Chapter 1testbanktop.com/wp-content/uploads/2017/01/Downloadable-Solution... · Transaction Account Activity 1. ... Land 16,800 Notes payable 12,200 ... Solutions For Exercises Set

Chapter 01 - A Framework for Financial Accounting

© The McGraw-Hill Companies, Inc., 2016

Solutions For Exercises Set B, Chapter 1 1-1

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 1 A Framework for Financial Accounting

EXERCISES

Exercise 1-1

1. a.

2. b.

3. a.

4. c.

5. b.

6. a.

7. c.

Exercise 1-2 Transaction Account Activity

1. Falcon provides services to customers. Revenue Operating 2. Falcon pays salaries for the current month. Expense Operating 3. Falcon purchases equipment. Asset Investing 4. Falcon pays dividends to stockholders. Equity Financing 5. Falcon borrows money by issuing a note. Liability Financing

Exercise 1-3 Transaction Account Activity

1. Wildcat pays rent for the current month. Expense Operating 2. Wildcat provides services to customers. Revenue Operating 3. Wildcat issues common stock. Equity Financing 4. Wildcat repays previously borrowed amount. Liability Financing 5. Wildcat purchases land. Asset Investing



1-2 Financial Accounting, 3e

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Exercise 1-4 Requirement 1

Revenues − Expenses = Net Income

$21,000 − $9,000 = $12,000

Requirement 2

Assets = Liabilities +

Stockholders’

equity

$70,000 = $25,000 + $X

$70,000 − $25,000 = $45,000


Revenues − Expenses = Net Loss

$27,000 − $45,000 = −$18,000

Requirement 2

Assets = Liabilities +

Stockholders’

equity

$50,000 = $30,000 + $X

$50,000 − $30,000 = $20,000






Exercise 1-6 Cowboy Law Firm

Income Statement Service revenue $12,700

Expenses:

Salaries $2,500

Utilities 1,600

Total expenses 4,100

Net income $ 8,600

Exercise 1-7 Buffalo Drilling

Statement of Stockholders’ Equity

Common

Stock

Retained Earnings

Total Stockholders’

Equity

Beginning balance $ 8,700 $ 7,900 $16,600

Issuance of common stock 9,400 9,400

Add: Net income 8,600 8,600

Less: Dividends (1,900) (1,900)

Ending balance $18,100 $14,600 $32,700





Exercise 1-8 Wolfpack Construction

Balance Sheet

Assets Liabilities

Cash $ 7,500 Accounts payable $ 4,200 Land 16,800 Notes payable 12,200

Equipment 18,200 Total liabilities 16,400

Stockholders’ Equity Common stock 12,700 Retained earnings 13,400 *

Total stockholders’ equity 26,100

Total liabilities and stockholders’ equity $42,500

Total assets $42,500

* Assets = Liabilities + Stockholders’ equity

$42,500 = $16,400 + ($12,700 + Retained earnings)

$42,500 − $16,400 − $12,700 = Retained earnings

$13,400 = Retained earnings







Beginning balance $ 5,100

Cash received from sale of products to customers 27,300 Cash received from the bank for long-term loan 36,900 Cash paid to purchase factory equipment (40,200) Cash paid to merchandise suppliers (12,500) Cash received from the sale of an unused warehouse 15,700 Cash paid to workers (25,400) Cash paid for advertisement (2,200) Cash received for sale of services to customers 21,900 Cash paid for dividends to stockholders (4,800)

Ending balance $21,800





Requirement 2

Tiger Trade

Statement of Cash Flows

Cash Flows from Operating Activities

Cash inflows: From sale of products to customers $27,300 From sale of services to customers 21,900

Cash outflows: For merchandise suppliers (12,500) For workers (25,400) For advertisement (2,200)

Net cash flows from operating activities $ 9,100

Cash Flows from Investing Activities

Purchase factory equipment (40,200) Sale of warehouse 15,700

Net cash flows from investing activities (24,500)

Cash Flows from Financing Activities

Borrow from bank 36,900 Pay dividends (4,800)

Net cash flows from financing activities 32,100

Net increase in cash 16,700 Cash at the beginning of the year 5,100

Cash at the end of the year $21,800






Exercise 1-10 (LO 1-3) Requirement 1

Fighting Okra Cooking Services

Income Statement Service revenue $76,000

Expenses:

Salaries $22,000

Supplies 15,500

Rent 11,600

Legal fees 2,700

Postage 1,800

Total expenses 53,600

Net income $22,400

Requirement 2

Fighting Okra Cooking Services


Common

Stock

Retained Earnings


Equity

Beginning balance $300,000 $28,000 $328,000



Less: Dividends (15,000) (15,000)

Ending balance $330,000 $35,400 $365,400






Artichoke Academy


For the period ended December 31, 2018

Common

Stock

Retained Earnings


Equity

Beginning balance $160,000 $40,000 $200,000



Less: Dividends (12,000) (12,000)

