978-0077862275 Chapter 1 Solution Manual Part 6

Problem 1-9B (60 minutes) Parts 1 and 2

Assets = Liabilities + Equity

Date Cash +Accounts

Receivable +Office

Supplies +Office

Equipment +Roofing

Equipment =Accounts

Payable +R. Rivera,

Capital –

R. Rivera,

With-draw

als

+Reve-nue

s–Expen-se

s

July 1 + $80,000 = + $80,000

2– 700 –$700

Bal. 79,300 = 80,000 –700

3– 1,000 + $5,000 + $4,000

Bal. 78,300 + 5,000 = 4,000 + 80,000 –700

6– 600 + $ 600

Bal. 77,700 + 600 + 5,000 = 4,000 + 80,000 –700

8 + 7,600 + $7,600

Bal. 85,300 + 600 + 5,000 = 4,000 + 80,000 + 7,600 –700

10 + $2,300 + 2,300

Bal. 85,300 + 600 + 2,300 + 5,000 = 6,300 + 80,000 + 7,600 –700

Problem 1-9B (Continued)

Part 3

Rivera Roofing Company

Income Statement

For Month Ended July 31

Revenues

Roofing fees earned …………………………… $20,800

Expenses

Rent expense……………………………………… $ 700

Rivera Roofing Company

Statement of Owner’s Equity

For Month Ended July 31

R. Rivera, Capital, July 1……………………… $ 0

Rivera Roofing Company

Balance Sheet

July 31

Assets Liabilities

Cash…………………………….. $ 87,545 Accounts payable………….. $ 7,100

Accounts receivable……… 5,000

Office supplies……………… 3,700 Equity

Office equipment…………… 2,300 R. Rivera, Capital……………. 96,445

Roofing equipment……….. 5,000 ________

Total assets………………….. $103,545 Total liabilities & equity…… $103,545

Problem 1-9B (Concluded)

Part 3—continued

Rivera Roofing Company

Statement of Cash Flows

For Month Ended July 31

Cash flows from operating activities

Cash received from customers1…………………………… $15,800

Cash paid for rent………………………………………………. (700)

1$7,600 + $8,200 = $15,800

Part 4

If the $5,000 purchase on July 3 had been acquired through an additional

owner investment of cash, then:

(a) total assets would be larger by $1,000,

(b) total liabilities would be $4,000 smaller, and

(c) total equity would be $5,000 larger

Problem 1-10B (15 minutes)

1. Return on assets is net income divided by average total assets (the

2. Return on assets does not seem satisfactory for the risk involved in

3. We know that revenues less expenses equal net income. Taking the

4. We know from the accounting equation that the total of liabilities plus

Problem 1-11B (15 minutes)

1. Return on assets equals net income divided by average total assets.

2. On strictly the amount of sales to consumers, AT&T’s sales of $126,723

are greater than Verizon’s sales of $110,875.

3. Success in returning net income from the amount invested is revealed

4. The reported figures suggest Verizon is more successful in generating

income based on assets. Based on this information alone, we would be

better advised to invest in Verizon than AT&T.

Nevertheless, we would look for additional information in financial

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statements and other sources for further guidance. For example, if

AT&T could reduce its expenses, or reduce its assets without reducing

Problem 1-12BA (20 minutes)

Case 1. Return: No return is generated.

Risk: Moderate Risk. By hiding money at home a person

risks loss by theft or fire. Also such a strategy

might result in a loss of purchasing power in the

event of inflation.

government back savings bonds.

Problem 1-13BB (15 minutes)

1. O 5. O

4. O 8. O

Problem 1-14BB (15 minutes)

I. Financing Activities

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A. Owner financing—owner invests in the company

B. Non-owner (creditor) financing—borrowing money from a bank

II. Investing Activities

A. Buying resources (assets)

B. Selling resources (assets)

III. Operating Activities

A. Use of assets to carry out plans

B. Management of internal functions—R&D, marketing, and so forth

[Note: Planning activities are the ideas, goals, and tactics for implementing

financing, investing, and operating activities.]

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Serial Problem — SP 1 Business Solutions

Assets =Liabilities + Equity

Date Cash +Accounts

Receivable +Computer

Supplies +Computer

System +Office

Equipment =Accounts

Payable +S. Rey,

Capital –S. Rey,

Withdrawals +Revenues –Expenses

Oct. 1+$45,000 $20,000 + $8,000 + $73,000

3 + $1,420 + $1,420

Bal. 45,000 + 1,420 + 20,000 + 8,000 = 1,420 + 73,000

6 + $4,800 + $ 4,800

Bal. 45,000 + 4,800 + 1,420 + 20,000 + 8,000 = 1,420 + 73,000 + 4,800

8– 1,420 – 1,420

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Reporting in Action — BTN 1-1

1. An organization’s total assets are equal to its total liabilities plus total

2. Return on assets is net income divided by the average total assets

3. We know that net income equals total revenues less total expenses. For

Apple, we are told net income is $37,037 and revenues are $170,910.

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