Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-41
Be. 186
For the items listed below, fill in the appropriate code letter to indicate whether the item is an
asset, liability, or stockholders’ equity item.
Code
Asset A
Liability L
Stockholders’ Equity SE
_____ 1. Rent Expense ____ 6. Cash
_____ 2. Equipment ____ 7. Accounts Receivable
_____ 3. Accounts Payable ____ 8. Retained Earnings
_____ 4. Common Stock ____ 9. Service Revenue
_____ 5. Insurance Expense ____ 10. Notes Payable
Ans: N/A, LO: 5, Bloom: C, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
Solution 186 (5 min.)
Be. 187
Classify each of these items as an asset (A), liability (L), or stockholders’ equity (SE).
_____ 1. Accounts receivable
_____ 2. Accounts payable
_____ 3. Common stock
_____ 4. Supplies
_____ 5. Retained earnings
_____ 6. Cash
_____ 7. Notes payable
_____ 8. Equipment
Ans: N/A, LO: 5, Bloom: C, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
Solution 187 (5 min.)
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-42
Be. 188
At the beginning of the year, Gant Company had total assets of $660,000 and total liabilities of
$300,000. Answer the following questions viewing each situation as being independent of the
others.
(1) If total assets increased $225,000 during the year, and total liabilities decreased $100,000,
what is the amount of stockholders’ equity at the end of the year?
(2) During the year, total liabilities increased $215,000 and stockholders’ equity decreased
$130,000. What is the amount of total assets at the end of the year?
(3) If total assets decreased $60,000 and stockholders’ equity increased $150,000 during the
year, what is the amount of total liabilities at the end of the year?
Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Solution 188 (5 min.)
Be. 189
Reinhardt’s Carpet Cleaning has the following balance sheet items:
Buildings Notes Payable
Accounts Payable Common Stock
Cash Retained Earnings
Supplies Equipment
Accounts Receivable
Identify which items are (1) Assets
(2) Liabilities
(3) Stockholders’ Equity
Ans: N/A, LO: 5, Bloom: C, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-43
Solution 189 (5 min.)
Be. 190
On June 1, 2014, Shaw Company prepared a balance sheet that shows the following:
Assets (no cash) …………………………………………………………….. $125,000
Liabilities ……………………………………………………………………….. 75,000
Stockholders’ Equity …………………………………………………………. 50,000
Shortly thereafter, all of the assets were sold for cash.
How would the balance sheet appear immediately after the sale of the assets for cash for each of
the following cases?
Cash Received for Balances Immediately After Sale
the Assets Assets – Liabilities = Stockholders’ Equity
Cash A $135,000 $________ $________ $________
Cash B 120,000 ________ ________ ________
Cash C 105,000 ________ ________ ________
Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Business Economics
Solution 190 (5 min.)
Be. 191
Compute the missing amount in each category of the accounting equation.
Assets Liabilities Stockholders’ Equity
(a) $243,000 $ ? $ 91,000
(b) $183,000 $ 75,000 $ ?
(c) $ ? $212,000 $310,000
Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-44
Solution 191 (5 min.)
EXERCISES
Ex. 192
Prepare an income statement and a retained earnings statement, for the month of October, 2014
and a balance sheet at October 31, 2014 for the medical practice of Linda Denny, MD, from the
items listed below.
Retained earnings (October 1) $15,000
Common stock 30,000
Accounts payable 6,000
Equipment 29,000
Service revenue 23,000
Dividends 6,000
Insurance expense 3,500
Cash 11,000
Utilities expense 700
Supplies 2,800
Salaries and wages expense 9,000
Accounts receivable 10,000
Rent expense 2,000
LINDA DENNY, MD
Income Statement
For the Month Ended October 31, 2014
___________________________________________________________________________
Revenues $
Expenses $
Total expenses
Net income $ t
Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-45
Ex. 192 (Cont.)
LINDA DENNY, MD
Retained Earnings Statement
For the Month Ended October 31, 2014
___________________________________________________________________________
Retained Earnings, October 1 $
Add:
Less:
$ t
LINDA DENNY, MD
Balance Sheet
October 31, 2014
___________________________________________________________________________
Assets
$
Total assets
$ t
Liabilities and Stockholders’ Equity
Liabilities
$
Stockholders’ Equity
$
Total liabilities and stockholders’ equity $ t
Ans: N/A, LO: 4,5, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-46
Solution 192 (15 min.)
Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-47
Ex. 193
Use the following accounts and information to prepare, in good form, an income statement and a
retained earnings statement, for the month of August and a balance sheet at August 31, 2014 for
Pierce Industries.
