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Solution Manual for Financial Accounting, 10th Edition

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    Chapter 1 The Financial Statements 1 - 1 Chapter 1 The Financial Statements Short Exercises (5 min.) S 1 - 1 Computed amounts in boxes Total Assets = Total Liabilities + Stockholders’ Equity a. $66 0 ,000 = $32 0 ,000 + $34 0 ,000 b. 135 ,000 = 57 ,000 + 78 ,000 c. 401 ,000 = 45 ,000 + 356 ,000 (5 min.) S 1 - 2 Ethics is a factor that should be included in every business and accounting decision, beyond the potential economic and legal consequences. Ideally, for each decision, honesty and truthfulness should prevail, considering the rights of others. The decision guidelines at the end of the chapter spell out the considerations we should take when making decisions. Simply, we might ask ourselves three questions: (1) I s the action legal? (2) Who will be affected by the decision? (3) How will the decision make me feel afterward?

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    1 - 2 Financial Accounting 10/e Solutions Manual (10 min.) S 1 - 3 a. Corporation, limited partners of a Limited - liability partnership (LLP) and Limited - liability company (LLC). If any of these businesses fails and cannot pay its liabilities, creditors cannot force the owners to pay the business’s debts from the owners’ personal assets. Creditors can go after the general partner of a limited liability partnership. b. Proprietorship . There is a single owner of the business, so the owner 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 from their personal assets. A partnership affords more protection for creditors than a proprietorship because there are two or more owners to share this liability. (5 min.) S 1 - 4 1. The entity assumption applies. 2. Application of the entity a ssumption will separate Wallace ’s personal assets from the assets of New Age Foods . This will help Wallace , investors, and lenders know how much assets , liabilities and equity the business has, and this knowledge will help all parties evaluate the business realistically.

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    Chapter 1 The Financial Statements 1 - 3 (5 - 10 min.) S 1 - 5 a. Stable - monetary - unit assumption b. Historical cost principle ; $300 is value of FAX machine c. Historical cost principle ; the sale price is the amount actually received from the sale d. Entity assumption (5 min.) S 1 - 6 1. Liabilities = Assets − Owners’ Equity 2. Owners’ Equity = Assets − Liabilities This way of determining the amount of owners’ equity applies to any company, your household, or a single IHOP restaurant. (5 min.) S 1 - 7 1. Assets are the economic resources of a business that are expected to produce a benefit in the future. Owners’ equity represents the insider claims of a business, the owners’ interest in its assets. Assets and owners’ equity differ in that assets are resources and owners’ equity is a claim to assets . Assets must be at least as large as owners’ equity, so equity can be smaller than assets. 2. Both liabilities and owners’ equity are claims to assets . Liabilities are the outsider claims to the assets of a business; they are obligations to pay creditors. Owners’ equity represents the insider claims to the assets of the business; they are the owners’ interest in its assets.

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    1 - 4 Financial Accounting 10/e Solutions Manual (5 - 10 min.) S 1 - 8 a. Accounts receivable A g. Notes payable L b. Long - term debt L h. Retained earnings S c. Merchandise inventory A i. Land A d. Prepaid expenses A j. Accounts payable L e. Accrued expenses payable L k. Common stock S f. Equipment A l. Supplies A (5 min.) S 1 - 9 1. Revenues and expenses 2. Net income (or net loss) (5 min.) S 1 - 10 O’Malley Services , Inc. Income Statement Year Ended December 31, 2014 (millions) Revenues ................................ ....................... $398 Expenses ................................ ....................... 167 Net income ................................ ..................... $231 (5 min.) S 1 - 11 C anada Corp. Statement of Retained Earnings Year Ended December 31, 2014 (millions) Reta ined earnings, December 31, 2013 ....... $286 Add: Net income ($482 − $337) ................... 145 Less: Dividends declared ............................. ( 59 ) Reta ined earnings, December 31, 2014 ....... $372

