EXERCISE 1-21A g. (cont,)
Carter Company
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2016
Beginning Common Stock
$1,000
Plus: Common Stock Issued
-0-
Ending Common Stock
$1,000
Beginning Retained Earnings
$1,700
Plus: Net Income
600
Less: Dividends
(500)
Ending Retained Earnings
1,800
Total Stockholders’ Equity
$2,800
Assets
Cash
Land
Total Assets
$4,400
Liabilities
Notes Payable
Total Liabilities
$1,600
Stockholders’ Equity
Common Stock
Retained Earnings
Total Stockholders’ Equity
2,800
1-42
EXERCISE 1-21A g.(cont.)
Carter Company
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Customers
$1,800
Cash Payments for Expenses
(1,200)
Net Cash Flow from Operating Activities
$ 600
Cash Flows From Investing Activities:
0
Cash Flows From Financing Activities:
Cash Payments for Dividends
(500)
Net Cash Flow from Financing Activities
(500)
Net Increase in Cash
100
Plus: Beginning Cash Balance
800
Ending Cash Balance
$ 900
EXERCISE 1-22A
a. Since the amount in the Notes Payable account increased from zero to
$9,000, Room Designs Inc. must have received a cash inflow of $9,000
from the issue of the note payable. Similarly, since the balance in the
common stock account increased from $3,500 to $7,500, Room Design
EXERCISE 1-22A c. (cont.)
Room Designs Inc.
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2016
Beginning Common Stock
$ 3,500
Plus: Common Stock Issued
4,000
Ending Common Stock
$7,500
Beginning Retained Earnings
$ 6,400
Plus: Net Income
9,800
Less: Dividends
(2,000)
Ending Retained Earnings
14,200
Total Stockholders’ Equity
$21,700
Assets
Cash
Land
Total Assets
$30,700
Liabilities
Notes Payable
Total Liabilities
$ 9,000
Common Stock
Retained Earnings
21,700
1-45
EXERCISE 1-22A c. (cont.)
Floor Design, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Customers
$ 18,100
Cash Payments for Expenses
(8,300)
Net Cash Flow from Operating Activities
$ 9,800
Cash Flows From Investing Activities:
Cash Paid to Purchase Land
$(16,500)
Net Cash Flow from Investing Activities
(16,500)
Cash Flows From Financing Activities:
Cash Receipts from Loan
$ 9,000
Cash Receipts from Stock Issue
4,000
Cash Payments for Dividends
(2,000)
Net Cash Flow from Financing Activities
11,000
Net Increase in Cash
4,300
Plus: Beginning Cash Balance
9,900
Ending Cash Balance
$14,200
1-46
EXERCISE 1-23A
a.
Flowers Company
Accounting Equation as of December 31, 2016
Assets
=
Liabilities
+
Common Stock
+
Retained Earnings
$130,000
$50,000
$70,000
?
Retained Earnings = $130,000 – $70,000 – $50,000 = $10,000
Retained Earnings after closing:
$10,000
Less, Revenue
(30,000)
Add, Expenses
18,000
Add, Dividends
3,000
Retained Earnings before closing
$ 1,000
b. Retained Earnings after closing is $10,000 (see the equation above).
c. The balances in revenue, expense and dividends before closing are:
Revenue
30,000
Expenses
18,000
Dividends
3,000
d. After closing revenue, expense and dividends, the all of the balances
will be zero.
e. Both Common Stock and Retained Earnings represent obligations the
business has to stockholders. The Common Stock represents the
assets a business has acquired from owners. Retained earnings
represent assets a business has acquired by conducting its operations.
1-47
EXERCISE 1-23A (cont.)
f. The owners are no better off immediately after they contributed capital
to the business. While equity increased $30,000, the amount invested
1-48
EXERCISE 1-24A
a.
