions.10.Someaccounting-relatedprofessionsincludeconsultant,financialanalyst,underwriter, financial planner, appraiser, FBI investigator, market researcher, andsystem designer.11.Ethicsrules require that auditors avoid auditing clients in which they have a directinvestment, or if the auditor’s fee is dependent on the figures in the client’s reports.This will prevent others from doubting the quality of the auditor’s report.12.In addition to preparing tax returns, tax accountants help companies and individualsplan future transactions to minimize the amount of tax to be paid.They are alsoactively involved in estate planning and in helping set up organizations. Some taxaccountants work for regulatory agencies such as the IRS or the various statedepartments of revenue. These tax accountants help to enforce tax laws.13.The objectivityconceptmeans that financial statement information is supported byindependent, unbiased evidence other than someone’s opinion or imagination.Thisconceptincreases the reliability and verifiability of financial statement information.14.Thistreatmentisjustifiedbyboththecostprincipleandthegoing-concernassumption.15.The revenue recognition principle provides guidance for managers and auditors sothey know when to recognize revenue.If revenue is recognized too early, thebusinesslooksmoreprofitablethanitis.Ontheotherhand,ifrevenueisrecognized too late the business looks less profitable than it is.This principledemands that revenue be recognized when it is both earned and can be measuredreliably.The amount of revenue should equal the value of the assets received orexpected to be received from the business’s operating activities covering a specifictime period.16.Businessorganizationscanbeorganizedinoneofthreebasicforms:soleproprietorship, partnership, or corporation. These forms have implications for legalliability, taxation, continuity, number of owners, and legal status as follows:ProprietorshipPartnershipCorporationBusiness entityyesyesyesLegal entitynonoyesLimited liabilityno*no*yesUnlimited lifenonoyesBusiness taxednonoyesOne owner allowedyesnoyes*Proprietorships and partnerships that are set up as LLCs provide limited liability.17.(a) Assets are resources owned or controlled by a company that are expected toyieldfuturebenefits.(b)Liabilitiesarecreditors’claimsonassetsthatreflectobligations to provide assets, products or services to others. (c) Equity is theowner’s claim on assets and is equal to assets minus liabilities. (d) Net assets referto equity.18.Equity is increased byinvestmentsfromtheowner andby netincome.Itisdecreased bywithdrawals by the ownerand by a net loss (which is the excess ofexpenses over revenues).

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 1319.Accounting principles consist of (a)generaland (b)specificprinciples. Generalprinciples are the basic assumptions, concepts, and guidelines for preparingfinancial statements. They stem from long-used accounting practices. Specificprinciples are detailed rules used in reporting on business transactions and events.They usually arise from the rulings of authoritative and regulatory groups such asthe Financial Accounting Standards Board or the Securities and ExchangeCommission.20.Revenue (or sales) is the amount received from selling products and services.21.Net income (also called income, profit or earnings) equalsrevenues minus expenses(if revenues exceed expenses). Net income increases equity. If expenses exceedrevenues, the company has a Net Loss. Net loss decreases equity.22.The four basic financial statements are: incomestatement, statement of owner’sequity, balance sheet, and statement of cash flows.23.An income statement reports a company’s revenues and expenses along with theresulting net income or loss over a period of time.24.Rent expense, utilities expense, administrative expenses, advertising and promotionexpenses,maintenanceexpense,andsalariesandwagesexpensesaresomeexamples of business expenses.25.The statement ofowner’s equityexplains the changes inequityfrom net income orloss, and from anyowner contributions and withdrawalsover a period of time.26.The balance sheet describes a company’s financial position (types and amounts ofassets, liabilities, and equity) at a point in time.27.The statement of cash flows reports on the cash inflows and outflows from acompany’s operating, investing, and financing activities.28.Return on assets, also called return on investment, is a profitability measure that isuseful in evaluating management, analyzing and forecasting profits, and planningactivities. It is computed as net income divided by the average total assets. Forexample, if we have an average annual balance of $100 in a bank account and itearns interest of $5 for the year, then our return on assets is $5/$100 or 5%. Thereturn on assets is a popular measure for analysis because it allows us to comparecompanies of different sizes and in different industries.29A.Return refers to income, and risk is the uncertainty about the return we expect tomake. The lower the risk of an investment, the lower the expected return. Forexample, savings accounts pay a low return because of the low risk of a bank notreturning the principal with interest. Higher risk implies higher, but riskier, expectedreturns.30B. Organizations carry out three major activities: financing, investing, and operating.Financing provides the means used to pay for resources. Investing refers to theacquisition and disposing of resources necessary to carry out the organization’splans. Operating activities are the actual carrying out of these plans.(Planning is theglue that connects these activities, including the organization’s ideas, goals andstrategies.)

