Ex. 2.1 a. 1.
2.
b. 1.
2.
SOLUTIONS TO EXERCISE
S
Assets are economic resources owned by the business entity.
Among the assets of American Airlines we might expect to find
Among the assets of a professional sports team are investments (in stocks and
bonds), notes receivable (often from players), training equipment, supplies, and
office furniture. (The balance sheet of a professional sports team may not
Liabilities are existing debts and other obligations of the entity.
Among the liabilities of American Airlines, we might expect to find accounts
The balance sheet of a professional sports team might include accounts payable,
rent payable (for the stadium), salaries payable, interest payable, and income
taxes
p
a
y
able.
Ex. 2.2 WILLIS TRANSPORTATION SERVICE
Balance Sheet
February 28, 2015
Ex. 2.4 a.
Ex. 2.5 a.
The supplies should be presented at $1,400 in World-Wide’s balance sheet.
Presenting the supplies at their estimated liquidation value violates the assumption
that World-Wide is a going concern, and will use these supplies in normal business
operations, rather than sell them on the open market. The $500 amount also
$293,000: Assets $635,000 liabilities $342,000 = owners’ equity $293,000
Balance Sheet
December 31, 2011
Liabilities & Owners’ Equity
Ex. 2.3 KINER COMPANY
Assets
Ex. 2.6 Assets = Liabilities + Owners’
II NE
NE* NE NE
Ex. 2.7
a.
b.
Ex. 2.8 a. $ 390,000
Note to instructor: These are examples, but many others exist.
(1) Owner’s equity
Transaction
a
b
*Could be I/D offsetting
The purchase of office equipment (or any other asset) on credit will cause an increase
in the asset
(
office e
q
ui
p
ment
)
and an increase in a liabilit
y
.
The cash payment of an account payable or note payable will cause a decrease in the
Johanna Spencer, capital ………………………………………….
*$850,000 in assets $460,000 in liabilities = $390,000.
Ex. 2.9 a.
b.
Ex. 2.10 a.
The situations encountered in the practice of accounting and auditing are too
complex and too varied for all specific answers to be set forth in a body of official
Accounts payable is a liability that requires payment, usually in the near future and
Cash is the most liquid of all assets. In fact, companies must use cash in paying most
bills. Therefore, cash contributes more to a company’s liquidity than any other
asset.
Cash received from revenues ………………………………
…
…
Income Statement
For the Month Ended August 31, 2015
PRESTWICK COMPANY
Income Statement
Ex. 2.11 WELLER COMPANY
Statement of Cash Flows
For the Month Ended October 31, 2015
Ex. 2.13
Ex. 2.12 JIMINEZ, INC.
For the Month Ended March 31, 2015
Cash flows from operating activities: 12,000$ (7,600)
Statement of Cash Flows
For the Month Ended August 31, 2015
Ex. 2.14
Cash flows from operating activities:
PRESTWICK COMPANY
Ex. 2.15
Ste
p
s to Window Dress
Impact on Financial Statements*
Note to instructor: Many examples of steps to improve the financial statements could
be cited. The ones listed below are those that the authors believe are most likely to be
identified b
y
students.
Ex. 2.16 a.
b. End
Ex. 2.17 Net income as a percentage of revenue for each year is as follows:
2010: $1,263/$108,702 = 1.16%
2011: $1,202/$112,084 = 1.07%
Home Depot reports a net income (earnings) of $4,535 million for the year ended
Februar
y
3, 2013.
Cash balances at the beginning and end of the year were:
a.
Liabilities & Owners’ Equity
Cash 31,400$ Liabilities:
b.
SOLUTIONS TO PROBLEMS SET
A
PROBLEM 2.1
A
ROCKY MOUNTAIN LODG
E
15 Minutes, Easy
Assets
ROCKY MOUNTAIN LODGE
Balance Sheet
December 31, 2015
The balance sheet indicates that Rocky Mountain Lodge is in a weak financial position.
15 Minutes, Easy
a.
PROBLEM 2.2
A
MEMPHIS MOVING COMPAN
Y
Purchased equipment for cash at a cost of $3,200.
Description of transactions: