Solution Manual for Financial Accounting, 3rd Edition

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Chapter 1:Business, Accounting,and YouDiscussion Questions: Key Points1.The economic events that affect a business are communicated through the accountingfunction. Language helps us to make sense of the world around us. If we don’t know thelanguage,wewillbelimitedinourabilitytooperateeffectivelyinthebusinessenvironment.2.Valid arguments can be made on both sides of this question. Without technical knowledgean accountant will not be able to provide much value. Without ethics, however, anaccountant can be dangerous. Accounting exists because of a need for an objective accountof the economic events that affect an entity.3.Financialstatements seek toprovide informationabouttheevents thathave alreadyoccurred. For example, the cost principle is used to carry assets on the books. It is up to theuser to make projections as to how past transactions are likely to affect future events.4.Reasons why—reliability, objectivity. Disadvantages—relevance, decision-usefulness.5.Financial statement uses discussed in the text: allow investors and creditors to makeinvestment decisions, enable suppliers and customers to determine the financial condition ofa business,andreport to regulatory agencies.6.It is a separate legal entity from its owners. Factors—liability of owners for businessactivities, taxation, distribution of income.7.A = L + SE. Assets—things of value a company has. Liabilities—amount a business owes tothird parties. Stockholder’s equity—the amount of assets that is owned by the stockholders.8.The transactions would have the following effects:a.A+, SE+b.A+, L+c.A+, SE+d.A+, A-9.Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of CashFlows. The financial statements articulate (join together). The income statement needs to beprepared in order to produce the net income amount that is reported on the statement ofretained earnings. The ending balance in retained earnings isneededinorder to prepare thebalance sheet.The ending balance in cashon the balance sheetand other information isneeded for the statement of cash flows.10.The financial statements area.Balance sheetb.Statement of retained earningsc.Statement of cash flowsd.Income statement

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Short Exercises(5-10min.) S 1-11.d2.a3.c4.b(5-10min.) S 1-2Answer:d.Cost Principle(10-15 min.) S 1-31.e2.f3.d4.g5.b6.c7.a(5-10min.) S 1-4a.$82,000 ($106,000 − $24,000)b.$91,000 ($63,000 + $28,000)c.$49,000 ($94,000 − $45,000)

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(5-10 min.) S 1-5Assets=Liabilities+Stockholder’sEquityAccountsNotesStockholder’sCash +Equipment=payable+ payable+equity$13,000 + $35,000=$9,000+ $5,000+$34,000Based on the accounting equation,Beachhas $34,000 of equity in the business. Assets of $48,000($13,000 + $35,000) − Liabilities of $14,000($9,000 + $5,000)= Stockholder’sequity of $34,000.(5-10 min.) S 1-6Assets=Liabilities+Stockholders’EquityCash + Supplies=+Stockholders’equity$36,000 + $1,500=$9,500+$28,000Based on the accounting equation,Boehmshas $9,500of liabilities. Assets of $37,500($36,000 +$1,500)− Stockholders’ equity of $28,000= Liabilities of $,500(5-10 min.) S 1-7Assets=Liabilities+Stockholders’EquityCash=Notes Payable+Common StockInvestment+$15,000=+$15,000Borrowing+18,000=+$18,000+______Bal.$33,000=$18,000+$15,000

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(5-10 min.) S 1-8Assets=Liabilities+Stockholders’ EquityCash+AccountsreceivableAccountspayableCommonstock+Retained EarningsServicerevenue–Salary-Dividendsexpensea.+$62,000+62,000b.-$33,000+ $33,000(5-10 min.) S 1-91.e2.a3.c4.a5.e6.e7.a8.e9.d10.b11.a

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5(5-10 min.) S 1-101.BS2.BS3.IS4.IS5.BS, RE6.BS

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(5-10min.)S1-111.d2.e3.b4.a5.c(5-10min.)S1-121.Increasedtotalassets (Cash)2.No effect on total assets.The increase inLand offset thedecrease inCash.3.Decreasedtotalassets (Cash)4.Increasedtotalassets (Machinery and equipment)5.Increasedtotalassets (Accounts receivable)6.Decreasedtotalassets (Cash)7.No effect on total assets.The increase inCash offset the decrease inAccounts receivable.8.No effect on total assets. The increase in Cash offset the decrease in Land.9.Increasedtotalassets (cash)(5-10 min.) S 1-131.True2.False ( Increase Supplies;decrease Cash)3.True4.True5.True6.False (Decrease Cash;decrease Accounts payable)7.True8.True9.False (Decrease Cash;increase Expense/decrease Stockholders’ equity)