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition431B.Anorganization’sfinancingactivities(liabilitiesandequity)payforinvestingactivities(assets).Anorganizationcannothavemoreorlessassetsthanitsliabilities and equity combined and, similarly, it cannot have more or less liabilitiesand equity than its total assets. This means: assets = liabilities + equity. Thisrelation is called the accounting equation (also called thebalance sheet equation),and it applies to organizations at all times.32.The dollar amounts in Best Buy’s financial statements are rounded to the nearest$1,000,000. Best Buy’s consolidated statement of earnings (or income statement)covers the fiscal year (consisting of 53weeks) endedMarch 3, 2007. Best Buy alsoreports comparative income statements for the previous two years(consisting of 52weeks).33.In thousands, Circuit City’s accounting equation is:Assets=Liabilities+Equity$4,007,283=$2,216,039+$1,791,24434.AtDecember 31, 2006,RadioShackhad (inmillions) assets of $2,070.0, liabilities of$1,416.2, and equity of $653.8.35.The independent auditor forApple, Inc.,isKPMGLLP. The auditor expressly statesthat “our responsibility is to express an opinion on these consolidated financialstatements based on our audits.” The auditor also states that “these consolidatedfinancial statements are the responsibility of the Company’s management.”

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 15QUICK STUDIESQuick Study 1-1a.Eg.Eb.Eh.Ec.Ii.Ed.Ej.Ee.Ek.If.Il.EQuick Study 1-2(a)and (b)GAAP:Generally Accepted Accounting PrinciplesImportance:GAAP are the rules that specify acceptable accountingpractices.SEC:Securities and Exchange CommissionImportance:The SEC is charged by Congress to set reporting rules fororganizations that sell ownership shares to the public.TheSEC delegates part of this responsibility to the FASB.FASB:Financial Accounting Standards BoardImportance:FASB is an independent group of full-time members who areresponsible for setting accounting rules.IASB:International Accounting Standards Board.Importance:Itspurposeistoissuestandardsthatidentifypreferredpractices in the desire of harmonizing accounting practicesacross different countries.The vast majority of countries andfinancial exchanges support its activities and objectives.

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition6Quick Study 1-3Accounting professionals practice in at least four main areas. These fourareas, along with a listing of some work opportunities in each, are:1.Financial accounting•Preparation•Analysis•Auditing (external)•Consulting•Investigation2.Managerial accounting•Cost accounting•Budgeting•Auditing (internal)•Consulting3.Tax accounting•Preparation•Planning•Regulatory•Consulting•Investigation4.Accounting-related•Lending•Consulting•Analyst•Investigator•AppraiserQuick Study 1-4Internal controls serve several purposes:•Theyinvolvemonitoringanorganization’sactivitiestopromoteefficiency and to prevent wrongful use of its resources.•They help ensure the validity and credibility of accounting reports.•They are often crucial to effective operations and reliable reporting.More generally, the absence of internal controls can adversely affect theeffectiveness of domestic and global financial markets.Examples of internal controls include cash registers with internal tapes ordrives, scanners at doorways to identify tagged products, overhead videocameras, security guards, and many others.

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 17Quick Study 1-5a.Revenue recognition principleb.Cost principle (also called historical cost)c.Business entityassumptionQuick Study 1-6Thechoiceofanaccountingmethodwhenmorethanonealternativemethodisacceptableoftenhasethicalimplications.Thisisbecauseaccounting information can have major impacts on individuals’ (and firms’)well-being.To illustrate, many companies base compensation of managers on theamount of reported income. When the choice of an accounting methodaffects the amount of reported income, the amount of compensation is alsoaffected. Similarly, if workers in a division receive bonuses based on thedivision’sincome,itscomputationhasdirect financialimplicationsforthese individuals.Quick Study 1-7Assets=Liabilities+Equity$375,000(a)$125,000$250,000(b)$250,000$90,000$160,000$185,000$60,000(c)$125,000Quick Study 1-8Assets=Liabilities+Equity$500,000(a)$180,000$320,000$900,000(b)$450,000(b)$450,000Quick Study 1-9a.For September 30, 2006, the account and its dollar amount (in millions)for Apple are:(1)Assets=$17,205(2)Liabilities=$7,221(3)Equity=$9,984

