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Solution Manual for Financial Accounting, 10th Edition

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Page 1 of 31
Solution Manual for Financial Accounting, 10th Edition - Page 1 preview imageChapter 1The Financial Statements 1-1Chapter 1The Financial StatementsShort Exercises(5 min.)S 1-1Computed amounts in boxesTotal Assets=Total Liabilities+Stockholders’ Equitya.$660,000=$320,000+$340,000b.135,000=57,000+78,000c.401,000=45,000+356,000(5 min.) S1-2Ethics is a factor that should be included in every business andaccountingdecision,beyondthepotentialeconomicandlegalconsequences.Ideally, for each decision, honesty and truthfulnessshouldprevail,consideringtherightsofothers.Thedecisionguidelines at the end of the chapter spell out the considerations weshould take when making decisions.Simply, we might ask ourselvesthree questions:(1)Isthe action legal? (2) Who will be affected bythe decision? (3) How will the decision make me feel afterward?
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Solution Manual for Financial Accounting, 10th Edition - Page 2 preview image
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Solution Manual for Financial Accounting, 10th Edition - Page 3 preview image1-2Financial Accounting 10/eSolutions Manual(10 min.)S 1-3a.Corporation,limited partners of aLimited-liability partnership (LLP)and Limited-liability company (LLC).If any of these businessesfailsandcannotpayitsliabilities,creditorscannotforcetheowners to pay the business’s debts from the owners’ personalassets.Creditors can go after the general partner of a limitedliability partnership.b.Proprietorship.There is a single owner of the business, so theowner is answerable to no other owner.c.Partnership.If the partnership fails and cannot pay its liabilities,creditors can force the partners to pay the business’s debts fromtheir personal assets. A partnership affords more protection forcreditors than a proprietorship because there are two or moreowners to share this liability.(5 min.) S1-41.Theentity assumptionapplies.2.ApplicationoftheentityassumptionwillseparateWallace’spersonalassets from the assets ofNew Age Foods. This will helpWallace, investors, and lenders know howmuch assets, liabilitiesandequitythe business has,andthisknowledge willhelpallparties evaluate the business realistically.
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Solution Manual for Financial Accounting, 10th Edition - Page 4 preview imageChapter 1The Financial Statements 1-3(5-10 min.)S 1-5a.Stable-monetary-unit assumptionb.Historical cost principle; $300 is value of FAX machinec.Historical cost principle; the sale price is the amount actuallyreceived from the saled.Entity assumption(5 min.)S 1-61.Liabilities = Assets − Owners’ Equity2.Owners’ Equity = Assets − LiabilitiesThis way of determining the amount of owners’ equity applies toany company, your household, or a single IHOP restaurant.(5 min.)S 1-71.Assetsare theeconomic resourcesof a business that are expectedto produce a benefit in the future.Owners’ equityrepresents theinsider claimsof a business, theowners’ interest in its assets.Assets and owners’ equitydifferin that assets areresourcesandowners’ equity is aclaim to assets.Assetsmustbeatleastaslarge as owners’ equity, so equity can be smaller than assets.2.Both liabilities and owners’ equity areclaims to assets.Liabilities are theoutsiderclaims to the assets of a business; theyare obligations to pay creditors.Owners’ equity represents theinsiderclaims to the assets of thebusiness; theyare the owners’ interest in its assets.
