BAAC.2200 In Class Exercises Chapters 1, 2, 3
Page 1 of 13
In-class exercises for chapters 1 to 3
ICE1-1 Analyze the impact of transactions on the balance sheet equation
ICE1-2 Missing information for determining net income
ICE1-3 Prepare an income statement and a balance sheet
ICE2-1 Net income vs. cash flows as performance metric
ICE2-2 Effects of transactions on financial statements
ICE2-3 Net income vs. cash flows
ICE3-1 Associate debits and credits with external transactions
ICE3-2 Record transactions
ICE3-3 Record and post transactions, prepare a trial balance
ICE3-4 Full accounting cycle
BAAC.2200 In Class Exercises Chapters 1, 2, 3
Page 2 of 13
ICE1-1
Analyze the impact of transactions on the balance sheet equation
ABC Inc., a house painting company, incurs the following transactions for the month of January 20×1.
1. Receive $40,000 from investors.
2. Paint houses in the current month for $15,000 on account.
3. Purchase painting equipment for $16,000 cash.
4. Purchase office supplies on account for $2,500.
5. Pay employee salaries of $3,200 cash for the current month.
6. Purchase advertising to appear in the current month, $1,200 cash.
7. Pay office rent of $4,400 for the current month.
8. Receive $10,000 from customers in transaction (2) above.
9. Receive cash of $6,000 in advance from a customer who plans to have his house painted in the following month.
Task: For each transaction, analyze its effect on the balance sheet equation (A=L+E). A, L, CC, and RE
stand for Assets, Liabilities, Contributed Capital, and Retained Earnings, respectively.
A =
L +
CC +
RE
REV
EXP
1
2
3
4
5
6
7
8
9
BAAC.2200 In Class Exercises Chapters 1, 2, 3
Page 3 of 13
ICE1-2
Missing information for determining net income
The December 31, 20×1 balance sheet for Evans company showed total stockholder’s equity of $156,000. Total
stockholder’s equity increased by $65,000 during fiscal year 20×2. During 20×2, Evans Company received $20,000
cash from the issue of common stock to investors. During 20×2, Evans Company also paid a $5,000 cash dividend to
shareholders.
Can you determine the amount of Net Income (or Loss) for fiscal year 20×2?
Solution:
Remember:
Beginning 20×2: A = L + CC + RE
Ending 20×2 A = L + CC + RE
We know that total equity (i.e. CC + RE) increased by $65,000. In other words, the change (indicated by the
Greek letter delta “∆”) in total equity equals $65,000. We can express this as follows:
∆CC + ∆RE = $65,000
We also know that ∆RE = NI – DIV
Given that Evans received $20,000 cash from investors, we can calculate that ∆RE = ($65k – $20k) = $45,000
Next, given that Evans paid a $5,000 cash dividend we can calculate that NI = $45k + $5k = $50,000.
BAAC.2200 In Class Exercises Chapters 1, 2, 3
ICE1-3
Preparing an Income Statement and a Balance Sheet
Dante Inc. started operations on January 1, 20×1. During 20×1, Dante Inc. experienced the following accounting
events:
(1) Received $10,000 from investors
(2) Earned cash revenues of $14,500
(3) Paid cash expenses of $9,200
(4) Paid a $500 cash dividend to its shareholders
(5) Took out a $6,000 bank loan
There were no other relevant events in 20×1.