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    Chapter 1 The Financial Statements 1 - 5 (10 min.) S 1 - 12 Washington Products Balance Sheet December 31, 2014 ASSETS Current assets: Cash ................................ ................................ ................. $ 2 1 ,000 Receivables ................................ ................................ ..... 17,6 00 Inventory ................................ ................................ ......... 79 ,000 T otal current assets ................................ ........................ 117,6 00 Equipment ................................ ................................ ....... 185 ,000 Total assets ................................ ................................ ..... $302,6 00 LIABILITIES Current liabilities: Accounts payable ................................ ...................... $ 25 ,000 Total current liabilities ................................ .............. 25 ,000 Long - term liabilities: Long - term notes payable ................................ .......... 169 ,000 Total liabilities ................................ ................................ . 194 ,000 STOCKHOLDERS’ EQUITY Common stock ................................ ................................ 30,5 00 Retained earnings ................................ ........................... 78,1 00 * Total stockholders’ equity ................................ .............. 108,6 00 Total liabilities and stockholders’ equity ...................... $302,6 00 _____ *Computation of retained earnings: Total assets ($302,600) − current liabilities ($25,000) − long - term notes payable ($169,000) − common stock ($30,500) = $78,100

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    1 - 6 Financial Accounting 10/e Solutions Manual (10 - 15 min.) S 1 - 13 Guling Legal Services , Inc. Statement of Cash Flows Year Ended December 31, 2014 Cash flows from operating activities: Net income ................................ ................................ .. $ 75 ,000 Adjustments to r econcile net income to net cash provided by operating activities .. ....................... (8 ,000 ) Net cash provided by operating activities ....... 67 ,000 Cash flows from investing activities: Purchases of equipment .................... $( 2 9 ,000 ) Net cash u sed for investing activities .............. ( 2 9 ,000) Cash flows from financing activities: Payment of dividends ......................... $(31 ,000 ) Net cash used for financing activities .............. (31 ,000 ) Net increase in cash ................................ ........................ 7 ,000 Cash balance, December 31, 2013 ................................ . 15 ,000 Cash balance, December 31, 2014 ................................ . $ 2 2,000

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    Chapter 1 The Financial Statements 1 - 7 (10 min.) S 1 - 14 a. Accounts payable BS b. I nventory BS c. Interest revenue IS d. Long - term debt BS e. Net cash used for financing activities SCF f. Salary expense IS g. Cash BS, SCF h. Dividends SRE, SCF i. Increase or decrease in cash SCF j. Net income IS, SRE, SCF k. Net cash provided by operating activities SCF l. Retained earnings SRE, BS m. Sales revenue IS n. Common stock BS

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    1 - 8 Financial Accounting 10/e Solutions Manual (15 - 20 min.) S 1 - 15 a. Paying large dividends will cause retained earnings to be low. b. Heavy investing activity and paying off debts can result in a cash shortage even if net income has been high. c. The single best source of cash for a business is operating activities . This source of cash is best because it results from the core operations of the business. Operating activities should be the main source of cash for a business. d. Borrowing, issuing stock, and selling land, buildings, and equipment can bring in cash even when the company has experienced losses. Reducing accounts receivable and inventory can also increase cash flow.

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    Chapter 1 The Financial Statements 1 - 9 Exercises (10 - 15 min.) E 1 - 16A Amounts in b illions; (computed amounts in boxes) Stockholders’ Assets = Liabilities + Equity Beautiful Florals $83 $ 47 $36 Corner Groceries 26 7 19 State Bank 33 11 22 Corner Groceries appears to have the strongest financial position because its liabilities make up the smallest percentage of company assets ($7/$26 = .27 ). Stated differently, Corner Groceries ’ equity is the highest pe rcentage of company assets ($19/$26 = .73 ). Liabilities as a percent of total assets: Beautiful Florals $47/$83 = 0.57 Corner Groceries $7/$26 = 0.27 State Bank $11/$33 = 0.33 (10 - 15 min.) E 1 - 17A Req. 1 (Amounts in millions) Assets = Liabilities + Stockholders’ Equity $18 0 $1 0 5 3 00 28 0 11 0 Total $59 0 = $385 + $205 Req. 2 Resources to work with Req. 3 Amount owed to creditors Req. 4 Actually owned by company stockholders

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    1 - 10 Financial Accounting 10/e Solutions Manual ( 10 - 20 min.) E 1 - 18A Situation 1 2 3 ( Millions ) Total stockholders’ equity, January 31, 2014 ($52 − $14 ) ................... $38 $38 $38 Add: Issuances of stock ............................... 7 - 0 - 29 Net income ................................ ................ 8* 20 * - 0 - Less: Dividends declared ............................. - 0 - (5 ) (8 ) Net loss ................................ ..................... - 0 - - 0 - (6) * Total stockholders’ equity, January 31, 2015 ($76 − $ 2 3 ) ................... $5 3 $5 3 $5 3 _____ * Must solve for these amounts.