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Solution Manual for Financial Accounting, 10th Edition - Page 5 preview image1-4Financial Accounting 10/eSolutions Manual(5-10 min.)S 1-8a.Accounts receivableAg.Notes payableLb.Long-term debtLh.Retained earningsSc.Merchandise inventoryAi.LandAd.Prepaid expensesAj.Accounts payableLe.Accrued expenses payableLk.Common stockSf.EquipmentAl.SuppliesA(5 min.)S 1-91.Revenuesandexpenses2.Net income (or net loss)(5 min.)S 1-10O’Malley Services, Inc.Income StatementYear Ended December 31, 2014(millions)Revenues.......................................................$398Expenses.......................................................167Net income.....................................................$231(5 min.)S 1-11CanadaCorp.Statement of Retained EarningsYear Ended December 31, 2014(millions)Retained earnings, December 31, 2013.......$286Add: Net income ($482−$337)...................145Less:Dividendsdeclared.............................(59)Retained earnings, December 31, 2014.......$372
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Solution Manual for Financial Accounting, 10th Edition - Page 6 preview imageChapter 1The Financial Statements 1-5(10 min.)S 1-12WashingtonProductsBalance SheetDecember 31, 2014ASSETSCurrent assets:Cash.................................................................................$21,000Receivables.....................................................................17,600Inventory.........................................................................79,000Total current assets........................................................117,600Equipment.......................................................................185,000Total assets.....................................................................$302,600LIABILITIESCurrent liabilities:Accounts payable......................................................$ 25,000Total current liabilities..............................................25,000Long-term liabilities:Long-term notes payable..........................................169,000Total liabilities.................................................................194,000STOCKHOLDERS’ EQUITYCommon stock................................................................30,500Retained earnings...........................................................78,100*Total stockholders’ equity..............................................108,600Total liabilities and stockholders’ equity......................$302,600_____*Computation of retained earnings:Total assets ($302,600) − current liabilities ($25,000) − long-term notespayable ($169,000) − common stock ($30,500) = $78,100
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Solution Manual for Financial Accounting, 10th Edition - Page 7 preview image1-6Financial Accounting 10/eSolutions Manual(10-15 min.)S 1-13Guling Legal Services, Inc.Statement of Cash FlowsYear Ended December 31, 2014Cash flows from operating activities:Net income..................................................................$ 75,000Adjustments to reconcile net income to net cashprovided byoperating activities.........................(8,000)Net cash provided by operating activities.......67,000Cash flows from investing activities:Purchases of equipment....................$(29,000)Net cash used for investing activities..............(29,000)Cash flows from financing activities:Payment of dividends.........................$(31,000)Net cashused for financing activities..............(31,000)Netincrease in cash........................................................7,000Cash balance, December 31,2013.................................15,000Cash balance, December 31, 2014.................................$ 22,000
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Solution Manual for Financial Accounting, 10th Edition - Page 8 preview imageChapter 1The Financial Statements 1-7(10 min.)S 1-14a.Accounts payableBSb.InventoryBSc.Interest revenueISd.Long-term debtBSe.Net cash used forfinancing activitiesSCFf.Salary expenseISg.CashBS, SCFh.DividendsSRE, SCFi.Increase or decrease in cashSCFj.Net incomeIS, SRE, SCFk.Net cash provided by operating activitiesSCFl.Retained earningsSRE, BSm.Sales revenueISn.Common stockBS
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Solution Manual for Financial Accounting, 10th Edition - Page 9 preview image1-8Financial Accounting 10/eSolutions Manual(15-20 min.)S1-15a.Paying large dividendswill cause retained earnings to be low.b.Heavyinvesting activityandpaying off debtscan result in a cashshortage even if net income has been high.c.The single best source of cash for a business isoperating activities.Thissourceofcashisbestbecauseitresultsfromthecoreoperations of the business.Operating activities should be the mainsource of cash for a business.d.Borrowing,issuing stock, and selling land, buildings, and equipmentcan bring in cash even when the company has experienced losses.Reducing accounts receivable and inventory can also increase cashflow.
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Solution Manual for Financial Accounting, 10th Edition - Page 10 preview imageChapter 1The Financial Statements 1-9Exercises(10-15 min.)E 1-16AAmountsin billions; (computed amounts in boxes)Stockholders’Assets=Liabilities+EquityBeautiful Florals$83$47$36Corner Groceries26719State Bank331122Corner Groceriesappears to have the strongest financial positionbecauseits liabilities make up the smallestpercentage of companyassets ($7/$26 = .27). Stated differently,Corner Groceries’ equity isthe highest percentage of company assets ($19/$26 = .73).Liabilities as a percent oftotalassets:Beautiful Florals $47/$83 = 0.57Corner Groceries $7/$26 = 0.27State Bank $11/$33 = 0.33(10-15 min.)E 1-17AReq. 1(Amounts in millions)Assets=Liabilities+Stockholders’Equity$180$105300280110Total$590=$385+$205Req. 2Resourcesto work withReq. 3Amountowed tocreditorsReq. 4Actuallyowned by companystockholders
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Solution Manual for Financial Accounting, 10th Edition - Page 11 preview image1-10Financial Accounting 10/eSolutions Manual(10-20 min.)E 1-18ASituation123(Millions)Total stockholders’ equity,January 31, 2014 ($52 − $14)...................$38$38$38Add:Issuances of stock...............................7-0-29Net income................................................8*20*-0-Less:Dividendsdeclared.............................-0-(5)(8)Net loss.....................................................-0--0-(6)*Total stockholders’ equity,January 31, 2015 ($76 − $23)...................$53$53$53_____*Must solve for these amounts.
