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Solution Manual for Financial Accounting, 3rd Edition

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    Chapter 1 : Business, Accounting , and You Discussion Questions: Key Points 1. The economic events that affect a business are communicated through the accounting function. Language helps us to make sense of the world around us. If we don’t know the language, we will be limited in our ability to operate effectively in the business environment. 2. Valid arguments can be made on both sides of this question. Without technical knowledge an accountant will not be able to provide much value. Without ethics, however, an accountant can be dangerous. Accounting exists because of a need for an objective account of the economic events that affect an entity. 3. Financial statements seek to provide information about the events that have already occurred. For example, the cost principle is used to carry assets on the books. It is up to the user 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 make investment decisions, enable suppliers and customers to determine the financial condition of a business, and report to regulatory agencies. 6. It is a separate legal entity from its owners. Factors — liability of owners for business activities, taxation, distribution of income. 7. A = L + SE. Assets — things of value a company has. Liabilities — amount a business owes to third 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 Cash Flows. The financial statements articulate (join together). The income statement needs to be prepared in order to produce the net income amount that is reported on the statement of retained earnings. The ending balance in retained earnings i s needed in order to prepare the balance sheet. The ending balance in cash on the balance sheet and other information is needed for the statement of cash flows. 10. The financial statements are a. Balance sheet b. Statement of retained earnings c. Statement of cash flows d. Income statement

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    Short Exercises (5 - 10 min.) S 1 - 1 1. d 2. a 3. c 4. b (5 - 10 min.) S 1 - 2 Answer: d . Cost Principle (10 - 15 min.) S 1 - 3 1. e 2. f 3. d 4. g 5. b 6. c 7. a (5 - 10 min.) S 1 - 4 a. $ 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 - 5 Assets = Liabilities + Stockholder ’s E quity Accounts Notes Stockholder’s Cash + Equipment = p ayable + payable + e quity $ 13 ,000 + $ 35 ,000 = $ 9 ,000 + $ 5 ,000 + $ 34 ,000 Based on the accounti ng equation, Beach has $ 34 ,000 of equity in the business. Assets of $ 48 ,000 ($ 13 ,000 + $ 35 ,000) − Liabilities of $ 14 ,000 ($ 9 ,000 + $ 5 ,000) = Stockholder ’s e quity of $ 34 ,000. (5 - 10 mi n.) S 1 - 6 Assets = Liabilities + Stockholders’ E quity Cash + Supplies = + Stockholders’ e quity $ 3 6 ,000 + $ 1, 5 00 = $ 9,500 + $ 28,000 Based on the accounting equation, Boehms has $ 9,500 of liabilities. Assets of $ 3 7, 5 00 ($ 3 6 ,000 + $ 1, 5 00 ) − Stockholders’ equity of $ 28,000 = Liabilities of $ ,500 (5 - 10 min.) S 1 - 7 Assets = Liabilities + Stockholders’ Equity Cash = Notes Payable + Common Stock Invest ment + $ 1 5 ,000 = + $ 1 5 ,000 Borrowing + 1 8 ,000 = + $ 1 8 ,000 + ____ __ Bal. $ 33 , 000 = $ 1 8 ,000 + $ 1 5 ,000

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    (5 - 10 min.) S 1 - 8 Assets = Liabilities + Stockholders’ Equity Cash + Accounts receivable Accounts payable Common stock + Retained Earnings Service revenue – Salary - Dividends expense a. +$ 62 ,000 + 62 ,000 b. - $ 33 ,000 + $ 33 ,000 (5 - 10 min.) S 1 - 9 1. e 2. a 3. c 4. a 5. e 6. e 7. a 8. e 9. d 10. b 11. a

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    5 (5 - 10 min.) S 1 - 10 1. BS 2. BS 3. IS 4. IS 5. BS , RE 6. BS

