Title: Problem 1-8B
QA_Ori:
Parts 1 and 2
Assets = Liabilitie
s
+ Equity
Date Cash +
Accounts
Receivabl
e
+Office
Supplies +
Office
Equipmen
t
+
Excavatin
g
Equipmen
t
=
Account
s
Payable
+R. Truro,
Capital –
R.
Truro,
With-dr
awals
+Reve-n
ues –Expen-
ses
July 1 +
$80,000
= + $80,00
0
2 –
700
– $700
Bal
.
79,300 = 80,000 – 700
3 –
1,000
+ $5,000 +
$4,000
Bal
.
85,300 + 600 + 2,300 + 5,000 = 6,300 + 80,000 + 7,600 – 700
15 + $8,200 + 8,200
0
5
Part 3
Truro Excavating Co.
Income Statement
For Month Ended July 31
Revenues
Excavating fees earned $20,800
Expenses
Truro Excavating Co.
Statement of Owner’s Equity
For Month Ended July 31
R. Truro, Capital, July 1 $0
Add: Investment by owner 80,000
Truro Excavating Co.
Balance Sheet
31-Jul
Assets Liabilities
Cash $87,545 Accounts payable $7,100
Accounts receivable 5,000
$103,54
5 Total liabilities & equity $103,545
Truro Excavating Co.
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)
Cash paid for supplies……………………………………………. (600)
Cash flows from investing activities
Cash flows from financing activities
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.
Title: Problem 1-9B
QA_Ori:
Parts 1 and 2
Assets = Liabilities + Equity
Cash +
Accounts
Receivabl
e
+
Office
Supplie
s
+
Office
Equipmen
t
+Building =Accounts
Payable +Notes
Payable +
N.
Mitchell,
Capital
–
N.
Mitchell,
With-draw
als
+Reve-
nues –Expen-
ses
a. +
$90,000
+ $20,000 + $110,000
b. –
40,000
+ $150,0
00
+ $110,0
00
Bal. 50,000 + 20,000 + 150,000 = 110,00
0
+ 110,000
c. –
f. + $2,800 + $2,800
Bal. 24,250 + 2,800 + 1,200 + 46,700 + 150,000 = 2,900 + 110,000 + 110,000 + 2,800 – 750
g. +
4,000
+ 4,000
Bal. 28,250 + 2,800 + 1,200 + 46,700 + 150,000 = 2,900 + 110,000 + 110,000 + 6,800- 750
h. –
Part 3
Title: Problem 1-10B
QA_Ori:
1. Return on assets equals net income divided by average total assets.
3. Success in returning net income from the amount invested is revealed by the return on assets ratio. Part 1
showed that AT&T has a much lower return on assets of 1.6% versus Verizon with a 4.5% return on assets.
4. Current performance 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.
Title: Problem 1-11B
QA_Ori:
1. Return on assets is net income divided by average total assets (the average amount invested). For
Carbondale Company this return is computed as:
2. Return on assets does not seem satisfactory for the risk involved in the manufacturing, marketing, and selling
3. We know that revenues less expenses equal net income. Taking the revenues and net income numbers for
Carbondale Company we obtain:
4. We know from the accounting equation that the total of liabilities plus equity (financing) must equal the total
Title: Problem 1-12B
QA_Ori:
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.
QA_Edit:
Title: Problem 1-13B
QA_Ori:
1. O 5. O
Title: Problem 1-14B
QA_Ori:
I. Financing Activities
II. Investing Activities
III. Operating Activities
[Note: Planning activities are the ideas, goals, and tactics for implementing financing, investing, and
operating activities.]