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Solution Manual for Financial Accounting, 10th Edition - Page 12 preview imageChapter 1The Financial Statements 1-11(10-15 min.)E 1-19Aa.Income statementb.Statement of retained earnings,Statement of cash flowsc.Balance sheet, Statement of cash flowsd.Balance sheete.Income statementf.Statement of cash flowsg.Statement of cash flowsh.Balance sheeti.Income statementj.Income statement, Statement of retained earnings, Statement ofcash flowsk.Balance sheetl.Balance sheet, Statement of retained earningsm.Balance sheetn.Balance sheet
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Solution Manual for Financial Accounting, 10th Edition - Page 13 preview image1-12Financial Accounting 10/eSolutions Manual(10-20 min.)E 1-20AAlan Sanders RealtyCompanyBalance SheetJuly 31, 2014(Amounts in millions)ASSETSLIABILITIESCash$1.8Current liabilities$2.1Receivables0.6Long-term liabilities102.2Investment assets135.6Total liabilities104.3Property and equipment, net1.9STOCKHOLDERS’EQUITYOther assets10.7Common stock21.8Retained earnings24.5*Total stockholders’ equity46.3Total assets$150.6Total liabilities andstockholders’equity$150.6_____*Computation of retained earnings:Total assets ($150.6) −Total liabilities ($104.3) − Common stock($21.8) = $24.5
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Solution Manual for Financial Accounting, 10th Edition - Page 14 preview imageChapter 1The Financial Statements 1-13(15-25 min.)E 1-21AReq. 1Alan Sanders RealtyCompanyIncome StatementYear Ended July 31, 2014(Amounts in millions)Totalrevenue................................................................$37.8Expenses:Salary and otheremployee expenses...................$13.8Other expenses.......................................................5.3Interest expense.....................................................0.6Total expenses........................................................19.7Net income....................................................................$18.1Req. 2The statement of retained earnings helps to compute dividends, asfollows:Alan Sanders RealtyCompanyStatement of Retained EarningsYear Ended July 31, 2014(Amounts in millions)Retained earnings, beginning of year....................................$16.9Add: Net income for the year(Req. 1)....................................18.1Subtotal35.0Less: Dividendsdeclared........................................................10.5Retainedearnings, end of year (from Exercise 1-20A).........$24.5
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Solution Manual for Financial Accounting, 10th Edition - Page 15 preview image1-14Financial Accounting 10/eSolutions Manual(15-20 min.)E 1-22AIsland Coffee Roasters Corp.Income StatementFor the Month Ended August 31, 2015Revenue:Service revenue............................................$272,600Expenses:Salary expense..............................................$78,500Utilitiesexpense...........................................5,200Rent expense................................................1,800Total expenses..............................................85,500Net income.........................................................$187,100Island Coffee Roasters Corp.Statement of Retained EarningsFor the Month Ended August 31, 2015Retained earnings, August 1, 2015..........................$-0-Add: Net income for the month................................187,100Subtotal187,100Less: Dividendsdeclared.........................................(2,400)Retained earnings, August 31, 2015........................$184,700
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Solution Manual for Financial Accounting, 10th Edition - Page 16 preview imageChapter 1The Financial Statements 1-15(15-20 min.) E 1-23AIsland Coffee Roasters Corp.Balance SheetAugust 31, 2015AssetsLiabilitiesCash............................$5,500Accounts payable.....................$8,800Office supplies...........7,400Equipment..................205,000Stockholders’ EquityCommon stock..........................24,400Retained earnings.....................184,700Total stockholders’ equity209,100Total liabilities andTotal assets................$217,900stockholders’ equity..............$217,900