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition8Quick Study 1-9—continuedb.Using Apple’s amounts from (a) we verify that (in millions):Assets=Liabilities+Equity$17,205=$7,221+$9,984Quick Study 1-10(a)Examples of business transactions that are measurable include:•Selling products and services.•Collecting funds from dues, taxes, contributions, or investments.•Borrowing money.•Purchasing products and services.(b)Examples of business events that are measurable include:•Decreases in the value of securities (assets).•Bankruptcy of a customer owing money.•Technological advances rendering patents (or other assets)worthless.•An “act of God” (casualty) that destroys assets.Quick Study 1-11[Code:Income statement (I), Balance sheet (B), Statement ofowner’s equity(OE), or Statementof cash flows (CF).]a.Bd.CFg.Bb.Ie.Ih.CFc.Bf.Bi.OE(and CF*)*The more advanced student might know that this itemwould also appear in CF.Quick Study 1-12Return on assets ===11.9%Interpretation: Its return of11.9% isslightly belowthe 12%of its competitors.Home Depot’s performance can be rated asaverage.$5,761$48,334Net incomeAveragetotalassets

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 19EXERCISESExercise 1-1(20 minutes)External users and some questions they seek to answer with accountinginformation include:1.Shareholders (investors), who seek answers to questions such as:a.Are resources owned by a business adequate to carry out plans?b.Are the debts owed excessive in amount?c.What is the current level of income (and its components)?2.Creditors, who seek answers for questions such as:a.Does the business have the ability to repay its debts?b.Can the business take on additional debt?c.Are resources sufficient to cover current amounts owed?3.Employees, who seek answers to questions such as:a.Is the business financially stable?b.Can the business afford to pay higher salaries?c.What are growth prospects for the organization?Internal users and some ways theyuse accounting information on theirjobs include:1.Researchanddevelopmentmanagers,whoneedinformationonprojected costs and revenues of any proposed changes in productsorservices.2.Purchasing managers, whoneed to know what, when, and how much topurchase.3.Human resource managers, whoneed information about employees’payroll, benefits, performance, and compensation.4.Production managers, whodepend on information to monitor costs andensure quality.5.Distributionmanagers,whoneedreportsfortimely,accurate,andefficient delivery of products and services.

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition10Exercise 1-2 (10 minutes)1.C5.B2.C6.A3.A7.B4.A8.BExercise 1-3(20 minutes)a.Auditing professionals with competing audit clients are likely to learnvaluable information about each client that the other clients wouldbenefit from knowing. In this situation the auditor must take care tomaintain the confidential nature of information about each client.b.Accounting professionals who prepare tax returns can face situationswhere clients wish to claim deductions they cannot substantiate. Also,clientssometimesexertpressuretousemethodsnotallowedorquestionable under the law. Issues of confidentiality also arise whenthese professionals have access to clients’ personal records.c.Managers face several situations demanding ethical decision makingintheirdealingswithemployees.Examplesincludefairnessinperformanceevaluations,salaryadjustments,andpromotionrecommendations. They can also include avoiding any perceived orreal harassment of employees by the manager or any other employees.Itcanalsoincludeissuesofconfidentialityregardingpersonalinformation known to managers.d.Situations involving ethical decision making in coursework includeperformingindependentworkonexaminationsandindividuallycompletingassignments/projects.Itcanalsoextendtopromptlyreturningreferencematerialssootherscanenjoythem,andtoproperly preparing for class to efficiently use the time and questionperiod to not detract from others’ instructional benefits.