Ending balance $190,000 $53,000 $243,000

Requirement 2 Artichoke Academy

Balance Sheet

December 31, 2018

Assets Liabilities

Cash $23,600 Accounts payable $ 8,100 Supplies 13,000 Utilities payable 2,600 Prepaid rent 25,000 Salaries payable 3,900 Land 210,000 Notes payable 14,000

Total liabilities 28,600

Stockholders’ Equity Common stock 190,000

Retained earnings 53,000










Squirrel Tree Services

Balance Sheet

Assets Liabilities

Cash $ 8,700 Accounts payable $ 9,600

Supplies 1,700 Salaries payable 4,500 Prepaid insurance 3,200 Notes payable 22,700

Building 75,000 Total liabilities 36,800

Stockholders’ Equity Common stock 41,000 Retained earnings 10,800




Requirement 2

Squirrel Tree Services

Statement of Cash Flows

Cash Flows from Operating Activities

Cash inflows from customers $ 58,000 Cash outflows for salaries (20,000) Cash outflows for supplies (6,000)

Net cash flows from operating activities $32,000

Cash Flows from Investing Activities

Sale investments 11,000 Purchase building (63,000)

Net cash flows from investing activities (52,000)

Cash Flows from Financing Activities

Borrow from bank 22,000 Pay dividends (7,500)

Net cash flows from financing activities 14,500

Net increase in cash (5,500) Cash at the beginning of the year* 14,200

Cash at the end of the year $ 8,700

* Plug number in order to calculate correct ending balance





Exercise 1-13 1. Revenues − Expenses = Net Income

$31,500 − $19,600 = $11,900

2. Change in

stockholders’ equity

= Issue common

stock +

Net Income

− Dividends

$20,400 = $12,000 + $14,300 − $X $20,400 − $12,000 − $14,300 = $5,900

3. Assets = Liabilities + Stockholders’

equity

$27,200 = $X + $15,200

$27,200 = $12,000 + $15,200

4. Total change

in cash =

Operating cash flows

+ Investing

cash flows +

Financing cash flows

$11,000 = $25,000 + ($22,000) + $X $11,000 − $25,000 − ($22,000) = $8,000

Exercise 1-14

Year Net

Income Dividends Retained

Earnings*

1 $2,100 $ 700 $ 1,400

2 2,800 1,000 3,200

3 3,200 1,200 5,200

4 3,900 1,400 7,700

5 4,800 1,600 10,900

* Retained earnings = beginning retained earnings + net income − dividends






Exercise 1-15 ($ in billions)

Change in retained earnings

= Net Income − Dividends

1. Change in retained earnings


$2.7 = $5.1 − $X $2.7 = $5.1 − $2.4



$2.1 = $X − $1.6

$2.1 = $3.7 − $1.6



$1.2 = $1.9 − $X

$1.2 = $1.9 − $0.7


= Net Income

− Dividends

[$X − (−$2.1)] = −$1.0 − $0

$X = −$3.1


= Net Income

− Dividends

[$1.6 − $X] = $0.5 − $0.1

$X = $1.2






Assets = Liabilities + Stockholders

’ equity


equity

$197 = $68 + $X

$197 = $68 + $129


equity

$X = $1,200 + $1,500

$2,700 = $1,200 + $1,500


equity

$9.9 = $X + $5.4

$9.9 = $4.5 + $5.4

4. Change in

Assets =

Change in liabilities

+ Change in


$12.3 = $4.8 + $X

$12.3 = $4.8 + $7.5

5. Change in

Assets =

Change in liabilities

+ Change in


$X = ($0.95) + $0.32

($0.63) = ($0.95) + $0.32







Total change

in cash =


+ Investing

cash flows +


1. Total change

in cash =


+ Investing

cash flows +


$0 = $2.2 + $1.1 + ($3.3)

2. Total change

in cash =


+ Investing

cash flows +


($X − $0.6) = $5.6 + ($2.3) + ($1.7)

$X = $2.2

3. Total change

in cash =


+ Investing

cash flows +


$0.45 = $0.32 + $0.18 + ($0.05)

4. Total change

in cash =


+ Investing

cash flows +


$0.20 = $0.44 + ($0.91) + $0.67

5. Total change

in cash =


+ Investing

cash flows +


$0.54 = $0.30 + ($0.32) + $0.56





Exercise 1-18 (LO 1-5)

1. d.

2. a.

3. e.

4. g.

5. f.

6. b.

7. c.

Exercise 1-19

1. h. Verifiability

2. d. Completeness

3. j. Understandability

4. c. Materiality

5. e. Neutrality

6. a. Confirmatory value

7. f. Free from material error

8. g. Comparability

9. b. Predictive value

10. i. Timeliness

Exercise 1-20

1. b.

2. a.

3. d.

4. c.

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Chapter 1testbanktop.com/wp-content/uploads/2017/01/Downloadable-Solution... · Transaction Account Activity 1. ... Land 16,800 Notes payable 12,200 ... Solutions For Exercises Set