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1-95
EXERCISE 1-21B (cont.)
g.
Zeke Company
Accounting Equation as of December 31, 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Notes
Common
Retained
Cash
+
Land
=
Payable
+
Stock
+
Earnings
$200
$1,800
$600
$1,000
400
500
NA
NA
NA
500
Rev.
(300)
NA
NA
NA
(300)
Exp.
(50)
NA
NA
NA
(50)
Div
350
$1,800
$600
$1,000
$550
Zeke Company
Income Statement
For the Year Ended December 31, 2016
Revenue
$500
Expenses
(300)
Net Income
$200
1-96
EXERCISE 1-21B g. (cont,)
Zeke 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
$ 400
Plus: Net Income
200
Less: Dividends
(50)
Ending Retained Earnings
550
Total Stockholders’ Equity
$1,550
Zeke Company
Balance Sheet
As of December 31, 2016
Assets
Cash
$ 350
Land
1,800
Total Assets
$2,150
Liabilities
Notes Payable
$600
Total Liabilities
$ 600
Stockholders’ Equity
Common Stock
$1,000
Retained Earnings
550
Total Stockholders’ Equity
1,550
Total Liabilities and Stockholders’ Equity
$2,150
1-97
EXERCISE 1-21B g.(cont.)
Zeke Company
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Customers
$500
Cash Payments for Expenses
(300)
Net Cash Flow from Operating Activities
$ 200
Cash Flows From Investing Activities:
0
Cash Flows From Financing Activities:
Cash Payments for Dividends
(50)
Net Cash Flow from Financing Activities
(50)
Net Increase in Cash
150
Plus: Beginning Cash Balance
200
Ending Cash Balance
$ 350
h. The income statement, statement of changes in stockholders’ equity
and the statement of cash flows explain what happened to the
i. The market value is not shown in the financial statements. The
EXERCISE 1-22B
a. Since the amount in the Notes Payable account increased from zero
to $3,000, Shundra, Inc. must have received a cash inflow of $3,000
from the issue of the note payable. Similarly, since the balance in
the common stock account increased from $2,500 to $8,000,
1-99
EXERCISE 1-22B c. (cont.)
Shundra, Inc.
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2016
Beginning Common Stock
$ 2,500
Plus: Common Stock Issued
5,500
Ending Common Stock
$8,000
Beginning Retained Earnings
$ 2,000
Plus: Net Income
5,100
Less: Dividends
(900)
Ending Retained Earnings
6,200
Total Stockholders’ Equity
$14,200
Shundra, Inc.
Balance Sheet
As of December 31, 2016
Assets
Cash
$ 4,200
Land
13,000
Total Assets
$17,200
Liabilities
Notes Payable
$3,000
Total Liabilities
$ 3,000
Stockholders’ Equity
Common Stock
$8,000
Retained Earnings
6,200
Total Stockholders’ Equity
14,200
Total Liabilities and Stockholders’ Equity
$17,200
1-100
EXERCISE 1-22B c. (cont.)
Shundra, Inc.
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Customers
$ 9,900
Cash Payments for Expenses
(4,800)
Net Cash Flow from Operating Activities
$ 5,100
Cash Flows From Investing Activities:
Cash Paid to Purchase Land
$(13,000)
Net Cash Flow from Investing Activities
(13,000)
Cash Flows From Financing Activities:
Cash Receipts from Loan
$ 3,000
Cash Receipts from Stock Issue
5,500
Cash Payments for Dividends
(900)
Net Cash Flow from Financing Activities
7,600
Net Decrease in Cash
(300)
Plus: Beginning Cash Balance
4,500
Ending Cash Balance
$ 4,200
1-101
EXERCISE 1-23B
a.
Big Horn Company
Accounting Equation as of December 31, 2016
Assets
=
Liabilities
+
Common Stock
+
Retained Earnings
$100,000
$30,000
$50,000
?