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 111Exercise 1-4(10 minutes)CodeDescriptionPrinciple or AssumptionE1.Usually created by a pronouncement from anauthoritative body.Specific accountingprincipleG2.Financial statements reflect the assumption thatthe business continues operating.Going-concernassumptionA3.Derived from long-used and generally acceptedaccounting practices.General accountingprincipleC4.Every business is accounted for separately fromits owner or owners.Business entityassumptionD5.Revenue is recorded only when the earningsprocess is complete.Revenue recognitionprincipleB6.Information is based on actual costs incurred intransactions.Cost principleF7.A company reports details behind financialstatements that would influence users' decisions.Full disclosureprincipleH8.A company records the expenses incurred togenerate the revenue reported.Matching principleExercise 1-5 (10 minutes)a.Sole proprietorshipe.Corporationb.Corporationf.Partnershipc.Sole proprietorshipg.Sole proprietorshipd.CorporationExercise 1-6 (10 minutes)Assets=Liabilities+Equity(a)$180,000=$164,000+$16,000$ 90,000=$ 39,000+(b)$51,000$201,000=(c)$139,000+$62,000

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition12Exercise 1-7(10 minutes)1.D4.F2.G5.A3.CExercise 1-8 (20 minutes)a.Using the accounting equation:Assets=Liabilities+Equity$137,000=$110,000+?Thus, equity = $27,000b.Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$259,000=?+$194,250Thus,beginningliabilities = $64,750Using the accounting equation at theendof the year:Assets=Liabilities+Equity$259,000 + $80,000=$64,750 + $52,643+?$339,000=$117,393+?Thus,endingequity = $221,607Alternative approach to solving part (b):Assets($80,000) =Liabilities($52,643) +Equity(?)where “” refers to “change in.”Thus:EndingEquity = $194,250 + $27,357 = $221,607c.Using the accounting equation at theendof the year:Assets=Liabilities+Equity$190,000=$57,000-$16,000+?$190,000=$41,000+$149,000Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$190,000-$60,000=$57,000+?$130,000=$57,000+?Thus:BeginningEquity=$73,000

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 113Exercise 1-9(15 minutes)Examples of transactions that fit each case include:a.Business purchases equipment (or some other asset) on credit.b.Business signsa note payable to extend thedue date on an accountpayable.c.Business pays an account payable (or some other liability) with cash(or some other asset).d.Business purchases office supplies (or some other asset) for cash (orsome other asset).e.Business incurs an expense that is not yet paid (for example, whenemployees earn wages that are not yet paid).f.Owner(s)invest cash (or some other asset) in the business; OR, thebusiness earns revenue and accepts cash (or another asset).g.Cashwithdrawals (or some other asset) paid to theowner(s)of thebusiness; OR, the business incurs an expense paid in cash.Exercise 1-10(20 minutes)a.Started the business with the owner investing $20,000 cash inthecompany.b.Purchased office supplies for $3,000by paying $2,000 cash and puttingthe remaining $1,000balance on credit.c.Purchased office furniture by paying $8,000 cash.d.Billed a customer $6,000 for services earned.e.Provided services for $1,000cash.

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition14Exercise 1-11 (15 minutes)a.Purchased land for $4,000 cash.b.Purchased $1,000 of office supplies on credit.c.Billed a client $1,900 for services provided.d.Paid the $1,000 account payable created by the credit purchase ofoffice supplies in transactionb.e.Collected $1,900 cash for the billing in transactionc.Exercise 1-12(30 minutes)Cash+AccountsReceivable+Equip-ment=AccountsPayable+L. Diamond,Capital–L. Diamond,Withdrawals+Revenue–Expensesa.+$70,000+$20,000=+$90,000b.–2,000____________–$2,000Bal.68,000++20,000=+90,000–2,000c._______+25,000+$25,000___________Bal.68,000++45,000=25,000+90,000–2,000d.+3,000___________________+$3,000_____Bal.71,000++45,000=25,000+90,000+3,000–2,000e._______+$9,500___________________+9,500_____Bal.71,000+9,500+45,000=25,000+90,000+12,500–2,000f.–5,000______+5,000_______________________Bal.66,000+9,500+50,000=25,000+90,000+12,500–2,000g.–3,500______________________________–3,500Bal.62,500+9,500+50,000=25,000+90,000+12,500–5,500h.+6,500-6,500_____________________________Bal.69,000+3,000+50,000=25,000+90,000+12,500–5,500i.–25,000____________–25,000________________Bal.44,000+3,000+50,000=0+90,000+12,500–5,500j.–1,500_________________________–$1,500___________Bal.$42,500+$3,000+$50,000=$0+$90,000–$1,500+$12,500–$5,500