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    ( 5 - 1 0 min.) S 1 - 11 1. d 2. e 3. b 4. a 5. c (5 - 10 min.) S 1 - 1 2 1. Increased total assets ( C ash) 2. No effect on total assets. The i ncrease in Land offset the decrease in C ash. 3. Decreased total assets ( C ash) 4. Increased total assets ( M achinery and equipment) 5. Incre ased total assets (Accounts receivable ) 6 . Decreased total assets (Cash) 7 . No effect on total assets. The i ncrease in C ash offset the decrease in Accounts receivable . 8. No effect on total assets. The increase in Cash offset the decrease in Land. 9 . Increased total assets (cash) (5 - 10 min.) S 1 - 13 1. True 2. False ( Increase Supplies ; decrease Cash) 3. True 4. True 5. True 6. False (Decrease Cash ; decrease Accounts payable) 7. True 8. True 9. False (Decrease Cash ; increase Expense/decrease Stockholders’ equity)

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    (5 - 10 min.) S 1 - 14 Req. 1 1. 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. 2 Revenues (transactions “ 4 ” and “ 6 ”)………………… $ 2, 950 Less: Expenses (transaction “ 5 ”)……… ……….. …… 1, 350 Net income…………………………………… ….. …. $ 1, 6 00

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    Exercises (10 - 1 5 min.) E 1 - 1 5 A Appleway, Corp. $ 48,7 00 + $ 13,4 00 = 1st Choice , I nc. $ 82 ,000 - $ 27 ,000 = Hamilton , Inc. $ 127,3 00 - $ 88,5 00 = (10 - 15 min.) E 1 - 16 A Req. 1 Total Total Total Assets − Stockholders’ E quity = Liabilities Beginning….. $ 91 ,000 − $ 7 ,000 = $ 84 ,000 Ending……… $ 145 ,000 − $ 73 ,000 = $ 72 ,000 Decrease during the year = $ 12 ,000 Req. 2 Possible reasons for the decrease in L iabilities may include :  P ayments were made on account  Payments were made on a note payable (10 - 15 min.) E 1 - 17 A Req. 1 Total Total Total Assets − Liabilities = Stockholders’ E quity Beginning….. $ 37 ,000 − $ 16 ,000 = $ 21 ,000 Ending……… $ 82 ,000 − $ 28 ,000 = $ 54 ,000 Increase during the year = $ 33 ,000

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    Req. 2 Possible reasons for the increase in Stockholders’ equity may include:  So ld stock  Earned net income (15 - 20 min.) E 1 - 1 8 A Aug. 31, 201 4 Sept. 30 , 201 4 Total assets $ 13 5 ,000 $ 1 90 ,000 - Total liabilities $ ( 81 ,000) $( 14 5 ,000 ) = - = Stockholders’ equity Common stock Retained earnings $ 54 ,000 (25,000) $29,000 $ 45 ,000 (25,000) $20,000 Assumption A : No dividends were paid $ 20 ,000 ending balance = $ 29 ,000 Beg bal + Net income - dividends $ 20 ,000 = $ 29 ,000 + Net income - 0 $ ( 9,000 ) = Net loss Assumption B : $ 14 ,000 of dividends were paid $ 20 ,000 ending balance = $ 29 ,000 Beg bal + Net income - dividends $ 20 ,000 = $ 29 ,000 + Net income – $ 14 ,00 0 $ 5,000 = Net income Assumption C : $ 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) = Net loss

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    ( 15 - 2 0 min.) E 1 - 1 9 A Assets = Liabilities + Stockholders’ Equity Cash + Medical supplies + Land Accounts payable Common stock + Retained Earnings August Service revenue – Rent expense 2 + 90 ,000 + 90 ,000 6 - 53 ,000 + 53 0 ,000 11 + 1,2 00 + 1,2 00 15 No entry 17 + 9 , 4 00 + 9 , 4 00 19 - 2,4 00 + 2,4 00 22 + 1 5 0 - 1 5 0 30 - 80 0 - 80 0 Bal. $ 43 ,350 + $ 1,05 0 + $ 53 ,000 = $ 400 + $ 90 ,000 + $ 9,400 – $ 2,400 (10 - 15 min.) E 1 - 20 A Req. 1 The business is a corporation, as shown by the fact that it has a common stock account . Req. 2 Happy Tots Gym , Inc. Balance Sheet March 3 1 , 201 4 ASSETS LIABILITIES Cash $ 24,000 Accounts payable $ 3,300 Accounts receivable 12,500 Note payable 20,000 Supplies 300 Total liabilities 23,300 Office equipment 9,400 STOCKHOLDERS’ EQUITY Common stock 4,000 Retained earnings 18,900 Total Stockholders’ equity 22,900 Total liabilities and Total assets $ 46,200 stockholders’ equity $ 46,200