Retained Earnings after closing:
$20,000
Less, Revenue
(16,000)
Add, Expenses
11,000
Add, Dividends
2,000
Retained Earnings before closing
$17,000
b. Retained Earnings after closing is $20,000 (see the equation above).
c. The balances in revenue, expense and dividends before closing are:
Revenue
16,000
Expenses
11,000
Dividends
2,000
d. After closing revenue, expense and dividends, 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.
1-102
EXERCISE 1-23B (cont.)
f. The owners are no better off immediately after they contributed capital
to the business. While equity increased $40,000, the amount invested
1-103
EXERCISE 1-24B
a.
Year
Cash
Revenues
Cash
Expenses
Net
Income
Retained
Earnings
2016
$40,000
$21,000
19,000
19,000
2017
50,000
32,000
18,000
37,000
2018
70,000
48,000
22,000
59,000
Year
Cash
Revenues
Cash
Expenses
Net
Income
Retained
Earnings
2016
$40,000
$21,000
19,000
19,000
2017
50,000
32,000
18,000
31,000*
2018
70,000
48,000
22,000
53,000**
1-104
EXERCISE 1-25B
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 until the year-end closing process is accomplished.
is $56,600 ($4,600 + $52,000). The December 31, 2016 before closing
balance in the Expense account is $45,000 ($3,000 + $42,000).
Explanation: The revenue and expense amounts accumulate in the Revenue and
Expense accounts throughout the year.
e. The January 1, 2017 balance in the Retained Earnings account is
1-105
EXERCISE 1-26B
a.
Event
1.
Asset Source
2.
Asset Source
3.
NA
4.
Asset Exchange
5.
Asset Use
6.
Asset Use
7.
NA
b.
Pet Partners
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
+
Common
Stock
+
Retained
Earnings
1
I
+
NA
=
NA
+
I
+
NA
NA
−
NA
=
NA
I FA
2
I
+
NA
=
I
+
NA
+
NA
NA
−
NA
=
NA
I FA
3
NA
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
NA
4
D
+
I
=
NA
+
NA
+
NA
NA
−
NA
=
NA
D IA
5
D
+
NA
=
NA
+
NA
+
D
NA
−
I
=
D
D OA
6
D
+
NA
=
NA
+
NA
+
D
NA
−
NA
=
NA
D FA
7
NA
+
NA
=
NA
+
NA
+
NA
NA
−
NA
=
NA
NA
1-106
EXERCISE 1-27B
c. The assets would be worth the same, but would be shown at
1-107
SOLUTIONS TO PROBLEMS – SERIES B - CHAPTER 1
PROBLEM 1-28B
a. GAAP Generally Accepted Accounting Principles
b. Revenue may be recognized in either of the years depending on the
entity’s determination of the point in time for revenue recognition.
c. Management accounting reporting is not bound by GAAP. GAAP is
required for external reporting. It helps insure consistent reporting
1-108
PROBLEM 1-29B
a. Entities mentioned:
b. Effect on the cash account:
1. Chris Hann
Decrease
Classic Auto Sales
Increase
2. Sal Pearl
Decrease
Business
Increase
3. First State Bank
Decrease
Strong Co.
Increase
4. Cindy’s Restaurant
Decrease
Midwest Utilities
Increase
5. Sun Corp.
Increase/Decrease
City National Bank
Decrease
Carriage Realty
Increase
6. Sue Wang
Decrease
International Sales Corporation
Increase
7. Chris Gordon
Decrease
Daughter
Increase
8. Motor Service Co.
Increase
Customers
Decrease
9. Poy Imports
Decrease
Employees
Increase
10. Borg, Inc.
Decrease
Mark Borg
Increase
1-109
PROBLEM 1-30B
Event No.
Type of Event
Effect on Total Assets
1.
Asset Use
Decrease
2.
Asset Use
Decrease
3.
Asset Source
Increase
4.
Asset Use
Decrease
5.
Asset Source
Increase
6.
Asset Exchange
No Effect
7.