Year
Cash
Revenues
Cash
Expenses
Net
Income
Retained
Earnings
2016
$20,000
$11,000
9,000
9,000
2017
30,000
14,000
16,000
25,000
2018
40,000
22,000
18,000
43,000
Year
Cash
Revenues
Cash
Expenses
Net
Income
Retained
Earnings
2016
$20,000
$11,000
9,000
9,000
2017
30,000
14,000
16,000
20,000*
2018
40,000
22,000
18,000
38,000**
1-49
EXERCISE 1-25A
a. The balance in the Retained Earnings account as of January 31, 2016
is zero.
Explanation: The revenue is recorded in the Revenue account and is not transferred into
retained earnings until the year-end closing process is accomplished.
is $93,500 ($7,500 + $86,000). The December 31, 2016 before closing
balance in the Expense account is $55,800 ($4,800 + $51,000).
Explanation: The revenue and expense amounts accumulate in the Revenue and
Expense accounts throughout the year.
e. The January 1, 2015 balance in the Retained Earnings account is
1-50
EXERCISE 1-26A
a.
Event
1.
Asset Source
2.
Asset Use
3.
Asset Use
4.
Asset Source
5.
Asset Source
6.
Asset Exchange
7.
NA
b.
The Candle Shop
Horizontal Statements Model for 2016
Balance Sheet
Income Statement
Statement of
Assets
=
Liab.
+
Stockholders’ Equity
Revenue
−
Expense
=
Net Inc.
Cash Flows
Event
No.
Cash
+
Land
=
Notes
Payable
+
Commo
n
Stock
+
Retained
Earnings
1
I
+
NA
=
NA
+
I
+
NA
NA
−
NA
=
NA
I FA
2
D
+
NA
=
NA
+
NA
+
D
NA
−
NA
=
NA
D FA
3
D
+
NA
=
NA
+
NA
+
D
NA
−
I
=
D
D OA
4
I
+
NA
=
I
+
NA
+
NA
NA
−
NA
=
NA
I FA
5
I
+
NA
=
NA
+
NA
+
I
I
−
NA
=
I
I OA
6
D
+
I
=
NA
+
NA
+
NA
NA
−
NA
=
NA
D IA
7
NA
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
NA
1-51
EXERCISE 1-27A
a. The assets would be worth the same, but would be shown at
1-52
PROBLEM 1-28A
a. The memo should explain that all entities must account for the use
of assets, even though they may not be for-profit entities. The
stakeholders are interested in the use of assets as well as the
financial health of the entity.
1-53
PROBLEM 1-29A
a. Entities mentioned:
b. Effect on the cash account:
1. Bob Wilder
Decrease
Wilder Co.
Increase
2. Sam Pace Business
Increase
Customers
Decrease
3. Jim Sneed
Increase/Decrease
National Bank
Decrease
Iuka Ford
Increase
4. OZ Company
Decrease
Employees
Increase
5. Gil Roberts
Decrease
Jim
Increase
6. Gane, Inc.
Decrease
Atlanta Land Co.
Increase
7. Rob Moore
Decrease
Gil Thomas
Decrease
Partnership
Increase
8. Stephen Woo
Decrease
Izzard, Inc.
Increase
9. Natural Stone
Decrease
Shareholders
Increase
10. Billows, Inc.
Increase
National Bank
Decrease
1-54
PROBLEM 1-30A
Event No.
Type of Event
Effect on Total Assets
1.
Asset Source
Increase
2.
Asset Use
Decrease
3.
NA
NA
4.
Asset Source
Increase
5.
Asset Use
Decrease
6.
Asset Use
Decrease
7.
Asset Use
Decrease
8.
Asset Exchange
No Effect
9.
Asset Exchange
No Effect
10.
Asset Use
Decrease
11.
NA
NA
12.
Asset Source
Increase
13.
Asset Use
Decrease
14.
NA
NA
15.
Asset Exchange
No Effect
1-55
PROBLEM 1-31A
Item
Income
Statement
Statement of
Changes in
Stk. Equity
Balance
Sheet
Statement
of Cash
Flows
Financing activities
Ending common stock
Interest expense
As of (date)
Land
Beginning cash balance
Notes payable
Beginning common stock
Service revenue
Utility expense
Stock issue
Operating activities
For the Period Ended
(Date)
Net income
Investing activities
Net loss
Ending cash balance
Salary expense
Consulting revenue
Dividends
1-56
PROBLEM 1-32A
a.