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    Req. 3 The balance sheet reports the financial position of a company at a given point in time and that Assets = Liabilities + Stockholders’ Equity. (15 - 20 min.) E 1 - 21 A Req. 1 Account Type of Account Account Type of Account Office f urniture Asset Rent e xpense Expense Utilities e xpense Expense Cash Asset Accounts payable Liability Office s upplies Asset Notes payable Liability Salar ies e xpense Expense Service revenue Revenue Salar ies payable Liability Accounts receivable Asset Property tax expense Expense Supplies expense Expense Equipment Asset Req. 2 Cole Consulting , Inc . Income Statement For the Year Ended December 31, 201 4 Service Revenue $ 116,6 00 Expenses Salar ies expense $ 36,7 00 Rent expense 28 ,000 Utilities expense 6, 3 00 Supplies expense 2, 7 00 Property tax expense 1,6 00 Total expenses 75 ,300 Net income $ 41,3 00 Results of op erations for 201 4 : Net income of $ 41,3 00

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    (15 - 20 min.) E 1 - 21 A Cont. Req 3 Cole Consulting, Inc. Statement of R etained E arnings For the Year Ended December 31, 201 4 Retained earnings, Jan. 1, 201 4 $0 Add: Net income 4 1,3 00 Subtotal 41,3 00 Less: Dividends 3 2 ,000 Retained earnings, Dec. 31, 201 4 $ 9,3 00 The dividends for the year were $ 3 2 ,000 . ($0 + $ 41,3 00 - $ 9,3 00 ) ( 15 - 20 min.) E 1 - 22 A Req 1 Earth , Inc. Beginning: Assets $ 55,000 − Liabilities 45,000 = Stockholders’ Equity        Req 2 Ending: Assets $ 114,000 − Liabilities 25,000 = Stockholders’ Equity  ˙˝     Req 3 Ending Stockholders’ equity $ 89 ,000 - Beginning Stockholders’ equity ( 10 ,000) = Change in Stockholders’ e quity 79 ,000 - Sale of stock 16,000 = Change in retained earnings 63,000 + Dividends 50 ,000 = Net income $ 113 ,000 Note : The change in Retained earnings equals Net income minus Dividends. So, Dividends are added back to the change in Retained earnings to arrive at Net income.

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    (10 - 15 min.) E 1 - 23B Corner Grocery Corp. $ 45,000 + $ 27,900 =  ˆ˝ Sampson Hardware , Inc. $ 104,000 - $ 44,000 =  ˇ Perfect Cleaners, Inc. $ 108, 8 00 - $ 92,600 =   ˇ (10 - 15 min.) E 1 - 24B Req. 1 Total Total Total Assets − Stockholders’ E quity = Liabilities Beginning….. $ 84 ,000 − $ 56 ,000 = $ 28 ,000 Ending……… $ 15 3 ,000 − $ 91 ,000 = $ 62 ,000 Increase during the year = $ 3 4 ,000 Req. 2 Possible reasons for the increase in Lia bilities may include:  Made p urchases on account  Borrowed money on a n ote payable (10 - 15 min.) E 1 - 25B Req. 1 Total Total Total Assets − Liabilities = Stockholders’ E quity Beginning….. $ 50 ,000 − $ 40 ,000 = $ 10 ,000 Ending……… $ 57 ,000 − $ 8 ,000 = $ 49 , 0 00 Increase during the year = $ 39 ,000