NA
NA
8.
Asset Use
Decrease
9.
Asset Source
Increase
10.
Asset Exchange
No Effect
11.
Asset Exchange
No Effect
12.
Asset Use
Decrease
13.
NA
NA
14.
Asset Source
Increase
15.
Asset Use
Decrease
1-110
PROBLEM 1-31B
Item
Income
Statement
Statement of
Changes in
Stk. Equity
Balance
Sheet
Statement
of Cash
Flows
For the Period Ended
(Date)
Net income
Investing activities
Net loss
Ending cash balance
Salary expense
Consulting revenue
Dividends
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
1-111
PROBLEM 1-32B
a.
Marco’s Consulting
Accounting Equation for 2016
Assets
=
Liabilities
+
Stockholders’ Equity
Event
Cash
+
Land
=
Notes
Payable
+
Common
Stock
+
Retained
Earnings
Acct.
Title/RE
1. Issued stk
50,000
NA
NA
50,000
NA
NA
2. Revenue
100,000
NA
NA
NA
100,000
Svc. Rev.
3. Loan
15,000
NA
15,000
NA
NA
NA
4. Paid Exp.
(60,000)
NA
NA
NA
(60,000)
Expense
5. Pur. Land
(40,000)
40,000
NA
NA
NA
NA
Totals
65,000
+
40,000
=
15,000
+
50,000
+
40,000
Marco’s Consulting
Accounting Equation for 2017
Assets
=
Liabilities
+
Stockholders’ Equity
Event
Cash
+
Land
=
Notes
Payable
+
Common
Stock
+
Retained
Earnings
Acct.
Title/RE
Beg. Bal.
65,000
40,000
15,000
50,000
40,000
1. Issued stk
20,000
NA
NA
20,000
NA
NA
2. Revenue
130,000
NA
NA
NA
130,000
Svc. Rev.
3. Paid Loan
(10,000)
NA
(10,000)
NA
NA
NA
4. Paid Exp.
(75,000)
NA
NA
NA
(75,000)
Expense
5. Paid Div.
(15,000)
NA
NA
NA
(15,000)
Dividends
6. Land Val.
NA
NA
NA
NA
NA
NA
Totals
115,000
+
40,000
=
5,000
+
70,000
+
80,000
1-112
PROBLEM 1-32B (cont.)
b.
Marco’s Consulting
Income Statement
For the Period Ended December 31, 2016
Service Revenue
$100,000
Expenses
(60,000)
Net Income
$40,000
Marco’s Consulting
Statement of Changes in Stockholders’ Equity
For the Period Ended December 31, 2016
Beginning Common Stock
$ -0-
Plus: Common Stock Issued
50,000
Ending Common Stock
$50,000
Beginning Retained Earnings
$ -0-
Plus: Net Income
40,000
Ending Retained Earnings
40,000
Total Stockholders’ Equity
$90,000
1-113
PROBLEM 1-32B b. (cont.)
Marco’s Consulting
Balance Sheet
As of December 31, 2016
Assets
Cash
$65,000
Land
40,000
Total Assets
$105,000
Liabilities
Notes Payable
$ 15,000
Stockholders’ Equity
Common Stock
$50,000
Retained Earnings
40,000
Total Stockholders’ Equity
90,000
Total Liabilities and Stockholders’ Equity
$105,000
1-114
PROBLEM 1-32B b. (cont.)
Marco’s Consulting
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Cash Receipts from Customers
$100,000
Cash Payments for Expenses
(60,000)
Net Cash Flow from Operating Activities
$40,000
Cash Flows From Investing Activities:
Cash Payment for Land
$(40,000)
Net Cash Flow from Investing Activities
(40,000)
Cash Flows From Financing Activities:
Cash Receipts from Borrowing
$15,000
Cash Receipts from Stock Issue
50,000
Net Cash Flow from Financing Activities
65,000
Net Increase in Cash
65,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$65,000