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 115Exercise 1-13 (15 minutes)REALANSWERSIncome StatementFor Month Ended October 31RevenuesConsulting fees earned......................$14,000ExpensesSalaries expense.................................$5,600Rent expense.......................................2,520Telephone expense.............................760Miscellaneous expenses....................580Total expenses....................................9,460Net income..................................................$4,540Exercise 1-14 (15 minutes)REALANSWERSStatement ofOwner’s EquityFor Month Ended October 31K. King, Capital,October 1..............................$0Add:Investments by owner............................84,360Net income(from Exercise 1-13).............4,54088,900Less:Withdrawalsby owner...........................2,000K. King, Capital,October 31............................$86,900Exercise 1-15 (15 minutes)REALANSWERSBalance SheetOctober 31AssetsLiabilitiesCash...............................$11,500Accounts payable.................$25,037Accounts receivable....12,000Office supplies..............24,437EquityOffice equipment..........18,000Land...............................46,000K. King, Capital*....................86,900Total assets...................$111,937Total liabilities and equity....$111,937*For the computation ofthisamountseeExercise 1-14.

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition16Exercise 1-16 (15 minutes)REALANSWERSStatement of Cash FlowsFor Month Ended October 31Cash flows from operating activitiesCash received from customers1..........................................$2,000Cash paid to employees2......................................................(5,000)Cash paid for rent..................................................................(2,520)Cash paid for telephone expenses......................................(760)Cash paid for miscellaneous expenses..............................(580)Net cash used by operating activities.................................(6,860)Cashflows from investing activitiesPurchase of office equipment..............................................(18,000)Net cash used by investing activities.................................(18,000)Cash flows from financing activitiesInvestmentsbyowner...........................................................38,360Withdrawals by owner..........................................................(2,000)Net cash provided by financing activities..........................36,360Net increase in cash..............................................................$11,500Cash balance, October 1......................................................0Cash balance, October 31....................................................$11,5001$14,000 Consulting Fees Earned-$12,000 Accounts Receivable2$5,600Salaries Expense-$600still owed = $5,000paid to employees.

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 117Exercise 1-17 (10 minutes)O1. Cash paid forrentO5. Cash paid foradvertisingO2. Cash paidon an account payableO6. Cash paidfor wagesF3. CashinvestmentsbyownerF7. Cashwithdrawal by ownerO4. Cashreceived from clientsI8. Cashpurchase of equipmentExercise 1-18 (10 minutes)Return on assets=Net income / Average total assets=$36,000 / [($135,000 + $185,000)/2]=22.5%Interpretation:IowaGroup’sreturn on assets of22.5% is markedly abovethe10%returnofitscompetitors.Accordingly,itsperformanceisassessed as superior to its competitors.Exercise 1-19B(10 minutes)a.Investingb.Operatingc.Financingd.Financing*e.Investing*Wouldalso belisted as“investing”if resources contributed by owner werein theform ofnon-financial resources.

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition18PROBLEM SET AProblem 1-1A (40 minutes)Part 1Company A(a)Equity on December 31, 2008:Assets..........................................................$33,000Liabilities.....................................................(27,060)Equity..........................................................$5,940(b)Equity on December 31, 2009:Equity, December 31, 2008........................$5,940Plusowner investments............................6,000Plus net income..........................................7,760Less cash withdrawals..............................(3,500)Equity, December 31, 2009........................$16,200(c)Liabilities on December 31, 2009:Assets..........................................................$36,000Equity..........................................................(16,200)Liabilities.....................................................$19,800Part 2Company B(a) and (b)Equity:12/31/200812/31/2009Assets...................................$25,740$25,920Liabilities..............................(18,018)(17,625)Equity...................................$7,722$8,295(c)Net income for 2009:Equity, December 31, 2008.....................$7,722Plus owner investments.........................1,400Plus net income.......................................?Less cash withdrawals...........................(2,000)Equity, December 31, 2009.....................$8,295Therefore, net income must have been$ 1,173