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    (10 - 15 min.) E 1 - 25B (cont) Req. 2 Possible reasons for the increase in Stockholders’ equity may include:  Sold stock  Earned net income (15 - 20 min.) E 1 - 26B Oct. 31, 201 4 Nov. 30 , 201 4 Total assets $ 12 7 ,000 $ 1 65 ,000 - Total liabilities $( 92 ,000) $( 1 19 ,000) = - = Stockholders’ equity Common stock Retained earnings $ 35 ,000 (1 5 ,000) $2 0 ,000 $ 4 6 ,000 ( 1 5 ,000 ) $3 1 ,000 Assumption A : No dividends were paid . $ 3 1 ,000 ending balance = $ 2 0 ,000 Beg bal + Net income - D ividends $ 3 1 ,000 = $ 2 0 ,000 + Net income - 0 $ 1 1 ,000 = Net income Assumption B : $ 7 ,000 of dividends were paid . $ 3 1 ,000 ending balance = $ 2 0 ,000 Beg bal + Net income - D ividends $ 3 1 , 000 = $ 2 0 ,000 + Net income – $ 7 ,000 $ 18 ,000 = Net income Assumption C : $ 15 ,000 of dividends were paid . $ 3 1 ,000 ending balance = $ 2 0 ,000 Beg bal + Net income - D ividends $ 3 1 ,000 = $ 2 0 ,000 + Net income - $ 1 5 ,000 $ 26 ,000 = Net income

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    (15 - 20 min.) E 1 - 27B Assets = Liabilit i es + Stockholders’ Equity Cash + Medical supplies + Land Accounts payable Common stock + Retained Earnings March Service revenue – Rent expense 2 + 45 ,000 + 45 ,000 6 - 20 ,000 + 20 ,000 11 + 1,0 00 + 1,000 15 No entry required 17 + 11 ,000 + 11 ,000 19 - 1,700 + 1,700 22 + 350 - 350 30 - 700 - 700 Bal. $ 33,950 + $ 650 + $ 20 ,000 = $ 300 + $ 45 ,000 + $ 1 1 ,000 – $ 1,700 (10 - 15 min.) E 1 - 28B Req. 1 The business is a corporation, as shown by the fact that it has a common stock account. Req. 2 Julie ’s Coffee Shop , Inc. Balance Sheet October 31, 201 4 ASSETS LIABILITIES Cash $ 19 ,000 Accounts payable $ 8 00 Accounts receivable 1,4 00 Note payable 4 ,000 Supplies 7 50 Total liabilities 4,8 00 Office equipment 14,2 00 STOCKHOLDERS’ EQUITY Common stock 18 ,000 Retained earnings 12, 5 50 Total Stockholders’ equity 30,5 50 Total liabilities and Total assets $ 35,3 50 stockholders’ equity $ 35,3 50

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    Req. 3 The balance sheet reports the financial position of a company at a given point in time and that Assets = Liabilities + Stockholders’ Equity. (15 - 20 min.) E 1 - 29B Req. 1 Account Type of Account Account Type of Account Office furniture Asset Rent e xpense Expense Utilities expense Expense Cash Asset Accounts payable Liability Office s upplies Asset Notes p ayable Liability Salar ies e xpense Expense Service revenue Revenue Salar ies payable Liability Accounts receivable Asset Property tax expense Expense Supplies e xpense Expense Equipment Asset Req. 2 Alden Consulting, Inc. Income Statement For the Year Ended December 31, 2014 Service Revenue $ 161 , 000 Expenses Salar ies expense $43,000 Rent expense 18 ,000 Utilities expense 12,600 Supplies expense 3,400 Property tax expense 2,400 Total expenses 79,400 Net income $ 81,600 Results of operations for 2014 : Net income of $ 81,600 .