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Solution Manual for Financial Accounting, 10th Edition - Page 17 preview image1-16Financial Accounting 10/eSolutions Manual(15-20 min.)E 1-24AIsland Coffee Roasters Corp.Statement of Cash FlowsFor the Month Ended August 31, 2015Cash flows from operating activities:Net income............................................................$187,100Adjustments to reconcile net incometo netcash provided byoperating activities.............1,400Net cash provided by operating activities....188,500Cash flows frominvesting activities:Acquisition of equipment....................................$(205,000)Net cash used for investing activities...........(205,000)Cash flows from financing activities:Issuance (sale) of stock to owners....................$24,400Payment of dividends..........................................(2,400)Net cash provided by financing activities....22,000Net increase in cash.................................................$5,500Cash balance,August1, 2015.................................0Cash balance,August31, 2015...............................$5,500
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Solution Manual for Financial Accounting, 10th Edition - Page 18 preview imageChapter 1The Financial Statements 1-17(10-15 min.)E 1-25ATO:Owner ofIsland Coffee Roasters Corp.FROM:Student NameSUBJECT:Opinion of net income, dividends, financial position,and cash flowsYour first month of operations was successful. Revenues totaled$272,600 and net income was $187,100. These operating results lookvery strong.The company was able to pay a $2,400 dividend, and this shouldmake you happy with so quick a return on your investment.Yourfinancial position looks secure, with assets of $217,900 and liabilitiesof only $8,800. Your stockholders’ equity is $209,100.Operatingactivitiesgeneratedcashof$188,500,whichisrespectable.Operating activities are the main source of cash, which isexpected for a thriving company.You ended the month with cash of$5,500.Basedontheabovefacts,Ibelieveyoushouldstayinbusiness.Student responses may vary.
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Solution Manual for Financial Accounting, 10th Edition - Page 19 preview image1-18Financial Accounting 10/eSolutions Manual(10-15 min.)E 1-26BAmounts inbillions; (computed amounts in boxes)Stockholders’Assets=Liabilities+EquityClayton Homes$38$ 17$21Howard Automotive702446Bella Boutique511536BellaBoutiqueappearstohavethestrongestfinancialpositionbecause its liabilities make up the smallest percentage of companyassets ($15/$51 = .29). Stated differently,Bella Boutique’s equity is thehighest percentage of company assets ($36/$51 = .71).Liabilities as a percent of total assets:Clayton Homes $17/$38 = 0.45Howard Automotive $24/$70 = 0.34Bella Boutique $15/$51 = 0.29(10-15 min.)E 1-27BReq. 1(Amounts in millions)Assets=Liabilities+Stockholders’Equity$208$156338100107Total$653=$256+$397Req. 2Resourcesto work withReq. 3Amountowed tocreditorsReq. 4Actuallyowned by companystockholders
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Solution Manual for Financial Accounting, 10th Edition - Page 20 preview imageChapter 1The Financial Statements 1-19(10-20 min.)E 1-28BSituation123MillionsTotal stockholders’ equity,January 31, 2014 ($29 − $11)...................$18$18$18Add:Issuances of stock...................................6-0-31Net income...............................................11*22*-0-Less:Dividendsdeclared.................................-0-(5)(3)Net loss....................................................-0--0-(11)*Total stockholders’ equity,January 31, 2015 ($48 − $13)...................$35$35$35_____*Must solve for these amounts.