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 119Problem 1-1A(Continued)Part 3Company CFirst, calculate the beginning balance of equity:Dec. 31, 2008Assets..........................................................$21,120Liabilities.....................................................(11,404)Equity..........................................................$9,716Next, find the ending balance of equity by completing this table:Equity, December 31, 2008........................$9,716Plus owner investments............................9,750Lessnetloss...............................................(1,289)Less cash withdrawals..............................(5,875)Equity, December 31, 2009........................$12,302Finally, find the ending amount of assets by adding the ending balance ofequity to the ending balance of liabilities:Dec. 31, 2009Liabilities.....................................................$11,818Equity..........................................................12,302Assets..........................................................$24,120Part 4Company DFirst, calculate the beginning and ending equity balances:12/31/200812/31/2009Assets......................................$58,740$65,520Liabilities.................................(40,530)(31,449)Equity......................................$18,210$34,071Then, find the amount ofowner investments during 2009:Equity, December 31, 2008..........................$18,210Plus owner investments..............................?Plus net income............................................8,861Less cash withdrawals................................0Equity, December 31, 2009..........................$34,071Thus, owner investments must have been$7,000

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition20Problem 1-1A (Concluded)Part 5Company EFirst, compute the balance of equity as of December 31, 2009:Assets..........................................................$99,360Liabilities.....................................................(78,494)Equity..........................................................$ 20,866Next, find the beginning balance of equity as follows:Equity, December 31, 2008........................$?Plus owner investments............................6,500Plus net income..........................................7,348Less cash withdrawals..............................(11,000)Equity, December 31, 2009........................$20,866Thus, the beginning balance of equity is:$18,018Finally, find the beginning amount of liabilities by subtracting thebeginning balance of equity from the beginning balance of assets:Dec. 31, 2008Assets..........................................................$90,090Equity..........................................................(18,018)Liabilities.....................................................$72,072

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 121Problem 1-2A (25 minutes)Balance SheetIncomeStatementStatement ofCash FlowsTransactionTotalAssetsTotalLiab.TotalEquityNetIncomeOperatingActivitiesFinancingActivitiesInvestingActivities1Owner investscashin business+++2Receives cashfor servicesprovided++++3Pays cash foremployee wages––––4Incurs legalcosts on credit+––5Borrows cashby signing L-Tnote payable+++6Buys land bysigning notepayable++7Provides ser-vices on credit+++8Buys officeequipmentfor cash+/––9Collects cashon receivablefrom (7)+/–+10Ownerwithdraws cash–––Problem 1-3A (15 minutes)Elko Energy CompanyIncome StatementFor Year Ended December 31, 2009Revenues.................................................$66,000Expenses..................................................51,348Net income................................................$14,652

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition22Problem 1-4A (15 minutes)Amity CompanyBalance SheetDecember 31, 2009Assets..............................$142,000Liabilities..................................$54,244Equity........................................87,756Total assets.....................$142,000Total liabilities and equity.......$142,000Problem 1-5A (15 minutes)FortuneCompanyStatement of Cash FlowsFor Year Ended December 31, 2009Cash from operating activities........................$8,050Cash used by investing activities....................(3,250)Cash used by financing activities....................(4,050)Net increase in cash..........................................$750Cash, December 31,2008.................................4,100Cash, December 31,2009.................................$4,850Problem 1-6A (15 minutes)AtleeCompanyStatement ofOwner’s EquityFor Year Ended December 31, 2009A. Atlee, Capital,Dec. 31, 2008......................$11,000Add:Investmentsby owner...........................0Net income.............................................7,75018,750Less:Withdrawalsby owner..........................(2,000)A. Atlee, Capital,Dec. 31, 2009......................$16,750

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 24 preview image

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 123Problem 1-7A (60 minutes)Parts 1 and 2Assets=Liabilities+EquityDateCash+AccountsReceivable+OfficeEquipment=AccountsPayable+H. Graham,Capital-H. Graham,Withdrawals+Revenues-ExpensesMay1+$43,000=+$43,0001-2,200=-$2,2003+$1,940=+ $1,9405-750`=-7508+5,800=+$5,80012+$2,800=+2,80015-850=-85020+2,800-2,800=22+4,000=+4,00025+4,000-4,000=26-1,940=-1,94027=+85-8528-850=-85030-400=-40030-260=-26031-2,000=-$2,000$46,350+$0+$1,940=$85+$43,000-$2,000+$12,600-$5,395