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    (15 - 20 min.) E 1 - 29B Cont. Req 3 Alden Consulting, Inc. Statement of R etained E arnings For the Year Ended December 31, 2014 Retained earnings, Jan. 1, 2014 $0 Add: Net income 81,600 Subtotal 81,600 Less: Dividends 6 0 ,000 Retained earnings, Dec. 31, 2014 $ 21,600 The dividends for the year were $ 6 0 ,000 ($0 + $ 81,600 - $ 21,600 ) . (15 - 20 min.) E 1 - 30B Req 1 Hastings , Inc. Beginning: Assets $ 8 3 ,000 − Liabilities 3 6 ,000 = Stockholders’ Equity   ˆ     Req 2 Ending: Assets $ 1 62 ,000 − Liabilities 31 ,000 = Stockholders’ Equity         Req 3 Ending Stockholders’ equity $ 1 31 ,000 - Beginning Stockholders’ equity 47 ,000 = Change in S tockholders’ equity 84 ,000 - Sale of stock 20 ,000 = Change in retained earnings 64 ,000 + Dividends 71 ,000 = Net income $ 1 35 ,000 Note : The change in Retained earnings equals Net income minus Dividends. So, Dividends are added back to the change in Retained earnings to arrive at Net income.

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    Problems (20 - 25 min.) P 1 - 31A Req. 1 Assets = Liabilities + Stockholders’ Equity Cash + Accounts receivable + Supplies + Office furniture Accounts payable Common stock + Retained Earnings April Service revenue – Rent expense – Dividends 3 * 5 + 50 ,000 + 50 ,000 Bal. $ 50 ,000 + $0 + $0 + $0 = $0 + $ 50 ,000 + $0 – $0 – $0 7 - 600 + 600 Bal. $ 49,400 + $0 + $ 600 + $0 = $0 + $ 50 ,000 + $0 – $0 – $0 9 + 4,3 00 + 4,3 00 Bal. $ 49,400 + $0 + $ 600 + $ 4,3 00 = $ 4,3 00 + $ 50 ,000 + $0 – $0 – $0 10 * 14 ** 20 + 5,4 00 + 5,4 00 Bal. $ 49,400 + $ 5,4 00 + $ 600 + $ 4,3 00 = $ 4,3 00 + $ 50 ,000 + $ 5,4 00 – $0 – $0 27 - 1,3 00 + 1 ,3 00 Bal. $ 48,1 00 + $ 5,4 00 + $ 600 + $ 4,3 00 = $ 4,3 00 + $ 50 ,000 + $ 5,4 00 – $ 1,3 00 – $0 30 - 2,0 00 + 2,0 00 Bal. $ 46, 1 00 + $ 5,4 00 + $ 600 + $ 4,3 00 = $ 4,3 00 + $ 50 ,000 + $ 5,4 00 – $ 1 ,3 00 – $ 2,0 00  ”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. 2 a. Total assets = $ 5 6,4 00 ($ 46,1 00 + $ 5,4 00 + $ 600 + $ 4,3 00) b. Total liabilities = $ 4,300 c. Total stockholder’s equity = $ 52,1 00 ($ 50 ,000 + $ 5,4 00 - $ 1, 3 00 - $ 2,0 00 ) d. Net income for April = $ 4,100 ($ 5,4 00 − $ 1,3 00 )

