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S1-12 Preparing the income statement
Learning Objective 5
Prepare the income statement of Centerpiece Arrangements for the year ended December 31,
2018.
SOLUTION
S1-13 Preparing the statement of retained earnings
Learning Objective 5
Prepare the statement of retained earnings of Centerpiece Arrangements for the year ended
December 31, 2018.
SOLUTION
S1-14 Preparing the balance sheet
Learning Objective 5
Prepare the balance sheet of Centerpiece Arrangements as of December 31, 2018.
SOLUTION
S1-15 Preparing the statement of cash flows
Learning Objective 5
Polk Street Homes had the following cash transactions for the month ended July 31, 2018.
Cash receipts:
Collections from customers $
25,000
Issued common stock 13,000
Cash payments:
Rent 500
Utilities 2,000
Salaries 1,500
Purchase of equipment 25,000
Payment of cash dividends 4,000
Cash balance, July 1, 2018 14,000
Cash balance, July 31, 2018 19,000
Prepare the statement of cash flows for Polk Street Homes for the month ended July 31, 2018.
SOLUTION
S1-16 Calculating ROA
Learning Objective 6
Matured Water Services had net income for the month of October of $50,880. Assets as of the
beginning and end of the month totaled $362,000, and $486,000, respectively. Calculate Matured
Water Services’ ROA for the month of October.
SOLUTION
Exercises
E1-17 Identifying users of accounting information
Learning Objective 1
For each of the users of accounting information, identify whether the user is an external decision maker
(E) or an internal decision maker (I):
a. customer
b. company manager
c. Internal Revenue Service
d. lender
e. investor
f. controller
g. cost accountant
h. SEC
SOLUTION
E1-18 Using accounting vocabulary
Learning Objective 2
Consider the following accounting terms and definitions, and match each term to the definition:
1. Sole proprietorship
2. Faithful
representation
3. Partnership
4. IFRS
5. Corporation
6. Audit
a. Set of global accounting guidelines, formulated by the IASB
b. Holds that fair market value should not be used over actual costs
c. Stands for Financial Accounting Standards Board
d. Owner is referred to as a proprietor
e. Asserts that accounting information should be complete, neutral, and free from
material error
7. Cost principle
8. FASB
9. Creditors
10. SEC
f. An examination of a company’s financial statements and records
g. Has two or more owners (called partners )
h. U.S. governmental agency that oversees the U.S. financial markets
i. Type of entity that is designed to limit personal liability exposure of owners to
the entity’s debts
j. Person or business lending money
SOLUTION
E1-19 Using accounting vocabulary
Learning Objective 3, 5
Consider the following accounting terms and definitions, and match each term to the definition:
1. Accounting equation
2. Asset
3. Balance sheet
4. Expense
5. Income statement
6. Liability
7. Net income
8. Net loss
9. Revenue
10. Statement of cash flows
11. Statement of retained
earnings
a. An economic resource that is expected to be of benefit in the future
b. Debts that are owed to creditors
c. Excess of total expenses over total revenues
d. Excess of total revenues over total expenses
e. The basic tool of accounting, stated as
Assets Liabilities Equity= +
f. Decreases in equity that occur in the course of selling goods or services
g. Increases in equity that occur in the course of selling goods or services
h. Reports on a business’s cash receipts and cash payments during a period
i. Reports on an entity’s assets, liabilities, and stockholders’ equity as of a
specific date
j. Reports on an entity’s revenues, expenses, and net income or loss for the
period
k. Reports how the company’s retained earnings balance changed from the
beginning to the end of the period
SOLUTION
E1-20 Using the accounting equation
Learning Objective 3
Compute the missing amount in the accounting equation for each entity from the financial information
presented:
Assets Liabilities Equity
Hair Styles $ ? $ 36,000 $ 36,000
Style Cuts 90,000 ? 48,000
Your Basket 101,000 68,000 ?
SOLUTION
E1-21 Using the accounting equation
Learning Objective 3
Wizco Advertising’s balance sheet data at May 31, 2018, and June 30, 2018, follow:
May 31, 2018 June 30, 2018
Total Assets $ 122,000 $ 287,000
Total Liabilities 66,000 144,000
For each of the following situations that occurred in June, 2018 with regard to common stock and
dividends of a corporation, compute the amount of net income or net loss during June 2018.
a. The company issued $10,000 of common stock and paid no dividends.
b. The company issued no common stock. It paid cash dividends of $3,000.
c. The company issued $12,500 of common stock and paid cash dividends of $30,000.
SOLUTION
E1-22 Using the accounting equation
Learning Objective 3
Mountain Drycleaners started 2018 with total assets of $19,000 and total liabilities of $14,000.
At the end of 2018, Mountain’s total assets stood at $12,000 and total liabilities were $9,000.
Requirements
1. Did the stockholders’ equity of Mountain Drycleaners increase or decrease during 2018? By
how much?
2. Identify the four possible reasons that stockholders’ equity can change.
SOLUTION
Requirement 1
E1-23 Using the accounting equation
Learning Objective 3
During 2018, Flowing Rivers Spa reported revenue of $30,000. Total expenses for the year were
$15,000. Flowing Rivers Spa ended the year with total assets of $43,000, and it owed debts
totaling $14,000. At year-end 2017, the business reported total assets of $28,000 and total
liabilities of $14,000.
Requirements
1. Compute Flowing Rivers Spa’s net income for 2018.
2. Did Flowing Rivers Spa’s stockholders’ equity increase or decrease during 2018? By how
much?
SOLUTION
Requirement 1
E1-24 Using the accounting equation
Learning Objective 3
The records of Felix Company show the following at December 31, 2018:
Assets & Liabilities: Equity:
Beginning: Common Stock $ 11,000
Assets $
67,000
Dividends 8,000
Liabilities 11,000 Revenues 205,000
Ending: Expenses ?
Assets $
46,000
Retained Earnings, January 1, 2018 45,000
Liabilities 34,000
Requirements
1. Compute the missing amount for Felix Company. You will need to determine Retained
Earnings, December 31, 2018, and total stockholders’ equity, December 31, 2018.
2. Did Felix earn a net income or suffer a net loss for the year? Compute the amount.
SOLUTION
Requirement 1
E1-25 Using the accounting equation to analyze transactions
Learning Objective 4
As the manager of a Papa Sean’s restaurant, you must deal with a variety of business
transactions. Give an example of a transaction that has each of the following effects on the
accounting equation:
a. Increase one asset and decrease another asset.
b. Decrease an asset and decrease equity.
c. Decrease an asset and decrease a liability.
d. Increase an asset and increase equity.
e. Increase an asset and increase a liability.
SOLUTION
E1-26 Using the accounting equation to analyze business transactions
Learning Objective 4
Indicate the effects of the following business transactions on the accounting equation of Vivian’s
Online Video store. Transaction (a) is answered as a guide.
a. Received cash of $10,000 from issuance of common stock.
Answer: Increase asset (Cash); Increase equity (Common Stock)
b. Earned video rental revenue on account, $2,800.
c. Purchased office furniture on account, $300.
d. Received cash on account, $400.
e. Paid cash on account, $100.
f. Rented videos and received cash of $200.
g. Paid monthly office rent of $1,000.
h. Paid $100 cash to purchase office supplies.
SOLUTION
E1-27 Using the accounting equation to analyze business transactions
Learning Objective 4
Indicate the effects of the following business transactions on the accounting equation for Sam’s
Snack Foods, a supplier of snack foods. Transaction (a) is answered as a guide.