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Solution Manual for Financial Accounting, 10th Edition - Page 21 preview image1-20Financial Accounting 10/eSolutions Manual(10-15 min.)E 1-29Ba.Income statement, Statement of retained earnings, Statement ofcash flowsb.Balance sheetc.Statement of cash flowsd.Statement of cash flowse.Income statementf.Balance sheet, Statement of cash flowsg.Balance sheet, Statement of retained earningsh.Income statementi.Balance sheetj.Income statementk.Balance sheetl.Statement of retained earnings, Statement of cash flowsm.Balance sheetn.Balance sheet
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Solution Manual for Financial Accounting, 10th Edition - Page 22 preview imageChapter 1The Financial Statements 1-21(10-20 min.)E 1-30BDiaz DesignCompanyBalance SheetJuly 31, 2014(Amounts in millions)ASSETSLIABILITIESCash$4.7Current liabilities$5.3Receivables1.6Long-term liabilities99.5Investment assets108.9Total liabilities104.8Property andequipment, net57.6STOCKHOLDERS’EQUITYOther assets31.7Common stock21.5Retained earnings78.2*Total stockholders’ equity99.7______Total liabilities andTotal assets$204.5stockholders’ equity$204.5_____*Computation of retained earnings:Total assets ($204.5) − Total liabilities ($104.8) − Common stock($21.5) =$78.2
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Solution Manual for Financial Accounting, 10th Edition - Page 23 preview image1-22Financial Accounting 10/eSolutions Manual(15-25 min.)E 1-31BReq. 1Diaz DesignCompanyIncome StatementYear EndedJuly31, 2014(Amounts in millions)Total revenue...............................................................$41.4Expenses:Salary and other employee expenses..................$ 13.6Other expenses......................................................2.9Interestexpense....................................................0.3Total expenses.......................................................16.8Net income...................................................................$24.6Req. 2The statement of retained earnings helps to compute dividends, asfollows:Diaz DesignCompanyStatement of Retained EarningsYear EndedJuly31, 2014(Amounts in millions)Retained earnings,beginning of year.....................................$55.1Add: Net income for the year (Req. 1).....................................24.6Subtotal79.7Less: Dividendsdeclared.........................................................1.5Retained earnings,end of year (from Exercise 1-30B)..........$78.2
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Solution Manual for Financial Accounting, 10th Edition - Page 24 preview imageChapter 1The Financial Statements 1-23(15-20 min.)E 1-32BOffice PlusCopy Center, Inc.Income StatementFor the Month EndedMay31, 2014Revenue:Service revenue………………………...$450,300Expenses:Salary expense………………………….$230,000Utilities expense………………………..10,500Rent expense……………………………3,700Total expenses………………………….244,200Net income……………………………………...$206,100Office PlusCopy Center, Inc.Statement of Retained EarningsFor the Month EndedMay31, 2014Retained earnings, May 1, 2014................................$-0-Add: Net income........................................................206,100Subtotal206,100Less: Dividendsdeclared..........................................(12,500)Retained earnings,May 31, 2014..............................$193,600
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Solution Manual for Financial Accounting, 10th Edition - Page 25 preview image1-24Financial Accounting 10/eSolutions Manual(15-20 min.) E 1-33BOffice PlusCopy Center, Inc.Balance SheetMay 31, 2014AssetsLiabilitiesCash.......................$ 20,300Accounts payable..................$33,800Office supplies......4,400Stockholders’ EquityEquipment.............402,700Common stock......................200,000Retained earnings.................193,600Total stockholders’ equity....393,600Total assets...........$427,400Total liabilities andstockholders’ equity.........$427,400(15-20 min.)E 1-34BOffice PlusCopy Center, Inc.Statement ofCash FlowsFor the Month EndedMay 31, 2014Cash flows from operating activities:Netincome.............................................................$206,100Adjustments to reconcile net income to netcashprovided by operations...........................29,400Net cash provided by operating activities235,500Cash flows from investing activities:Acquisition of equipment.................................$(402,700)Netcashused for investing activities........(402,700)Cash flows from financing activities:Issuance (sale) of stock to owners..................$ 200,000Payment of dividends.......................................(12,500)Net cash provided by financing activities..187,500Netincrease in cash..............................................$20,300Cash balance,May 1, 2014...................................0Cash balance,May 31, 2014.................................$ 20,300
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Solution Manual for Financial Accounting, 10th Edition - Page 26 preview imageChapter 1The Financial Statements 1-25(10-15 min.)E 1-35BTO:Owner ofOffice PlusCopy Center, Inc.FROM:Student NameSUBJECT:Opinion of net income,dividends, financial position, andcash flowsYour first month of operations was successful. Revenues totaled$450,300 and net income was $206,100. These operating results lookvery strong.The company was able to pay a $12,500 dividend, and this shouldmake you happy with so quick a return on your investment.Yourfinancial positionlooks secure, with assets of $427,400 and liabilitiesof only $33,800. Your stockholders’ equity is $393,600.Operatingactivitiesgeneratedcashof$235,500,whichisrespectable.Operating activities are the main source of cash, which isexpected for a thriving company.Youended the month with cash of$20,300.Basedontheabove facts,Ibelieveyoushouldstay inbusiness.Student responses mayvary.