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(5-10 min.) S 1-14Req. 11.f.Sold stock to start the business.2.e.Paid cash to purchase equipment.3.g.Purchased equipment with a bank loan.4.a.Earned revenue for services provided, but customer will pay later.5.d.Paid cash for expenses incurred to operate the business.6.c.Received cash for revenue earned by providing services.7.b.Customers paid cash for services completed earlier in the month.Req. 2Revenues (transactions “4” and “6”)…………………$2,950Less: Expenses (transaction “5”)………………..……1,350Net income………………………………………..….$1,600

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Exercises(10-15min.) E 1-15AAppleway,Corp.$48,700+ $13,400=1st Choice, Inc.$82,000-$27,000=Hamilton, Inc.$127,300-$88,500=(10-15 min.) E 1-16AReq. 1TotalTotalTotalAssets−Stockholders’Equity=LiabilitiesBeginning…..$91,000−$7,000=$84,000Ending………$145,000−$73,000=$72,000Decreaseduring the year=$12,000Req. 2Possible reasons for thedecreaseinLiabilities may include:Paymentswere made on accountPayments were made on a note payable(10-15 min.) E 1-17AReq. 1TotalTotalTotalAssets−Liabilities=Stockholders’EquityBeginning…..$37,000−$16,000=$21,000Ending………$82,000−$28,000=$54,000Increase during the year=$33,000

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Req. 2Possible reasons for the increase in Stockholders’ equity may include:Sold stockEarned net income(15-20 min.) E 1-18AAug.31,2014Sept. 30,2014Total assets$135,000$190,000-Total liabilities$(81,000)$(145,000)=-=Stockholders’ equityCommon stockRetained earnings$54,000(25,000)$29,000$45,000(25,000)$20,000AssumptionA:No dividends were paid$20,000ending balance=$29,000 Beg bal + Net income-dividends$20,000=$29,000 + Net income-0$(9,000)=NetlossAssumptionB:$14,000 of dividends were paid$20,000 ending balance=$29,000 Beg bal + Net income-dividends$20,000=$29,000 + Net income–$14,000$5,000=NetincomeAssumptionC:$6,000 of dividends were paid$20,000 ending balance=$29,000 Beg bal + Net income-dividends$20,000=$29,000 + Net income-$6,000$(3,000)=Netloss

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(15-20min.) E 1-19AAssets=Liabilities+Stockholders’ EquityCash+Medicalsupplies+LandAccountspayableCommonstock+Retained EarningsAugustServicerevenue–Rentexpense2+90,000+90,0006-53,000+530,00011+1,200+1,20015No entry17+9,400+9,40019-2,400+2,40022+150-15030-800-800Bal.$43,350+$1,050+$53,000=$400+$90,000+$9,400–$2,400(10-15 min.) E 1-20AReq. 1The business is a corporation, as shown by thefact that it has acommon stockaccount.Req. 2Happy Tots Gym, Inc.Balance SheetMarch31,2014ASSETSLIABILITIESCash$24,000Accounts payable$3,300Accounts receivable12,500Note payable20,000Supplies300Total liabilities23,300Office equipment9,400STOCKHOLDERS’ EQUITYCommon stock4,000Retained earnings18,900Total Stockholders’ equity22,900Total liabilities andTotal assets$46,200stockholders’ equity$46,200

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Req. 3The balance sheet reportsthefinancial position of a companyat a given point in timeand thatAssets = Liabilities + Stockholders’ Equity.(15-20min.) E 1-21AReq. 1AccountType of AccountAccountType of AccountOfficefurnitureAssetRentexpenseExpenseUtilitiesexpenseExpenseCashAssetAccounts payableLiabilityOfficesuppliesAssetNotes payableLiabilitySalariesexpenseExpenseService revenueRevenueSalariespayableLiabilityAccounts receivableAssetProperty tax expenseExpenseSupplies expenseExpenseEquipmentAssetReq. 2ColeConsulting,Inc.Income StatementFor theYear Ended December 31, 2014ServiceRevenue$116,600ExpensesSalariesexpense$36,700Rent expense28,000Utilities expense6,300Supplies expense2,700Property tax expense1,600Total expenses75,300Net income$41,300Results of operations for2014: Net income of $41,300

