Chapter 1
A Framework for Financial Accounting
1. a.
2. b.
3. a.
4. c.
5. b.
6. a.
7. c.
EXERCISES
Exercise 1-1
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 1-2
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
Exercise 1-3
Exercise 1-4
Requirement 1
Revenues − Expenses = Net Income
Requirement 2
Assets = Liabilities +
Stockholders’
equity
$70,000 = $25,000 + $X
Exercise 1-5
Requirement 1
Revenues − Expenses = Net Loss
Requirement 2
Assets = Liabilities +
Stockholders’
equity
$50,000 = $30,000 + $X
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
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 *
* Assets = Liabilities + Stockholders’ equity
Exercise 1-8
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)
Tiger Trade
Statement of Cash Flows
Cash Flows from Operating Activities
Cash inflows:
From sale of products to customers $27,300
Cash outflows:
For merchandise suppliers (12,500)
For workers (25,400)
Cash Flows from Investing Activities
Purchase factory equipment (40,200)
Cash Flows from Financing Activities
Borrow from bank 36,900
Pay dividends (4,800)
Net cash flows from financing activities 32,100
Exercise 1-9
Requirement 1
Requirement 2
Fighting Okra Cooking Services
Statement of Stockholders’ Equity
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Beginning balance $300,000 $28,000 $328,000
Issuance of common stock 30,000 30,000
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
Requirement 2
Artichoke Academy
Statement of Stockholders’ Equity
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Beginning balance $160,000 $40,000 $200,000
Issuance of common stock 30,000 30,000
Artichoke Academy
Balance Sheet
Assets Liabilities
Cash $23,600 Accounts payable $ 8,100
Supplies 13,000 Unearned revenue 2,600
Stockholders’ Equity
Total stockholders’ equity 243,000
Total liabilities and
stockholders’ equity $271,600Total assets $271,600
Exercise 1-11 (LO 1-3)
Requirement 1
Requirement 2