Accounts payable $ 1,100 Dividends $ 3,000
Accounts receivable 5,400 Insurance expense 1,200
Buildings 63,000 Supplies 1,400
Cash 18,600 Notes payable 3,300
Service revenue 25,700 Rent expense 3,400
Common stock 52,000 Salaries and wages expense 12,000
Retained earnings (beginning) 25,900
PIERCE INDUSTRIES
Income Statement
For the Month Ended August 31, 2014
___________________________________________________________________________
Revenues
$
Expenses
$
Total expenses
Net income $ t
PIERCE INDUSTRIES
Retained Earnings Statement
For the Month Ended August 31, 2014
___________________________________________________________________________
Retained Earnings, August 1 $
Add:
Less:
Retained Earnings, August 31 $ t
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-48
Ex. 193 (Cont.)
PIERCE INDUSTRIES
Balance Sheet
August 31, 2014
___________________________________________________________________________
Assets
$
Total assets
$ t
Liabilities and Stockholders’ Equity
Liabilities
$
$
Stockholders’ Equity
$
Total liabilities and stockholders’ equity $ t
Ans: N/A, LO: 4,5, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Solution 193 (15 min.)
Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-49
Solution 193 (Cont.)
Ex. 194
At September 1, the balance sheet accounts for Kiner’s Restaurant were as follows:
Accounts Payable $ 3,800 Land $33,000
Accounts Receivable 1,600 Common Stock ?
Buildings 66,000 Notes Payable 46,000
Cash 5,000 Supplies 3,600
Equipment 15,700 Retained Earnings 45,200
The following transactions occurred during the next two days:
Stockholders invested an additional $20,000 cash in the business. The accounts payable were
paid in full. (No payment was made on the notes payable.)
Instructions
Prepare a balance sheet at September 3, 2014.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-50
Ex. 195
This information relates to Connor Co. for the year 2014.
Retained earnings, January 1, 2014 $59,000
Advertising expense 1,800
Dividends paid during 2014 9,000
Rent expense 10,400
Service revenue 52,000
Utilities expense 2,400
Salaries and wages expense 25,000
Instructions
After analyzing the data, prepare an income statement and a retained earnings statement for the
year ending December 31, 2014.
Ans: N/A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-51
Solution 195 (10 min.)
Ex. 196
Here are incomplete financial statements for Brandon, Inc.
BRANDON, INC.
Balance Sheet
Assets Liabilities and Stockholders’ Equity
Cash $ 5,000 Liabilities
Inventory 10,000 Accounts payable $ 5,000
Buildings 40,000 Stockholders’ equity
Total assets $55,000 Common stock (a)
Retained earnings (b)
Total liabilities and
stockholders’ equity $55,000
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-52
Ex. 196 (Cont.)
Income Statement
Revenues $80,000
Cost of goods sold (c)
Administrative expenses 10,000
Net income $ (d)
Retained Earnings Statement
Beginning retained earnings $10,000
Net income (e)
Dividends 5,000
Ending retained earnings $24,000
Instructions
Calculate the missing amounts.
Ans: N/A, LO: 4,5, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Solution 196 (10 min.)
Introduction to Financial Statements
FOR INSTRUCTOR USE ONLY
1-53
Ex. 197
Sleep Cheap is a private camping ground near the Boulder Peak Recreation Area. It has
compiled the following financial information as of December 31, 2014.
Services revenues (from camping fees) $132,000 Dividends $ 8,000
Sales revenues (from general store) 25,000 Notes payable 50,000
Accounts payable 13,000 Administrative expenses 133,000
Cash 13,500 Supplies 2,500
Equipment 108,000 Common stock 40,000
Retained earnings (1/1/2014) 5,000
Instructions
(a) Determine net income from Sleep Cheap for 2014.
(b) Prepare a retained earnings statement and a balance sheet for Sleep Cheap as of
December 31, 2014.
Ans: N/A, LO: 4,5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Solution 197 (10 min.)
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
1-54
Ex. 198
John Tate is the bookkeeper for Gabelli Company. John has been trying to get the balance sheet
of Gabelli Company to balance. It finally balanced, but now he’s not sure it is correct.
GABELLI COMPANY
Balance Sheet
December 31, 2014
Assets Liabilities and Stockholders’ Equity
Cash $12,500 Accounts payable $18,000
Supplies 9,500 Accounts receivable (12,000)
Equipment 50,000 Common stock 40,000
Dividends 13,000 Retained earnings 39,000
Total assets $85,000 Total liabilities and
stockholders’ equity $85,000
Instructions
Prepare a correct balance sheet.
Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Solution 198 (5 min.)