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(15-20 min.) E 1-21ACont.Req 3ColeConsulting, Inc.Statement ofRetainedEarningsFor the Year Ended December 31,2014Retained earnings, Jan. 1,2014$0Add: Net income41,300Subtotal41,300Less: Dividends32,000Retained earnings, Dec. 31,2014$9,300The dividends for the year were $32,000.($0 + $41,300-$9,300)(15-20min.) E 1-22AReq1Earth, Inc.Beginning:Assets$55,000−Liabilities45,000=Stockholders’ EquityReq2Ending:Assets$114,000−Liabilities25,000=Stockholders’ Equity˙˝Req3Ending Stockholders’ equity$89,000-Beginning Stockholders’ equity(10,000)=Change in Stockholders’ equity79,000-Sale of stock16,000=Change in retained earnings63,000+Dividends50,000=Net income$113,000Note:The change in Retained earnings equals Net income minus Dividends. So, Dividends areadded back to the change in Retained earnings to arrive at Net income.

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(10-15 min.) E 1-23BCorner GroceryCorp.$45,000+ $27,900=ˆ˝Sampson Hardware, Inc.$104,000-$44,000=ˇPerfect Cleaners, Inc.$108,800-$92,600=ˇ(10-15 min.) E 1-24BReq. 1TotalTotalTotalAssets−Stockholders’Equity=LiabilitiesBeginning…..$84,000−$56,000=$28,000Ending………$153,000−$91,000=$62,000Increaseduring the year=$34,000Req. 2Possible reasons for theincreasein Liabilities may include:MadepurchasesonaccountBorrowed moneyonanotepayable(10-15 min.) E 1-25BReq. 1TotalTotalTotalAssets−Liabilities=Stockholders’EquityBeginning…..$50,000−$40,000=$10,000Ending………$57,000−$8,000=$49,000Increase during the year=$39,000

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(10-15 min.) E 1-25B (cont)Req. 2Possible reasons for the increase in Stockholders’ equity may include:Sold stockEarned net income(15-20 min.) E 1-26BOct.31,2014Nov. 30,2014Total assets$127,000$165,000-Total liabilities$(92,000)$(119,000)=-=Stockholders’ equityCommon stockRetained earnings$35,000(15,000)$20,000$46,000(15,000)$31,000AssumptionA:No dividends were paid.$31,000 ending balance=$20,000 Beg bal + Net income-Dividends$31,000=$20,000 + Net income-0$11,000=NetincomeAssumptionB:$7,000 of dividends were paid.$31,000 ending balance=$20,000 Beg bal + Net income-Dividends$31,000=$20,000 + Net income–$7,000$18,000=NetincomeAssumptionC:$15,000 of dividends were paid.$31,000 ending balance=$20,000 Beg bal + Net income-Dividends$31,000=$20,000 + Net income-$15,000$26,000=Net income

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(15-20 min.) E 1-27BAssets=Liabilities+Stockholders’ EquityCash+Medicalsupplies+LandAccountspayableCommonstock+Retained EarningsMarchServicerevenue–Rentexpense2+45,000+45,0006-20,000+20,00011+1,000+1,00015No entry required17+11,000+11,00019-1,700+1,70022+350-35030-700-700Bal.$33,950+$650+$20,000=$300+$45,000+$11,000–$1,700(10-15 min.) E 1-28BReq. 1The business is a corporation, as shown by the fact that it has a common stock account.Req. 2Julie’s Coffee Shop, Inc.Balance SheetOctober31,2014ASSETSLIABILITIESCash$19,000Accounts payable$800Accounts receivable1,400Note payable4,000Supplies750Total liabilities4,800Office equipment14,200STOCKHOLDERS’ EQUITYCommon stock18,000Retained earnings12,550Total Stockholders’ equity30,550Total liabilities andTotal assets$35,350stockholders’ equity$35,350

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Req. 3The balance sheet reportsthefinancial position of a company at a given point in time and thatAssets = Liabilities + Stockholders’ Equity.(15-20 min.) E 1-29BReq. 1AccountType of AccountAccountType of AccountOffice furnitureAssetRentexpenseExpenseUtilities expenseExpenseCashAssetAccounts payableLiabilityOfficesuppliesAssetNotespayableLiabilitySalariesexpenseExpenseService revenueRevenueSalariespayableLiabilityAccounts receivableAssetProperty tax expenseExpenseSuppliesexpenseExpenseEquipmentAssetReq. 2AldenConsulting, Inc.Income StatementFor the Year EndedDecember31,2014ServiceRevenue$161,000ExpensesSalariesexpense$43,000Rent expense18,000Utilities expense12,600Supplies expense3,400Property tax expense2,400Total expenses79,400Net income$81,600Results of operations for2014: Net income of $81,600.