Mark’s Consulting Services
Accounting Equation for 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Event
Cash
+
Land
=
Notes
Payable
+
Com.
Stock
+
Retained
Earnings
Acct.
Title/RE
1. Issued stk
20,000
NA
NA
20,000
NA
NA
2. Revenue
35,000
NA
NA
NA
35,000
Revenue
3. Loan
25,000
NA
25,000
NA
NA
NA
4. Paid Exp.
(22,000)
NA
NA
NA
(22,000)
Oper. Exp.
5. Pur. Land
(30,000)
30,000
NA
NA
NA
NA
Totals
28,000
+
30,000
=
25,000
+
20,000
+
13,000
Mark’s Consulting Services
Accounting Equation for 2017
Assets
=
Liabilities
+
Stockholders’ Equity
Event
Cash
+
Land
=
Notes
Payable
+
Com.
Stock
+
Retained
Earnings
Acct.
Title/RE
Beg. Bal.
28,000
30,000
25,000
20,000
13,000
1. Issued stk
24,000
NA
NA
24,000
NA
NA
2. Revenue
95,000
NA
NA
NA
95,000
Revenue
3. Paid Loan
(15,000)
NA
(15,000)
NA
NA
NA
4. Paid Exp.
(71,500)
NA
NA
NA
(71,500)
Oper. Exp.
5. Paid Div.
(3,000)
NA
NA
NA
(3,000)
Dividends
6. Land Val.
NA
NA
NA
NA
NA
Totals
57,500
+
30,000
=
10,000
+
44,000
+
33,500
1-57
PROBLEM 1-32A (cont.)
b.
Mark’s Consulting Services
Income Statement
For the Period Ended December 31, 2016
Service Revenue
$35,000
Expenses
(22,000)
Net Income
$13,000
Mark’s Consulting Services
Statement of Changes in Stockholders’ Equity
For the Period Ended December 31, 2016
Beginning Common Stock
$ -0-
Plus: Common Stock Issued
20,000
Ending Common Stock
$20,000
Beginning Retained Earnings
-0-
Plus: Net Income
$13,000
Ending Retained Earnings
13,000
Total Stockholders’ Equity
$33,000
1-58
PROBLEM 1-32A b. (cont.)
Mark’s Consulting Services
Balance Sheet
As of December 31, 2016
Assets
Cash
Land
Total Assets
$58,000
Liabilities
Notes Payable
$25,000
Stockholders’ Equity
Common Stock
Retained Earnings
Total Stockholders’ Equity
33,000
Total Liabilities and Stockholders’ Equity
$58,000
1-59
PROBLEM 1-32A b. (cont.)
Mark’s Consulting Services
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Customers
Cash Payments for Expenses
Net Cash Flow from Operating Activities
$13,000
Cash Flows From Investing Activities:
Cash Payment for Land
Net Cash Flow from Investing Activities
(30,000)
Cash Flows From Financing Activities:
Cash Receipts from Borrowed Funds
Cash Receipts from Stock Issue
Net Cash Flow from Financing Activities
45,000
Net Increase in Cash
28,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$28,000
1-60
PROBLEM 1-32A b. (cont.)
Mark’s Consulting Services
Income Statement
For the Period Ended December 31, 2017
Service Revenue
$95,000
Expenses
(71,500)
Net Income
$23,500
Mark’s Consulting Services
Statement of Changes in Stockholders’ Equity
For the Period Ended December 31, 2017
Beginning Common Stock
$20,000
Plus: Common Stock Issued
24,000
Ending Common Stock
$44,000
Beginning Retained Earnings
13,000
Plus: Net Income
23,500
Less: Dividends
(3,000)
Ending Retained Earnings
33,500
Total Stockholders’ Equity
$77,500