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 25 preview image

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition24Problem 1-7A(Continued)Part 3Graham CompanyIncome StatementFor Month Ended May 31RevenuesConsulting services revenue............$12,600ExpensesRent expense.......................................$2,200Salaries expense.................................1,700Advertising expense...........................85Cleaning expense...............................750Telephone expense.............................400Utilities expense..................................260Total expenses....................................5,395Net income..................................................$7,205Graham CompanyStatement ofOwner’s EquityFor Month Ended May 31H. Graham, Capital,May1........................................$0Plus:Investments by owner.....................................43,000Net income.......................................................7,20550,205Less: Withdrawalsby owner....................................2,000H. Graham, Capital, May 31......................................$48,205Graham CompanyBalance SheetMay 31AssetsLiabilitiesCash...............................$46,350Accounts payable........................$85Office equipment..........1,940EquityH. Graham, Capital......................48,205Total assets...................$48,290Total liabilities and equity..........$48,290

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 26 preview image

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 125Problem 1-7A (Concluded)Part 3—continuedGraham CompanyStatement of Cash FlowsFor Month Ended May 31Cashflows from operating activitiesCash received from customers................................$12,600Cash paid for rent......................................................(2,200)Cash paid for cleaning..............................................(750)Cash paid for telephone............................................(400)Cash paid for utilities................................................(260)Cash paid to employees...........................................(1,700)Net cash provided by operating activities..............$7,290Cashflows from investing activitiesPurchase of equipment.............................................(1,940)Net cash used by investing activities......................(1,940)Cash flows from financing activitiesInvestments byowner...............................................43,000Withdrawals by owner...............................................(2,000)Net cash provided by financing activities...............41,000Net increase in cash..................................................$46,350Cash balance, May 1.................................................0Cash balance, May 31...............................................$46,350

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 27 preview image

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition26Problem 1-8A (60 minutes) Parts 1 and 2Assets=Liabilities+EquityDateCash+AccountsReceivable+OfficeSupplies+OfficeEquipment+ElectricalEquipment=AccountsPayable+H. Anderson,Capital-H. Anderson,Withdrawals+Revenues-ExpensesDec.1+$68,800=+$68,8002-1,800-$1,800Bal.67,000=68,800-1,8003-4,800+$13,000+ $8,200Bal.62,200+13,000=8,200+68,800-1,8005-1,000+$1,000Bal.61,200+1,000+13,000=8,200+68,800-1,8006+1,600+$1,600Bal.62,800+1,000+13,000=8,200+68,800+1,600-1,8008+$2,680+2,680Bal.62,800+1,000+2,680+13,000=10,880+68,800+1,600-1,80015+$6,000+6,000Bal.62,800+6,000+1,000+2,680+13,000=10,880+68,800+7,600-1,80018+360+360Bal.62,800+6,000+1,360+2,680+13,000=11,240+68,800+7,600-1,80020-2,680-2,680Bal.60,120+6,000+1,360+2,680+13,000=8,560+68,800+7,600-1,80024+1,000+1,000Bal.60,120+7,000+1,360+2,680+13,000=8,560+68,800+8,600-1,80028+6,000-6,000Bal.66,120+1,000+1,360+2,680+13,000=8,560+68,800+8,600-1,80029-1,500-1,500Bal.64,620+1,000+1,360+2,680+13,000=8,560+68,800+8,600-3,30030-570-570Bal.64,050+1,000+1,360+2,680+13,000=8,560+68,800+8,600-3,87031-900-$900Bal.$63,150+$1,000+$1,360+$2,680+$13,000=$8,560+$68,800-$900+$8,600-$3,870

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 28 preview image

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 127Problem 1-8A(Continued)Part 3Anderson ElectricIncome StatementFor Month Ended December 31RevenuesElectrical fees earned......................$8,600ExpensesRent expense....................................$1,800Salaries expense..............................1,500Utilities expense..............................570Total expenses.................................3,870Net income..................................................$4,730Anderson ElectricStatement ofOwner’s EquityFor Month Ended December 31H. Anderson, Capital,December1............$0Plus:Investments by owner....................68,800Net income......................................4,73073,530Less:Withdrawals by owner....................900H. Anderson, Capital, December 31..........$72,630Anderson ElectricBalance SheetDecember 31AssetsLiabilitiesCash.................................$63,150Accounts payable....................$ 8,560Accounts receivable......1,000Office supplies................1,360EquityOffice equipment............2,680H. Anderson, Capital...............72,630Electrical equipment......13,000.Total assets.....................$81,190Total liabilities and equity......$81,190