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(15-20 min.) E 1-29B Cont.Req 3AldenConsulting, Inc.Statement ofRetainedEarningsFor the Year EndedDecember31,2014Retained earnings,Jan. 1,2014$0Add: Net income81,600Subtotal81,600Less: Dividends60,000Retained earnings, Dec. 31,2014$21,600The dividends for the year were $60,000 ($0 + $81,600-$21,600).(15-20 min.) E 1-30BReq1Hastings, Inc.Beginning:Assets$83,000−Liabilities36,000=Stockholders’ EquityˆReq2Ending:Assets$162,000−Liabilities31,000=Stockholders’ EquityReq3Ending Stockholders’ equity$131,000-Beginning Stockholders’ equity47,000=Change in Stockholders’ equity84,000-Sale of stock20,000=Change in retained earnings64,000+Dividends71,000=Net income$135,000Note:The change in Retained earnings equals Net income minus Dividends. So, Dividends areadded back to the change in Retained earnings to arrive at Net income.

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Problems(20-25 min.) P 1-31AReq. 1Assets=Liabilities+Stockholders’ EquityCash+Accountsreceivable+Supplies+OfficefurnitureAccountspayableCommonstock+Retained EarningsAprilServicerevenue–Rentexpense–Dividends3*5+50,000+50,000Bal.$50,000+$0+$0+$0=$0+$50,000+$0–$0–$07-600+600Bal.$49,400+$0+$600+$0=$0+$50,000+$0–$0–$09+4,300+4,300Bal.$49,400+$0+$600+$4,300=$4,300+$50,000+$0–$0–$010*14**20+5,400+5,400Bal.$49,400+$5,400+$600+$4,300=$4,300+$50,000+$5,400–$0–$027-1,300+1,300Bal.$48,100+$5,400+$600+$4,300=$4,300+$50,000+$5,400–$1,300–$030-2,000+2,000Bal.$46,100+$5,400+$600+$4,300=$4,300+$50,000+$5,400–$1,300–$2,000”Z˚›„˚’˚vı’›˚„’}voUv}ıμ’]v˚’’ı„v’ı]}v””E}ıı„v’ı]}v’ıZ˚„˚Á’v}(]vv]o]u›ı

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Req. 2a.Total assets=$56,400($46,100+ $5,400+ $600+ $4,300)b.Total liabilities=$4,300c.Total stockholder’s equity=$52,100($50,000+ $5,400-$1,300-$2,000)d.Net income forApril=$4,100($5,400− $1,300)

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(25-30min.) P 1-32AReq. 1Assets=Liabilities+Stockholders’ EquityCash+Accountsreceivable+Supplies+EquipmentAccountspayableCommonstock+Retained EarningsNov.Servicerevenue–Salariesexpense–DividendsBeg.bal.$1,660+$3,210+$0+$26,000=$4,700+$21,640+$6,300–$1,770–$0a.+20,000+20,000Bal.$21,660+$3,210+$0+$26,000=$4,700+$41,640+$6,300–$1,770–$0b.-4,700-4,700Bal.$16,960+$3,210+$0+$26,000=$0+$41,640+$6,300–$1,770–$0c.+4,000+4,000Bal.$20,960+$3,210+$0+$26,000=$0+$41,640+$10,300–$1,770–$0d.+1,100-1,100Bal.$22,060+$2,110+$0+$26,000=$0+$41,640+$10,300–$1,770–$0e.+500+500Bal.$22,060+$2,110+$500+$26,000=$500+$41,640+$10,300–$1,770–$0f.+3,500+3,500Bal.$22,060+$5,610+$500+$26,000=$500+$41,640+$13,800–$1,770–$0g.+8,000+8,000Bal.$30,060+$5,610+$500+$26,000=$500+$49,640+$13,800–$1,770–$0h.-2,300+2,300Bal.$27,760+$5,610+$500+$26,000=$500+$49,640+$13,800–$4,070–$0i.+180-180Bal.$27,940+$5,610+$320+$26,000=$500+$49,640+$13,800–$4,070–$0j.-700+700Bal.$27,240+$5,610+$320+$26,000=$500+$49,640+$13,800–$4,070–$700