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    Chapter 1 The Financial Statements 1 - 11 (10 - 15 min.) E 1 - 19A a. Income statement b. Statement of retained earnings, Statement of cash flows c. Balance sheet, Statement of cash flows d. Balance sheet e. Income statement f. Statement of cash flows g. Statement of cash flows h. Balance sheet i. Income statement j. Income statement, Statement of retained earnings, Statement of cash flows k. Balance sheet l. Balance sheet, Statement of retained earnings m. Balance sheet n. Balance sheet

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    1 - 12 Financial Accounting 10/e Solutions Manual (10 - 20 min.) E 1 - 20A Alan Sanders Realty Company Balance Sheet July 31, 2014 (Amounts in millions) ASSETS LIABILITIES Cash $ 1.8 Current liabilities $ 2.1 Receivables 0.6 Long - term liabilities 102.2 Investment assets 135.6 Total liabilities 104.3 Property and equipment, net 1.9 STOCKHOLDERS’ EQUITY Other assets 10.7 Common stock 21.8 Retained earnings 24.5 * Total stockholders’ equity 46.3 Total assets $150.6 Total liabilities and stockholders’ equity $1 50.6 _____ *Computation of retained earnings: Total assets ($150.6 ) − Total liabilities ($104.3) − Common stock ($21.8) = $24.5

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    Chapter 1 The Financial Statements 1 - 13 (15 - 25 min.) E 1 - 21A Req. 1 Alan Sanders Realty Company Income Statement Year Ended July 31, 2014 (Amounts in millions) Total revenue ................................ ................................ $37.8 Expenses: Salary and other employee expenses ................... $13.8 Other expenses ................................ ....................... 5.3 Interest expense ................................ ..................... 0.6 Total expenses ................................ ........................ 19.7 Net income ................................ ................................ .... $18.1 Req. 2 The statement of retained earnings helps to compute dividends, as follows: Alan Sanders Realty Company Statement of Retained Earnings Year Ended July 31, 2014 (Amounts in millions) Retained earni ngs, beginning of year ................................ .... $16.9 Add: Net income f or the year ( Req. 1 ) ................................ .... 18 .1 Subtotal 35.0 Less: Dividends declared ................................ ........................ 1 0.5 Retained earnings, end of year ( from Exercise 1 - 20A ) ......... $24.5

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    1 - 14 Financial Accounting 10/e Solutions Manual (15 - 20 min.) E 1 - 22A Island Coffee Roasters Corp. Income Statement For the Month Ended August 31, 2015 Revenue: Service revenue ................................ ............ $272, 600 Expenses: Salary expense ................................ .............. $78,5 00 Utilities expense ................................ ........... 5,2 00 Rent expense ................................ ................ 1,8 00 Total expenses ................................ .............. 85,5 00 Net income ................................ ......................... $187,1 00 Island Coffee Roasters Corp. Statement of Retained Earnings F or the Month Ended August 31, 2015 Retained earnings, August 1, 2015 .......................... $ - 0 - Add: Net income for the month ................................ 187,1 00 Subtotal 187,1 00 Less: Dividends declared ................................ ......... (2,4 00 ) Retained earnings, August 31, 2015 ........................ $184,7 00

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    Chapter 1 The Financial Statements 1 - 15 (15 - 20 min.) E 1 - 23A Island Coffee Roasters Corp. Balance Sheet August 31, 2015 Assets Liabilities Cash ............................ $ 5,5 00 Accounts payable ..................... $ 8,8 00 Office supplies ........... 7,4 00 Equipment .................. 205 ,000 Stockholders’ Equity Common stock .......................... 24,4 00 Retained earnings ..................... 184,7 00 Total stockholders’ equity 209,1 00 Total liabilities and Total assets ................ $217 ,900 stockholders’ equity .............. $217 ,900

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    1 - 16 Financial Accounting 10/e Solutions Manual ( 15 - 20 min.) E 1 - 24A Island Coffee Roasters Corp. Statement of Cash Flows For the Month Ended August 31, 2015 Cash flows from operating activities: Net income ................................ ............................ $187,1 00 Adjustments to reconcile net income to net cash provided by operating activities ............. 1,4 00 Net cash provided by operating activities .... 188,5 00 Cash flows from investing 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 .................... $ 24,4 00 Payment of dividends ................................ .......... (2,4 00 ) Net cash provided by financing activities .... 22 ,000 Net increase in cash ................................ ................. $ 5,5 00 Cash balance, August 1, 201 5 ................................ . 0 Cash balance, August 31, 201 5 ............................... $ 5,5 00