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    ( 25 - 30 min.) P 1 - 32 A Req. 1 Assets = Liabilities + Stockholders’ Equity Cash + Accounts receivable + Supplies + Equipment Accounts payable Common stock + Retained Earnings Nov. Service revenue – Salar ies expense – Dividends Beg. bal. $ 1,660 + $ 3,210 + $0 + $ 26 ,000 = $ 4,700 + $ 21,640 + $ 6,300 – $ 1,770 – $0 a. + 20 ,000 + 20 ,000 Bal. $ 21,660 + $ 3,210 + $0 + $ 26 ,000 = $ 4,700 + $ 41,640 + $ 6,300 – $ 1,770 – $0 b. - 4,700 - 4,700 Bal. $ 16,960 + $ 3,210 + $0 + $ 26 ,000 = $0 + $ 41,640 + $ 6,300 – $ 1,770 – $0 c. + 4,000 + 4,000 Bal. $ 20,960 + $ 3,210 + $0 + $ 26 ,000 = $0 + $ 41,640 + $ 10,300 – $ 1,770 – $0 d. + 1,100 - 1,100 Bal. $ 22,0 60 + $ 2,110 + $0 + $ 26 ,000 = $0 + $ 41,640 + $ 10,300 – $ 1,770 – $0 e. + 500 + 500 Bal. $ 22,060 + $ 2,110 + $ 500 + $ 26 ,000 = $ 500 + $ 41,640 + $ 10,300 – $ 1,770 – $0 f. + 3,500 + 3,500 Bal. $ 22,060 + $ 5,610 + $ 500 + $ 26 ,000 = $ 500 + $ 41,640 + $ 13,800 – $ 1,770 – $0 g. + 8,000 + 8,000 Bal. $ 30,0 60 + $ 5,610 + $ 500 + $ 26 ,000 = $ 500 + $ 49,640 + $ 13,800 – $ 1,770 – $0 h. - 2,300 + 2,300 Bal. $ 27,760 + $ 5,610 + $ 500 + $ 26 ,000 = $ 500 + $ 49,640 + $ 13,800 – $ 4,070 – $0 i. + 180 - 180 Bal. $ 27,940 + $ 5,610 + $ 320 + $ 26 ,000 = $ 500 + $ 49,640 + $ 13,800 – $ 4,070 – $0 j. - 700 + 700 Bal. $ 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. 2 Interiors by Dennise Inc. Income Statement Month Ended November 3 0 , 201 4 Revenues Service revenue $ 13,800 Expenses Salaries expense 4,070 Net income $ 9,730 Req. 3 Interiors by D ennise , Inc. Statement of R etained E arnings Month Ended November 30, 201 4 Retained earnings, November 1, 201 4 $0 Add: Net income 9,730 Subtotal 9,730 Less: Dividends 700 Retained earnings, November 30 , 201 4 $ 9,030 Req. 4 Interiors by D ennise , Inc. Balance Sheet November 30 , 201 4 ASSETS LIABILITIES Cash $ 27,240 Accounts payable $ 500 Accounts receivable 5,610 Supplies 320 STOCKHOLDERS’ EQUITY Equipment 26 ,000 Common stock 49,640 Retained earnings 9,030 Total Stockholders’ equity 58,670 Total liabilities and Total assets $ 59,170 stockholder’s equity $ 59,170

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    (20 - 25 min.) P 1 - 33 A a. The Classy Chassis , Inc. Income Statement Year Ended December 31, 201 4 Service r evenue $ 106 ,000 Expenses Salar ies expense $ 38 ,000 Insurance expense 4,6 00 Advertising expense 3,5 00 Total expenses 46,1 00 Net Income $ 59,9 00 b. The Classy Chassis , Inc. Statement of R etained E arnings Year Ended December 31, 201 4 Retained earnings, December 31, 20 13 $ 32,4 00 Add: Net income 59,9 00 Subtotal 9 2,3 00 Less: Dividends 25 ,000 Retained earnings, December 31, 201 4 $ 67,3 00 c . The Classy Chassis , Inc. Balance Sheet December 31, 201 4 ASSETS LIABILITIES Cash $ 14 , 8 00 Accounts payable $ 2, 4 00 Accounts receivable 12,5 00 Notes payable 10 ,000 Equipment 82,4 00 Total liabilities 12, 4 00 STOCKHOLDERS’ EQUITY Common stock 30 ,000 Retained earnings 67,3 00 Total stockholders’ equity 97,3 00 Total liabilities and Total assets $ 109,7 00 stockholders’ equity $ 109,7 00

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    (25 - 3 0 min.) P 1 - 34 A Req. 1 Account Type of Account Account Type of Account Accounts payable Liability Interest expense Stockholders’ equity Accounts receivable Asset Land Asset Advertising expense Stockholders’ equity Note payable Liability Building Asset Property tax expense Stockholders’ equity Cash Asset Rent expense Stockholders’ equity Common stock Stockholders’ equity Salar ies expense Stockholders’ equity Dividends Stockholders’ equity Salar ies payable Liability Equipment Asset Service revenue Stockholders’ equity Insurance expense Stockholders’ equity Supplies Asset Req. 2 Fast and Fit , Inc. Income Statement Year Ended March 31, 2014 Service r evenue $ 166 ,000 Expenses Salar ies expense $ 92 ,000 Rent expense 23 ,000 Advertising expense 15 ,000 Interest expense 6 ,000 Property tax expense 3,500 Insurance expense 2,300 Total expenses 141,800 Net Income $ 24,200 Fast and Fit , Inc. Statement of R etained E arnings Year Ended March 31, 2014 Retained earnings, March 31, 20 13 $ 132,700 Add: Net income 24,200 Subtotal 156,900 Less: Dividends 28 ,000 Retained earnings, March 31, 2014 $ 128,900