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(25-30 min.) P 1-32A (cont.)Req. 2Interiors byDenniseInc.Income StatementMonth EndedNovember30,2014RevenuesService revenue$13,800ExpensesSalariesexpense4,070Net income$9,730Req.3Interiors byDennise, Inc.Statement ofRetainedEarningsMonth EndedNovember30,2014Retained earnings,November1,2014$0Add: Net income9,730Subtotal9,730Less: Dividends700Retained earnings,November30,2014$9,030Req.4Interiors byDennise, Inc.Balance SheetNovember30,2014ASSETSLIABILITIESCash$27,240Accountspayable$500Accounts receivable5,610Supplies320STOCKHOLDERS’ EQUITYEquipment26,000Common stock49,640Retained earnings9,030Total Stockholders’ equity58,670Total liabilities andTotal assets$59,170stockholder’sequity$59,170

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(20-25min.) P 1-33Aa.The Classy Chassis, Inc.Income StatementYear Ended December 31,2014Service revenue$106,000ExpensesSalariesexpense$38,000Insuranceexpense4,600Advertising expense3,500Total expenses46,100Net Income$59,900b.The Classy Chassis, Inc.Statement ofRetainedEarningsYear Ended December 31,2014Retained earnings, December 31,2013$32,400Add: Net income59,900Subtotal92,300Less: Dividends25,000Retained earnings, December 31,2014$67,300c.The Classy Chassis, Inc.Balance SheetDecember 31,2014ASSETSLIABILITIESCash$14,800Accounts payable$2,400Accounts receivable12,500Notes payable10,000Equipment82,400Total liabilities12,400STOCKHOLDERS’ EQUITYCommon stock30,000Retained earnings67,300Total stockholders’ equity97,300Total liabilities andTotal assets$109,700stockholders’equity$109,700

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(25-30 min.) P 1-34AReq. 1AccountType of AccountAccountType of AccountAccounts payableLiabilityInterest expenseStockholders’ equityAccounts receivableAssetLandAssetAdvertising expenseStockholders’ equityNote payableLiabilityBuildingAssetProperty tax expenseStockholders’ equityCashAssetRent expenseStockholders’ equityCommon stockStockholders’ equitySalariesexpenseStockholders’ equityDividendsStockholders’ equitySalariespayableLiabilityEquipmentAssetService revenueStockholders’ equityInsurance expenseStockholders’ equitySuppliesAssetReq. 2Fast and Fit, Inc.Income StatementYear EndedMarch31,2014Service revenue$166,000ExpensesSalariesexpense$92,000Rent expense23,000Advertising expense15,000Interest expense6,000Property tax expense3,500Insurance expense2,300Total expenses141,800Net Income$24,200Fast and Fit, Inc.Statement ofRetainedEarningsYear EndedMarch31,2014Retained earnings,March31,2013$132,700Add: Net income24,200Subtotal156,900Less: Dividends28,000Retained earnings,March31,2014$128,900

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(continued) P 1-34AReq. 3Fast and Fit, Inc.Balance SheetMarch31,2014ASSETSLIABILITIESCash$16,000Accounts payable$16,000Accounts receivable22,000Salaries payable3,000Supplies1,900Notes payable62,000Land35,000Total liabilities81,000Equipment45,000Building125,000STOCKHOLDERS’ EQUITYCommon stock35,000Retained earnings128,900Total stockholders’ equity163,900Total liabilities andTotal assets$244,900stockholders’ equity$244,900Req. 4a.$24,200(Net profit =net income).b.Decreaseof$3,800($24,200Net income minus $28,000 Dividends).c.$244,900(Total economic resources = total assets).d.$81,000 (Total owed = total liabilities).

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(20-25 min.) P 1-35ABaldwinRealty, Inc.Balance SheetApril30,2014ASSETSLIABILITIESCash$9,100Accounts payable$650Accounts receivable2,300Salaries payable1,800Supplies700Notes payable6,000Equipment21,000Total liabilities8,450STOCKHOLDERS’ EQUITYCommon stock15,000Retained earnings9,650Total stockholders’ equity24,650Total liabilities andTotal assets$33,100stockholders’ equity$33,100