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    Chapter 1 The Financial Statements 1 - 17 (10 - 15 min.) E 1 - 25A TO: Owner of Island Coffee Roasters Corp. FROM: Student Name SUBJECT: Opinion of net income, dividends, financial position, and cash flows Your first month of operations was successful. Revenue s totaled $272,600 and net income was $187,1 00. These operating results look very strong. Th e company was able to pay a $2,4 00 dividend, and this should make you happy with so quick a return on your investment. Your financial position looks secure, with a ssets of $217 , 900 and liabilities of only $8,8 00. Your stockholders’ equity is $ 209,1 00. Operating activities generated cash of $ 188,5 00, which is respectable. Operating activities are the main source of cash, which is expected for a thriving company. You ended the month with cash of $ 5,5 00. Based on the above facts, I believe you should stay in business. Student responses may vary.

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    1 - 18 Financial Accounting 10/e Solutions Manual (10 - 15 min.) E 1 - 26B Amounts in billions ; (computed amounts in boxes) Stockholders’ Assets = Liabilities + Equity Clayton Homes $3 8 $ 17 $21 Howard Automotive 70 24 46 Bella Boutique 51 15 36 Bella Boutique appears to have the strongest financial position because its liabilities make up the smallest p ercentage of company assets ($15/$ 5 1 = .29 ). Stated differently, Bella Boutique ’s equity is the highest percentage of company assets ($ 36/$51 = .71 ). Liabilities as a percent of total assets: Clayton Homes $17/$38 = 0.45 Howard Automotive $24/$70 = 0.34 Bella Boutique $15/$51 = 0.29 (10 - 15 min.) E 1 - 27B Req. 1 (Amounts in millions) Assets = Liabilities + Stockholders’ Equity $208 $156 338 1 00 107 Total $653 = $256 + $397 Req. 2 Resources to work with Req. 3 Amount owed to creditors Req. 4 Actually owned by company stockholders

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    Chapter 1 The Financial Statements 1 - 19 ( 10 - 20 min.) E 1 - 28B Situation 1 2 3 Millions Total stockholders’ equity, January 31, 2014 ($29 − $11 ) ................... $18 $18 $18 Add: Issuances of stock ................................ ... 6 - 0 - 31 Net income ................................ ............... 11* 2 2* - 0 - L ess: Dividends declared ................................ . - 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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    1 - 20 Financial Accounting 10/e Solutions Manual (10 - 15 min.) E 1 - 29B a. Income statement, Statement of retained earnings, Statement of cash flows b. Balance sheet c. Statement of cash flows d. Statement of cash flows e. Income statement f. Balance sheet, Statement of cash flows g. Balance sheet, Statement of retained earnings h. Income statement i. Balance sheet j. Income statement k. Balance sheet l. Statement of retained earnings, Statement of cash flows m. Balance sheet n. Balance sheet

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    Chapter 1 The Financial Statements 1 - 21 (10 - 20 min.) E 1 - 30B Diaz Design Company Balance Sheet July 31, 2014 (Amounts in millions) ASSETS LIABILITIES Cash $ 4.7 Current liabilities $ 5.3 Receivables 1.6 Long - term liabilities 99.5 Investment assets 108.9 Total liabilities 104.8 Property and equipment, net 57 .6 STOCKHOLDERS’ EQUITY Other assets 31.7 Common stock 21.5 Retained earnings 78.2 * Total stockholders’ equity 99.7 ______ Total liabilities and Total assets $ 204.5 stockholders’ equity $ 204.5 _____ *Computation of retained earnings: Total assets ($204.5 ) − Total liabilitie s ($104.8) − Common stock ($21.5) = $78.2

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    1 - 22 Financial Accounting 10/e Solutions Manual (15 - 25 min.) E 1 - 31B Req. 1 Diaz Design Company Income Statement Year Ended July 31, 201 4 (Amounts in millions) Total revenue ................................ ............................... $4 1.4 Expenses: Salary and other employee expenses .................. $ 13.6 Other expenses ................................ ...................... 2.9 Interest expense ................................ .................... 0.3 Total expenses ................................ ....................... 16.8 Net income ................................ ................................ ... $24.6 Req. 2 The statement of retained earnings helps to compute dividends, as follows: Diaz Design Company Statement of Retained Earnings Year Ended July 3 1, 2014 ( Amounts in millions ) Retained earnings, beginning of year ................................ ..... $55.1 Add: Net income for the year ( Req. 1 ) ................................ ..... 24.6 Subtotal 79.7 Less: Dividends declared ................................ ......................... 1.5 Retained earnings, end of year (from Exercise 1 - 30B ) .......... $78.2

