978-0077633059 Chapter 1 Solution Manual Part 2

subject Type Homework Help
subject Pages 9
subject Words 1689
subject Authors John Wild, Ken Shaw

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EXERCISES
Exercise 1-1 (10 minutes)
C 1. Analyzing and interpreting reports
C 2. Presenting financial information
Exercise 1-2 (20 minutes)
Part A.
Part B.
1. I 5. I
4. E 8. I
Exercise 1-3 (10 minutes)
1. B 5. C
4. B 8. A
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Exercise 1-4 (10 minutes)
3. D
Exercise 1-5 (20 minutes)
a. Auditing professionals with competing audit clients are likely to learn
valuable information about each client that the other clients would
b. Accounting professionals who prepare tax returns can face situations
where clients wish to claim deductions they cannot substantiate. Also,
c. Managers face several situations demanding ethical decision making
in their dealings with employees. Examples include fairness in
d. Situations involving ethical decision making in coursework include
performing independent work on examinations and individually
period to not detract from others’ instructional benefits.
Exercise 1-6 (10 minutes)
a. (C) Corporation e. (C) Corporation
d. (SP) Sole proprietorship
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Exercise 1-7 (10 minutes)
Code Description Principle/Assumption
H. 1. A company reports details behind financial
statements that would impact users' decisions.
Full disclosure
principle
G 2. Financial statements reflect the assumption that
the business continues operating.
Going-concern
assumption
E 7. Usually created by a pronouncement from an
authoritative body.
Specific accounting
principle
B 8. Information is based on actual costs incurred in
transactions.
Cost principle
Exercise 1-8 (10 minutes)
Assets = Liabilities + Equity
(a) $ 65,000 = $ 20,000 + $45,000
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Exercise 1-9 (20 minutes)
a. Using the accounting equation at the beginning of the year:
Assets = Liabilities + Equity
Using the accounting equation at the end of the year:
Assets = Liabilities + Equity
$300,000 + $80,000 = $200,000+ $50,000 + ?
Alternative approach to solving part (b):
Assets($80,000) = Liabilities($50,000) + Equity(?)
where “” refers to “change in.”
b. Using the accounting equation:
Assets = Liabilities + Equity
$123,000 = $47,000 + ?
c. Using the accounting equation at the end of the year:
Assets = Liabilities + Equity
$190,000 = $70,000 - $5,000 + ?
Using the accounting equation at the beginning of the year:
Assets = Liabilities + Equity
$190,000 - $60,000 = $70,000 + ?
$130,000 = $70,000 + ?
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Exercise 1-10 (20 minutes)
a. Started the business with the owner investing $40,000 cash in the
business in exchange for common stock.
e. Provided services for $1,000 cash.
Exercise 1-11 (20 minutes)
a. Purchased land for $4,000 cash.
b. Purchased $1,000 of office supplies on credit.
Exercise 1-12 (15 minutes)
Examples of transactions that fit each case include:
a. Cash dividends (or some other asset) paid to the owner of the
business; OR, the business incurs an expense paid in cash.
b. Business purchases equipment (or some other asset) on credit.
g. Owner invests cash (or some other asset) in the business; OR, the
business earns revenue and accepts cash (or another asset).
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Exercise 1-13 (30 minutes)
Assets =Liabilities +Equity
Cash +Accounts
Receivable +Equip-
ment =Accounts
Payable +Common
Stock Dividends +Revenues Expenses
a. +$60,000 + $15,000 = + $75,000
b. – 1,500 ______ ______ $1,500
f. – 6,000 ______ + 6,000 _______ ______ _____ _____
Bal. 55,000 + 8,000 + 31,000 = 10,000 + 75,000 + 10,500 1,500
g. – 3,000 ______ ______ _______ ______ _____ 3,000
Bal. 52,000 + 8,000 + 31,000 = 10,000 + 75,000 + 10,500 4,500
h. + 5,000 - 5,000 ______ _______ ______ _____ _____
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Exercise 1-14 (10 minutes)
Return on assets = Net income / Average total assets
assessed as superior to its competitors.
Exercise 1-15 (15 minutes)
ERNST CONSULTING
Income Statement
For Month Ended October 31
Revenues
Consulting fees earned...................... $14,000
Expenses
Salaries expense................................. $7,000
Rent expense....................................... 3,550
Exercise 1-16 (15 minutes)
ERNST CONSULTING
Statement of Retained Earnings
For Month Ended October 31
Retained earnings, October 1.......................... $ 0
Add: Net income (from Exercise 1-15)........ 2 ,110
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Exercise 1-17 (15 minutes)
ERNST CONSULTING
Balance Sheet
October 31
Assets Liabilities
Cash............................... $11,360 Accounts payable................. $ 8,500
Accounts receivable.... 14,000
Office supplies.............. 3,250 Equity
* For the computation of this amount see Exercise 1-16.
Exercise 1-18 (15 minutes)
ERNST CONSULTING
Statement of Cash Flows
For Month Ended October 31
Cash flows from operating activities
Cash received from customers............................................ $ 0
Cash paid to employees1...................................................... (1,750)
Cash flows from investing activities
Purchase of office equipment.............................................. (18,000)
Net cash used by investing activities................................ (18,000)
Cash flows from financing activities
Cash investment from stockholders.................................... 38,000
Cash dividends...................................................................... (2,000 )
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Exercise 1-19 (10 minutes)
I 1. Cash purchase of equipment O 5. Cash paid on an account payable
Exercise 1-20 (20 minutes)
BMW GROUP
Income Statement
For Year Ended December 31, 2013
(Euros in millions)
Revenues ...................................................................... € 68,821
Expenses
Cost of sales............................................................ €54,276
Exercise 1-21B (10 minutes)
a. Financing*
* Would also be listed as “investing” if resources contributed by owner were in the
form of nonfinancial resources.
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PROBLEM SET A
Problem 1-1A (25 minutes)
Balance Sheet
Income
Statement
Statement of
Cash Flows
Transaction
Total
Assets
Total
Liab.
Total
Equity
Net
Income
Operating
Activities
Investing
Activities
Financing
Activities
1 Owner invests
cash for its stock + + +
note payable
6 Buys office
equipment
for cash
+/–
7 Buys land by
signing note
payable
+ +
8 Provides ser-
vices on credit + + +

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