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    (continued) P 1 - 34 A Req. 3 Fast and Fit , Inc. Balance Sheet March 31, 2014 ASSETS LIABILITIES Cash $16,000 Accounts payable $ 16 ,000 Accounts receivable 22 ,000 Salaries payable 3 ,000 Supplies 1,900 Notes payable 62 ,000 Land 35 ,000 Total liabilities 81 ,000 Equipment 45,000 Building 125 ,000 STOCKHOLDERS’ EQUITY Common stock 35 ,000 Retained earnings 128,900 Total stockholders’ equity 163,900 Total liabilities and Total assets $ 244,900 stockholders’ equity $ 244,900 Req. 4 a. $ 24,200 ( Net profit = net income) . b. Decre a se of $ 3,800 ($ 24,200 Net 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 - 35A Baldwin Realty, Inc. Balance Sheet April 30, 201 4 ASSETS LIABILITIES Cash $ 9,1 00 Accounts payable $ 650 Accounts receivable 2 ,3 00 Salaries payable 1,8 00 Supplies 7 00 Notes payable 6,000 Equipment 21 ,000 Total liabilities 8,450 STOCKHOLDERS’ EQUITY Common stock 1 5 ,000 Retained earnings 9,650 Total stockholders’ equity 24,650 Total liabilities and Total assets $ 33,100 stockholders’ equity $ 33,100

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    (20 - 25 min.) P 1 - 3 6 B Req. 1 Assets = Liabilities + Stockholders’ Equity Cash + Accounts receivable + Supplies + Office furniture Accounts payable Common stock + Retained Earnings June Service revenue – Rent expense – Dividends 3 * 5 + 70 ,000 + 70 ,000 Bal. $ 70 ,000 + $0 + $0 + $0 = $0 + $ 70 ,000 + $0 – $0 – $0 7 - 1,300 + 1,300 Bal. $ 68,700 + $0 + $ 1 , 300 + $0 = $0 + $ 70 ,000 + $0 – $0 – $0 9 + 3 , 500 + 3 , 500 Bal. $ 68,700 + $0 + $ 1 , 300 + $ 3 , 500 = $ 3 , 500 + $ 70 ,000 + $0 – $0 – $0 10 * 14 ** 20 + 3, 8 00 + 3, 8 00 Bal. $ 68,700 + $ 3, 8 00 + $ 1 , 300 + $ 3 , 500 = $ 3 , 500 + $ 70 ,000 + $ 3, 8 00 – $0 – $0 27 - 2,400 + 2,400 Bal. $ 66,300 + $ 3, 8 00 + $ 1 , 300 + $ 3 , 500 = $ 3 , 500 + $ 70 ,000 + $ 3, 8 00 – $ 2,400 – $0 30 - 700 + 700 Bal. $ 65,600 + $ 3, 8 00 + $ 1 , 300 + $ 3 , 500 = $ 3 , 500 + $ 70 ,000 + $ 3, 8 00 – $ 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. 2 a. Total assets = $ 7 4 , 2 00 ($ 65,600 + $ 3, 8 00 + $ 1,300 + $ 3,500 ) b. Total liabilities = $ 3 ,500 c. Total stockholder’s equity = $ 70,700 ($ 70 ,000 + $ 3, 8 00 - $ 2,400 - $ 700 ) d. Net income for June = $ 1,400 ($ 3,800 − $ 2,400 )