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    Chapter 1 The Financial Statements 1 - 23 (15 - 20 min.) E 1 - 32B Office Plus Copy Center, Inc. Income Statement For the Month Ended May 31, 201 4 Revenue: Service revenue ………………………... $450,3 00 Expenses: Salary expense …………………………. $23 0,000 Utilities expense ……………………….. 10,500 Rent expense …………………………… 3 ,700 Total expenses …………………………. 244 ,200 Net income ……………………………………... $206,1 00 Office Plus Copy Center, Inc. Statement of Retained Earnings For the Month Ended May 31, 201 4 Retained earnings, May 1, 2014 ................................ $ - 0 - Add: Net income ................................ ........................ 206,1 00 Subtotal 206,1 00 Less: Dividends declared ................................ .......... ( 12,5 00 ) Retained earnings, May 31, 2014 .............................. $ 193,6 00

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    1 - 24 Financial Accounting 10/e Solutions Manual (15 - 20 min.) E 1 - 33B Office Plus Copy Center, Inc. Balance Sheet May 31, 2014 Assets Liabilities Cash ....................... $ 2 0,300 Accounts payable .................. $ 33,8 00 Office supplies ...... 4,4 00 Stockholders’ Equity Equipment ............. 4 02,7 00 Common stock ...................... 200,000 Retained earnings ................. 193,6 00 Total stockholders’ equity .... 393 ,600 Total assets ........... $ 427,4 00 Total liabilities and stockholders’ equity ......... $427,4 00 (15 - 20 min.) E 1 - 34B Office Plus Copy Center, Inc. Statement of Cash Flows For the Month Ended Ma y 31, 201 4 Cash flows from operating activities: Net income ................................ ............................. $ 206,1 00 Adjustments to reconcile net income to net cash provided by operations ........................... 29,4 00 Net cash provided by operating activities 235,5 00 Cash flows from investing activities: Acquisition of equipment ................................ . $(402,7 00 ) Net cash used for investing activities ........ (402,7 00) Cash flows from financing activities: Issuance (sale) of stock to owners .................. $ 200, 0 0 0 Payment of dividends ................................ ....... (12,5 00 ) Net cash provided by financing activities .. 187,5 00 Net increase in cash ................................ .............. $ 2 0,300 Cash balance, Ma y 1, 201 4 ................................ ... 0 Cash balance, Ma y 31, 201 4 ................................ . $ 20,300

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    Chapter 1 The Financial Statements 1 - 25 (10 - 15 min.) E 1 - 35B TO: Owner of Office Plus Copy Center, Inc. FROM: Student Name SUBJECT: Opinion of net income, dividends, financial position, and cash flows Your first month of operations was suc cessful. Revenues totaled $450,300 and net income was $206,1 00. These operating results look very strong. Th e company was able to pay a $12,5 00 dividend, and this should make you happy with so quick a return on your investment. Your financial position looks secure, with assets of $427,400 and liabilities of only $33,8 00. Your stockholders’ equity is $ 393,6 00. Operating act ivities generated cash of $235,5 00, which is respectable. Operating activities are the main source of cash, which is expected for a thriving company. You ended the month with cash of $2 0,300. Based on the above facts, I believe you should stay in business. Student responses may vary.

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    1 - 26 Financial Accounting 10/e Solutions Manual Quiz Q1 - 36 a Q1 - 37 b Q1 - 38 a Q1 - 39 d Stockholders’ Assets = Liabilities + Equity + $ 8 4,000 = + $26 ,000 + + $58 ,000 Q1 - 40 c Q1 - 41 c Q1 - 42 b Q1 - 43 d Q1 - 44 b Q1 - 45 c [$ 285,000 − $209,000 − $86,000 − $27,000 = $(37 ,000)] Q1 - 46 a ($350,000 + $183,750 − $78,750 = $455 ,000) Q1 - 47 d Q1 - 48 c Q1 - 49 a Stockholders’ Assets = Liabilities + Equity Beg. $150 ,000 = $ 2 4,000* + $126 ,000 Changes + 70 ,000 End. $232 ,000* = $94 ,000* + $138 ,000 _____ *Must solve for these amounts. Q1 - 50 b Assets − Liabilities = Stockholders’ equity Beg. bal. $35 0,000 − $ 126 ,000 = $224 ,000 + Net income + X − Dividends − 56 ,000 End. bal. $ 57 0,000 − $ 229 ,000 = $341 ,000 $224,000 + X - $56,000 = $341,000 ; X = $173,000