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 29 preview image

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition28Problem 1-8A(Concluded)Part 3—continuedAnderson ElectricStatement of Cash FlowsFor Month Ended December 31Cash flows from operating activitiesCash received from customers1.................................$7,600Cash paid for rent........................................................(1,800)Cash paid for supplies................................................(1,000)Cash paid for utilities..................................................(570)Cash paid to employees..............................................(1,500)Net cash provided by operating activities.................$ 2,730Cash flows from investing activitiesPurchase ofofficeequipment.....................................(2,680)Purchase of electricalequipment...............................(4,800)Net cash used by investing activities........................(7,480)Cash flows from financing activitiesInvestments byowner.................................................68,800Withdrawals by owner.................................................(900)Net cash provided by financing activities.................67,900Net increase in cash....................................................$63,150Cash balance, Dec. 1...................................................0Cash balance, Dec. 31.................................................$63,1501$1,600 + $6,000 = $7,600Part 4If the December 1 investment had been $49,000 cash instead of $68,800andthe $19,800difference was borrowed by the company from a bank, then:(a)total beginning and ending equity would be $19,800less,(b)total liabilities would be $19,800greater, and(c)total assets would remain the same.

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 30 preview image

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©McGraw-Hill Companies, 2009Solutions Manual, Chapter 129Problem 1-9A (60 minutes) Parts 1 and 2Assets=Liabilities+EquityCash+AccountsReceivable+OfficeSupplies+OfficeEquipment+Building=AccountsPayable+NotesPayable+I. Lopez,Capital-I. Lopez,Withdrawals+Reve-nues-Expen-sesa.+$67,000+$11,000+$78,000b.-15,000+$144,000+$129,000Bal.52,000+11,000+144,000=+129,000+78,000c.-12,000+12,000Bal.40,000+23,000+144,000=+129,000+78,000d.+$1,000+1,700+$2,700Bal.40,000+1,000+24,700+144,000=2,700+129,000+78,000e.-460-$460Bal.39,540+1,000+24,700+144,000=2,700+129,000+78,000-460f.+$2,400+$2,400Bal.39,540+2,400+1,000+24,700+144,000=2,700+129,000+78,000+2,400-460g.+4,000+4,000Bal.43,540+2,400+1,000+24,700+144,000=2,700+129,000+78,000+6,400-460h.-3,025-$3,025Bal.40,515+2,400+1,000+24,700+144,000=2,700+129,000+78,000-3,025+6,400-460i.+1,800-1,800Bal.42,315+600+1,000+24,700+144,000=2,700+129,000+78,000-3,025+6,400-460j.-500-500Bal.41,815+600+1,000+24,700+144,000=2,200+129,000+78,000-3,025+6,400-460k.-1,800-1,800Bal.$40,015+$600+$1,000+$24,700+$144,000=$2,200+$129,000+$78,000-$3,025+$6,400-$2,260

Solution Manual For Fundamental Accounting Principles with Best Buy Annual Report, 19th Edition - Page 31 preview image

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©McGraw-Hill Companies, 2009FundamentalAccountingPrinciples,19thEdition30Problem 1-9A(Concluded)Part 3WizConsulting’s net income = $6,400-$2,260 = $4,140Problem 1-10A (20 minutes)1.Return on assets equals net income divided by average total assets.a.Coca-Cola return:$5,080/ $29,695= 0.171or17.1%.b.PepsiCo return:$5,642/ $30,829= 0.183or18.3%.2.Strictly on the amount of sales to consumers,Coke’ssales of $24,088are less than PepsiCo’s $35,187.3.Success in returning net income from the average amount invested isrevealed by the return on assets. Part 1 showed that PepsiCo’s18.3%returnisbetter thanCoca-Cola’s17.1% return.4.Current performance figures suggest thatPepsiCoyields a higher returnon assets thanCoca-Cola.Based on this information alone, we wouldbe better advised to invest inPepsiCothanCoca-Cola.Nevertheless,wewouldlookforadditionalinformationinfinancialstatementsandothersourcesforfurtherguidance.Forexample,ifCoca-Colacould dispose of some assets without curtailing its saleslevel, it would look more attractive. We would also look for consumertrends,marketexpansion,competition,productdevelopment,andpromotion plans.

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