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    (25 - 30 min.) P 1 - 3 7 B Req. 1 Assets = Liabilities + Stockholders’ Equity Cash + Accounts receivab le + Supplies + Equipment Accounts payable Common stock + Retained Earnings June Service revenue – Salaries expense – Dividends Beg. bal. $ 1,680 + $ 4,130 + $0 + $ 32 ,000 = $ 3,100 + $ 30,000 + $ 9,170 – $ 4,460 – $0 a. + 10 ,000 + 10 ,000 Bal. $ 11,680 + $ 4,130 + $0 + $ 32 ,000 = $ 3,100 + $ 40,000 + $ 9,17 0 – $ 1 4,460 – $0 b. - 3,100 - 3,100 Bal. $ 8,580 + $ 4,130 + $0 + $ 32 ,000 = $0 + $ 40,000 + $ 9,170 – $ 4,460 – $0 c. + 2,500 + 2,500 Bal. $ 11,080 + $ 4,130 + $0 + $ 32 ,000 = $0 + $ 40,000 + $ 11,670 – $ 4,460 – $0 d. + 2,130 - 2,130 Bal. $ 13,210 + $ 2,000 + $0 + $ 32 ,000 = $0 + $ 40,000 + $ 11,670 – $ 4,460 – $0 e. + 850 + 850 Bal. $ 13,210 + $ 2,000 + $ 850 + $ 32 ,000 = $ 850 + $ 40,000 + $ 11,670 – $ 4,460 – $0 f. 6,200 + 6,200 Bal. $ 13,210 + $ 8,200 + $ 850 + $ 32 ,000 = $ 850 + $ 40,000 + $ 17,870 – $ 4,460 – $0 g. + 7 ,000 + 7 ,000 Bal. $ 20,210 + $ 8,200 + $ 850 + $ 32 ,000 = $ 850 + $ 47,000 + $ 1 7 ,870 – $ 4,460 – $0 h. - 4,600 + 4,600 Bal. $ 15,610 + $ 8,200 + $ 850 + $ 32 ,000 = $ 850 + $ 47,000 + $ 1 7 ,870 – $ 9,060 – $0 i. + 250 - 250 Bal. $ 15,860 + $ 8,200 + $ 600 + $ 32 ,000 = $ 850 + $ 47,000 + $ 1 7 ,870 – $ 9,060 – $0 j. - 1,500 + 1,500 Bal. $ 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. 2 Interiors by Jill , Inc. Income Statement Month Ended June 30, 2014 Revenues Service revenue $ 17,870 Expenses Salaries expense 9,060 Net income $ 8,810 Req. 3 Interiors by Jill , Inc. Statement of R etained E arnings Month Ended June 30, 2014 Retained earnings, June 1, 2014 $0 Add: Net income 8,810 Subtotal 8,810 Less: Dividends 1,500 Retained earnings, June 30, 2014 $ 7,310 Req. 4 Interiors by Jill , Inc. Balance Sheet June 30, 2014 ASSETS LIABILITIES Cash $ 14,360 Accounts payable $ 850 Accounts receivable 8,200 Supplies 600 STOCKHOLDERS’ EQUITY Equipment 32 ,000 Common stock 47,000 Retained earnings 7,310 Total Stockholders’ equity 54,310 Total liabilities and Total assets $ 55,160 stockholder’s equity $ 55,160

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    (20 - 25 min.) P 1 - 3 8 B a. McKnight , Inc. Income Statement Year Ended December 31, 2014 Service revenue $ 88 , 000 Expenses Salar ies expense $ 13 ,000 Insurance expense 8 ,000 Advertising expense 5,500 Total expenses 26,500 Net Income $ 61,500 b. McKnight , Inc. Statement of R etained E arnings Year Ended December 31, 2014 Retained earnings, December 31, 20 13 $ 23,500 Add: Net income 61 ,500 Subtotal 85 ,000 Less: Dividends 40 ,000 Retained earnings, December 31, 2014 $ 45 ,000 c . McKnight , Inc. Balance Sheet December 31, 2014 ASSETS LIABILITIES Cash $ 17 ,000 Accounts payable $ 9 ,000 Accounts receivable 8 ,000 Note payable 16 ,000 Equipment 65 ,000 Total liabilities 2 5 ,000 STOCKHOLDERS’ EQUITY Common stock 20 ,000 Retained earnings 45 ,000 Total stockholders’ equity 65 ,000 Total liabilities and Total assets $ 90 ,000 stockholders’ equity $ 90 ,000

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