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(20-25 min.) P 1-36BReq. 1Assets=Liabilities+Stockholders’ EquityCash+Accountsreceivable+Supplies+OfficefurnitureAccountspayableCommonstock+Retained EarningsJuneServicerevenue–Rentexpense–Dividends3*5+70,000+70,000Bal.$70,000+$0+$0+$0=$0+$70,000+$0–$0–$07-1,300+1,300Bal.$68,700+$0+$1,300+$0=$0+$70,000+$0–$0–$09+3,500+3,500Bal.$68,700+$0+$1,300+$3,500=$3,500+$70,000+$0–$0–$010*14**20+3,800+3,800Bal.$68,700+$3,800+$1,300+$3,500=$3,500+$70,000+$3,800–$0–$027-2,400+2,400Bal.$66,300+$3,800+$1,300+$3,500=$3,500+$70,000+$3,800–$2,400–$030-700+700Bal.$65,600+$3,800+$1,300+$3,500=$3,500+$70,000+$3,800–$2,400–$700”Z˚›„˚’˚vı’›˚„’}voUv}ıμ’]v˚’’ı„v’ı]}v””E}ıı„v’ı]}v’ıZ˚„˚Á’v}(]vv]o]u›ı

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Req. 2a.Total assets=$74,200($65,600+ $3,800+ $1,300+ $3,500)b.Total liabilities=$3,500c.Total stockholder’s equity=$70,700($70,000 + $3,800-$2,400-$700)d.Net income forJune=$1,400($3,800− $2,400)

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(25-30 min.) P 1-37BReq. 1Assets=Liabilities+Stockholders’ EquityCash+Accountsreceivable+Supplies+EquipmentAccountspayableCommonstock+Retained EarningsJuneServicerevenue–Salariesexpense–DividendsBeg.bal.$1,680+$4,130+$0+$32,000=$3,100+$30,000+$9,170–$4,460–$0a.+10,000+10,000Bal.$11,680+$4,130+$0+$32,000=$3,100+$40,000+$9,170–$14,460–$0b.-3,100-3,100Bal.$8,580+$4,130+$0+$32,000=$0+$40,000+$9,170–$4,460–$0c.+2,500+2,500Bal.$11,080+$4,130+$0+$32,000=$0+$40,000+$11,670–$4,460–$0d.+2,130-2,130Bal.$13,210+$2,000+$0+$32,000=$0+$40,000+$11,670–$4,460–$0e.+850+850Bal.$13,210+$2,000+$850+$32,000=$850+$40,000+$11,670–$4,460–$0f.6,200+6,200Bal.$13,210+$8,200+$850+$32,000=$850+$40,000+$17,870–$4,460–$0g.+7,000+7,000Bal.$20,210+$8,200+$850+$32,000=$850+$47,000+$17,870–$4,460–$0h.-4,600+4,600Bal.$15,610+$8,200+$850+$32,000=$850+$47,000+$17,870–$9,060–$0i.+250-250Bal.$15,860+$8,200+$600+$32,000=$850+$47,000+$17,870–$9,060–$0j.-1,500+1,500Bal.$14,360+$8,200+$600+$32,000=$850+$47,000+$17,870–$9,060–$1,500

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(25-30 min.) P 1-37B (cont.)Req. 2Interiors byJill, Inc.Income StatementMonth EndedJune30,2014RevenuesService revenue$17,870ExpensesSalaries expense9,060Net income$8,810Req. 3Interiors byJill, Inc.Statement ofRetainedEarningsMonth EndedJune30,2014Retained earnings,June1,2014$0Add: Net income8,810Subtotal8,810Less: Dividends1,500Retained earnings,June30,2014$7,310Req.4Interiors byJill, Inc.Balance SheetJune30,2014ASSETSLIABILITIESCash$14,360Accounts payable$850Accounts receivable8,200Supplies600STOCKHOLDERS’ EQUITYEquipment32,000Common stock47,000Retained earnings7,310Total Stockholders’ equity54,310Total liabilities andTotal assets$55,160stockholder’s equity$55,160

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(20-25 min.) P 1-38Ba.McKnight, Inc.Income StatementYear Ended December 31,2014Service revenue$88,000ExpensesSalariesexpense$13,000Insurance expense8,000Advertising expense5,500Total expenses26,500Net Income$61,500b.McKnight, Inc.Statement ofRetainedEarningsYear Ended December 31,2014Retained earnings, December 31,2013$23,500Add: Net income61,500Subtotal85,000Less: Dividends40,000Retained earnings, December 31,2014$45,000c.McKnight, Inc.Balance SheetDecember 31,2014ASSETSLIABILITIESCash$17,000Accounts payable$9,000Accounts receivable8,000Note payable16,000Equipment65,000Total liabilities25,000STOCKHOLDERS’ EQUITYCommon stock20,000Retained earnings45,000Total stockholders’ equity65,000Total liabilities andTotal assets$90,000stockholders’ equity$90,000

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