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BRIEF EXERCISE 1-10
ELLERBY COMPANY
Balance Sheet
December 31, 2015
Assets
Cash ............................................................................................... $ 44,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable .................................................................. $ 85,000
Stockholders’ equity
BRIEF EXERCISE 1-11
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 1-1
DO IT! 1-2
DO IT! 1-3
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
+
Accounts
Receivable
=
Accounts
Payable
+
Common
Stock
+
Retained Earnings
Revenues
–
Expenses
–
Dividends
(1)
+$23,000
+$23,000
(2)
+$23,000
–$23,000
(3)
+$1,800
–$1,800
(4)
–$ 5,000
–$5,000
DO IT! 1-4
(a) The total assets are $51,500, comprised of Cash $9,000, Accounts
(b) Net income is $21,700, computed as follows:
Revenues
Service revenue ................................................. $54,000
Expenses
DO IT! 1-4 (Continued)
(c) The ending stockholders’ equity balance of Garryowen Company is
Total assets [as computed in (a)] ............................. $51,500
Less: Liabilities
not provided.
SOLUTIONS TO EXERCISES
EXERCISE 1-1
EXERCISE 1-2
(a) Internal users
Marketing manager
External users
Customers
Internal Revenue Service
EXERCISE 1-3
Sam Cresco, president of Cresco Company, instructed Sharon Gross, the
head of the accounting department, to report the company’s land in their
accounting reports at its market value of $170,000 instead of its cost of
The stakeholders include stockholders and creditors of Cresco Company,
potential stockholders and creditors, other users of Cresco accounting
reports, Sam Cresco, and Sharon Gross. All users of Cresco’s accounting
reports could be harmed by relying on information which violates
Sharon’s alternatives are to report the land at $100,000 or to report it at
EXERCISE 1-4
1. Incorrect. The cost principle requires that assets (such as buildings)
be recorded and reported at their cost.
2. Correct. The monetary unit assumption requires that companies include
3. Incorrect. The economic entity assumption requires that the activities of
EXERCISE 1-5
Asset
Liability
Stockholders’ Equity
Cash
Accounts payable
Common stock
Equipment
Notes payable
Supplies
Salaries and wages payable
Accounts receivable
EXERCISE 1-6
1. Increase in assets and increase in stockholders’ equity.
2. Decrease in assets and decrease in stockholders’ equity.
EXERCISE 1-7
EXERCISE 1-8
EXERCISE 1-8 (Continued)
6. Paid $2,000 cash dividends to stockholders.
(b) Investment ............................................................................... $15,000
Service revenue ...................................................................... 9,400
Dividends ................................................................................ (2,000)
(c) Service revenue ...................................................................... $9,400
Rent expense .......................................................................... (850)
EXERCISE 1-9
FOLEY & CO.
Income Statement
For the Month Ended August 31, 2015
Revenues
Service revenue ......................................................... $9,400
Expenses
Salaries and wages expense .................................... $3,900
Rent expense ............................................................. 850
EXERCISE 1-9 (Continued)
FOLEY & CO.
Retained Earnings Statement
For the Month Ended August 31, 2015
Retained earnings, August 1 .......................................... $ 0
Less: Dividends .............................................................. 2,000
FOLEY & CO.
Balance Sheet
August 31, 2015
Assets
Cash ................................................................................. $ 9,350
Accounts receivable ........................................................ 4,050
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable .................................................... $ 2,000
Stockholders’ equity
EXERCISE 1-10
(a) Stockholders’ equity—12/31/14 ($400,000 – $260,000) ........ $140,000
Stockholders’ equity—1/1/14 ................................................ 100,000
Increase in stockholders’ equity ........................................... 40,000
EXERCISE 1-10 (Continued)
(b) Stockholders’ equity—12/31/15 ($480,000 – $300,000) ..... $180,000
Stockholders’ equity—1/1/15—see (a) ............................... 140,000
(c) Stockholders’ equity—12/31/16 ($590,000 – $400,000) ..... $190,000
(5,000)
Add: Dividends .................................................................. 30,000
EXERCISE 1-11
(a) Total assets (beginning of year) ......................................... $ 97,000
(b) Total stockholders’ equity (end of year) ............................ $ 40,000
Total revenues ..................................................................... $215,000
Increase in stockholders’ equity ................... $ 28,000
Less: Net income ........................................... $(40,000)
(c) Total assets (beginning of year) ......................................... $122,000
EXERCISE 1-11 (Continued)
(d) Total stockholders’ equity (end of year) ............................ $130,000
Total revenues ..................................................................... $100,000
Increase in stockholders’ equity .................... $ 55,000
Less: Net income ........................................... $45,000
EXERCISE 1-12
LA GRECA CO.
Income Statement
For the Year Ended December 31, 2015
Revenues
Service revenue .................................................... $62,500
Expenses
Salaries and wages expense ................................ $28,000
Rent expense ........................................................ 10,400
LA GRECA CO.
Retained Earnings Statement
For the Year Ended December 31, 2015
Retained earnings, January 1 ......................................................... $48,000
Less: Dividends .............................................................................. 5,000
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