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Solution Manual for Financial Accounting, 10th Edition - Page 27 preview image1-26Financial Accounting 10/eSolutions ManualQuizQ1-36aQ1-37bQ1-38aQ1-39dStockholders’Assets=Liabilities+Equity+ $84,000=+ $26,000++$58,000Q1-40cQ1-41cQ1-42bQ1-43dQ1-44bQ1-45c[$285,000 − $209,000 − $86,000 −$27,000 = $(37,000)]Q1-46a($350,000 + $183,750 − $78,750 = $455,000)Q1-47dQ1-48cQ1-49aStockholders’Assets=Liabilities+EquityBeg.$150,000=$24,000*+$126,000Changes+ 70,000End.$232,000*=$94,000*+$138,000_____*Must solve for these amounts.Q1-50bAssets − Liabilities =Stockholders’ equityBeg. bal.$350,000−$126,000 =$224,000+ Net income+X−Dividends−56,000End. bal.$570,000−$229,000 =$341,000$224,000 + X-$56,000 = $341,000; X = $173,000
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Solution Manual for Financial Accounting, 10th Edition - Page 28 preview imageChapter 1The Financial Statements 1-27Problems(30 min.)P 1-51AReq. 1Computed amounts in boxes.DiamondCo.Hagar Inc.LowellCorp.BALANCE SHEETMillionsBeginning:Assets............................................$101$54$13Liabilities........................................63224Common stock..............................653Retained earnings.........................32276Ending:Assets............................................$108$85$16Liabilities........................................65323Common stock..............................6184Retained earnings.........................37359INCOME STATEMENTRevenues.......................................$340$170$21Expenses.......................................33115618Net income.....................................$9$14$3STATEMENT OF RETAINED EARNINGSBeginning RE.................................$32$27$6+Net income.....................................9143−Dividendsdeclared.......................(4)(6)0=Ending RE......................................$37$35$9
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Solution Manual for Financial Accounting, 10th Edition - Page 29 preview image1-28Financial Accounting 10/eSolutions Manual(continued)P 1-51AReq. 2Diamond Co.Hagar Inc.Lowell Corp.MillionsNet income.................$9$14$3Highest% of net income$9= 2.6%$14=8.2%$3= 14.3%to revenues..........$340$170$21Highest
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Solution Manual for Financial Accounting, 10th Edition - Page 30 preview imageChapter 1The Financial Statements 1-29(20-25 min.)P 1-52AReq. 1Philly Automotive, Inc.Balance SheetJune 30, 2014ASSETSLIABILITIESCash$44,100Accounts payable$ 18,800Accounts receivable5,800Notepayable122,400Notes receivable33,400Total liabilities141,200Office supplies1,700STOCKHOLDERS’Land184,700EQUITYEquipment78,300Stockholders’ equity206,800*Total liabilities andTotal assets$348,000stockholders’ equity$348,000_____*Total assets ($348,000) − Total liabilities ($141,200) = Stockholders’ equity($206,800).Req. 2Philly Automotive, Inc. is inbetter (not worse)financial position thanthe erroneous balance sheet reports. Although total assets ($348,000)are $19,900 lower than originally reported($367,900),liabilities aresubstantiallylowerthan originally reported, and stockholders’ equityis$7,500higher than reported originally.Req. 3Thefollowingaccountsarenotreportedonthebalancesheetbecausetheyareexpenses.Theseaccountsare reportedontheincome statement.Advertising expenseUtilities expenseSalary expenseInterest expense
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Solution Manual for Financial Accounting, 10th Edition - Page 31 preview image1-30Financial Accounting 10/eSolutions Manual(20-25 min.)P 1-53AReq. 1Jose Alvarado, Realtor, Inc.Balance SheetApril 30, 2015ASSETSLIABILITIESCash$ 43,000Accounts payable$ 15,000Office supplies2,000Note payable128,000Land150,000Total liabilities143,000Furniture19,800STOCKHOLDERS’Franchise16,000EQUITYCommon stock60,000Retained earnings27,800*Total stockholders’ equity87,800Total liabilities andTotal assets$230,800stockholders’ equity$230,800_____*Total assets ($230,800) − Total liabilities ($143,000) − Common stock($60,000) =Retained earnings ($27,800).Req. 2It appears that the business canpay its debts. Total assetsexceedtotal liabilities.Req. 3Personal items not reported on thebalance sheetof the business:a.Personal cash ($18,000)b.Personal account payable ($7,500)g.Personal residence ($361,000) and mortgage payable($197,000)
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Subject
Physics
Textbook
Conceptual Physics by Paul G. Hewit...

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