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    Chapter 1 The Financial Statements 1 - 27 Problems (30 min.) P 1 - 51A Req. 1 Computed amounts in boxes. Diamond Co. Hagar Inc. Lowell Corp. BALANCE SHEET Millions Beginning : Assets ................................ ............ $101 $54 $ 1 3 Liabilities ................................ ........ 63 22 4 Common stock .............................. 6 5 3 Retained earnings ......................... 3 2 27 6 Ending : Assets ................................ ............ $ 108 $8 5 $16 Liabilities ................................ ........ 65 32 3 Common stock .............................. 6 18 4 Retained earnings ......................... 37 35 9 INCOME STATEMENT Revenues ................................ ....... $340 $ 1 7 0 $ 21 Expenses ................................ ....... 331 156 18 Net income ................................ ..... $ 9 $ 1 4 $ 3 STATEMENT OF RETAINED EARNINGS Beginning RE ................................ . $32 $27 $ 6 + Net income ................................ ..... 9 14 3 − Dividends declared ....................... (4 ) (6 ) 0 = Ending RE ................................ ...... $37 $35 $ 9

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    1 - 28 Financial Accounting 10/e Solutions Manual ( continued ) P 1 - 51A Req. 2 Diamond Co. Hagar Inc. Lowell Corp. Millions Net income ................. $9 $14 $3 Highest % of net income $9 = 2.6 % $14 = 8.2 % $3 = 14.3 % to revenues .......... $340 $170 $21 Highest

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    Chapter 1 The Financial Statements 1 - 29 (20 - 25 min.) P 1 - 5 2A Req. 1 Philly Automotive , Inc. Balance Sheet June 30, 2014 ASSETS LIABILITIES Cash $ 44,1 00 Accounts payable $ 18,8 00 Accounts receivable 5,8 00 Note payable 122,4 00 Notes receivable 33,4 00 Total liabilities 141,2 00 Office supplies 1,7 00 STOCKHOLDERS’ Land 184,7 00 EQUITY Equipment 78,3 00 Stockholders’ equity 206,8 00* Total liabilities and Total assets $348,0 00 stockholders’ equity $348,0 00 _____ * Total assets ($348,000) − Total liabilities ($141,200) = Stockholders’ equity ($206,800). Req. 2 Philly Automotive , Inc. is in better (not worse) financial position than the er roneous balance sheet reports. Although total assets ($348,000) are $ 19,900 lower than originally reported ($367,900), liabilities are s ubstantially lower than originally reported, and stockholders’ e quity is $7,500 higher than reported originally. Req. 3 The following accounts are not reported on the balance sheet because they are expenses. These accounts are reported on the income statement . Advertising expense Utilities expense Salary expense Interest expense

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    1 - 30 Financial Accounting 10/e Solutions Manual (20 - 25 min.) P 1 - 5 3A Req. 1 Jose Alvarado , Realtor, Inc. Balance Sheet April 30, 2015 ASSETS LIABILITIES Cash $ 43 ,000 Accounts payable $ 15 ,000 Office supplies 2 ,000 Note payable 128 ,000 Land 150,0 00 Total liabilities 143 ,000 Furniture 19,8 00 STOCKHOLDERS’ Franchise 1 6,000 EQUITY Common stock 6 0,000 Retained earnings 27,8 00 * Total stockholders’ equity 87,8 00 Total liabilities and Total assets $230,8 00 stockholders’ equity $230,8 00 _____ *Total assets ($230,8 00) − Total liabilit ies ($143,000) − Common stock ($6 0,000) = Retained earnings ($27,8 00 ) . Req. 2 It appears that the business can pay its debts. Total assets exceed total liabilities. Req. 3 Personal items not reported on the balance sheet of the business: a. Personal cash ($18 ,000) b . Personal account payable ($7,5 00) g. Personal residence ($361 ,000) and mortgage payable ( $197 ,000)

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