Exercise 1-23 (concluded)
b. Using the accounting equation on March 1:
Assets
=
Liabilities
+
Equity
$100,000
=
$30,000
+
?
Thus, beginning equity = $70,000
Using the accounting equation on March 5:
Assets
=
Liabilities
+
Equity
$100,000 – $15,000
=
$30,000
+
?
$85,000
=
$30,000
+
?
Thus, March 5 equity = $55,000
Assets
=
Liabilities
+
Equity
$30,000
=
$10,000
+
?
Assets
=
Liabilities
+
Equity
=
$10,000
+
?
$40,000
=
$10,000
+
?
Problem 1-1A (25 minutes)
a.
b.
Balance Sheet
Income
Statement
Statement of Cash Flows
Transaction
Total
Assets
Total
Liab.
Total
Equity
Net
Income
Operating
Activities
Investing
Activities
Financing
Activities
1
Owner invests
$900 cash in
business in
exchange for
stock
+900
+900
+900
2
Receives $700
cash for
services
provided
+700
+700
+700
+700
3
Pays $500 cash
for employee
wages
–500
–500
–500
–500
4
Buys $100 of
equipment on
credit
+100
+100
5
Purchases $200
supplies on
credit
7
Pays $200 on
accounts
payable
8
Provides $400
9
Pays $50 cash
Collects $400
Problem 1-2A (40 minutes)
Part 1
Company A
(a) Equity on December 31, 2018:
Assets …………………………………………………. $55,000
Liabilities …………………………………………….. (24,500)
Equity …………………………………………………. $30,500
(b) Equity on December 31, 2019:
Equity, December 31, 2018 …………………… $30,500
Plus stock issuances …………………………... 6,000
Part 2
Company B
(a) and (b)
Equity: 12/31/2018 12/31/2019
Assets …………………………….. $34,000 $40,000
Liabilities ………………………… (21,500) (26,500)
Equity …………………………….. $12,500 $13,500
Problem 1-2A (Continued)
Part 3
Company C
First, compute the beginning balance of equity:
Dec. 31, 2018
Assets …………………………………………………. $24,000
Liabilities …………………………………………….. ( 9,000)
Equity …………………………………………………. $15,000
Next, find the ending balance of equity by completing this table:
Part 4
Company D
First, compute the beginning and ending equity balances:
12/31/2018 12/31/2019
Assets ……………………………….. $60,000 $85,000
Liabilities …………………………... (40,000) (24,000)
Equity ……………………………….. $20,000 $61,000
Then, find the amount of stock issuances during 2019:
Problem 1-2A (Concluded)
Part 5
Company E
First, compute the balance of equity as of December 31, 2019:
Assets …………………………………………………. $113,000
Liabilities …………………………………………….. (70,000)
Equity …………………………………………………. $ 43,000
Next, find the beginning balance of equity as follows:
Problem 1-3A (20 minutes)
Armani Company
Income Statement
For Year Ended December 31, 2019
Revenues
Consulting revenue ………………………… $33,000
Rental revenue ……………………………….. 22,000
Total revenues………………………………… $55,000
Expenses
Salaries expense …………………………….. 20,000
Rent expense ………………………………….. 12,000
Problem 1-4A (20 minutes)
Armani Company
Statement of Retained Earnings
For Year Ended December 31, 2019
Retained earnings, December 31, 2018 ………. $ 3,000
Add: Net income (from Problem 1-3A) ……….. 15,000
18,000
Problem 1-5A (20 minutes)
Armani Company
Balance Sheet
December 31, 2019
Assets Liabilities
Cash …………………………. $10,000 Accounts payable …………….. $11,000
Accounts receivable …. 9,000 Total liabilities ………………….. 11,000
Supplies …………………… 7,000 Equity
Problem 1-6A (15 minutes)
Kia Company
Statement of Cash Flows
For Year Ended December 31, 2019
Cash from operating activities …………………… $ 6,000
Cash used by investing activities ……………….. (2,000)
Cash used by financing activities……………….. (2,800)
Net increase in cash …………………………………… $ 1,200
Problem 1-7A (60 minutes) Part 1
Assets = Liabilities + Equity
Date
Cash
+
Accounts
Receivable
+
Office
Equipment
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
Revenues
–
Expenses
May
1
+$40,000
=
+
$40,000
1
– 2,200
=
–
$2,200 Rent
3
+
$1,890
=
+ $1,890
5
– 750
=
–
750 Cleaning
8
=
+
12
+
=
+
15
– 750
=
–
20
+ 2,500
–
2,500
=
+
=
+
25
+ 3,200
–
3,200
=
26
– 1,890
=
– 1,890
27
+
80
=
+ 80
28
– 750
=
–
750 Salary
30
– 300
=
–
300 Telephone
30
– 280
=
–
31
– 1,400
=
$42,780
+
+
=
+
Problem 1-7A (Continued)
Part 2
The Gram Co.
Income Statement
For Month Ended May 31
Revenues
Consulting services revenue ………… $11,100
Expenses
Rent expense ………………………………… $2,200
Salaries expense …………………………... 1,500
Cleaning expense …………………………. 750
The Gram Co.
Statement of Retained Earnings
For Month Ended May 31
Retained earnings, May 1 ………………………………….. $ 0
Add: Net income ……………………………………………… 6,070
6,070
Less: Dividends ……………………………………………….. 1,400
Retained earnings, May 31 ………………………………… $ 4,670
The Gram Co.
Balance Sheet
May 31
Assets Liabilities
Problem 1-7A (Concluded)
Part 3
The Gram Co.
Statement of Cash Flows
For Month Ended May 31
Cash flows from operating activities
Cash received from customers …………………………..
$11,100
Cash paid for rent ………………………………………………
(2,200)
Cash paid for cleaning ……………………………………….
(750)
Cash paid for telephone ……………………………………..
(300)
Cash paid for utilities …………………………………………
(280)
Cash paid to employees …………………………………….
(1,500)
Net cash provided by operating activities …………..
Cash flows from investing activities
Cash paid for equipment ……………………………………
(1,890)
Net cash used by investing activities ………………….
(1,890)
Cash flows from financing activities
Cash investment from shareholder …………………….
40,000
Cash dividend to shareholder …………………………….
(1,400)
Net cash provided by financing activities ……………
38,600
Net increase in cash …………………………………………..
Cash balance, May 1 ………………………………………….
Problem 1-8A (60 minutes) Part 1
Assets
=
Liabilities
+
Equity
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Office
Equipment
+
Office
Suite
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
Reve-
nues
–
Expen-
ses
a.
+$70,000
+
$10,000
+
$80,000
b.
– 40,000
+
$40,000
Bal.
30,000
+
10,000
+
40,000
=
+
80,000
c.
– 15,000
+
15,000
Bal.
15,000
+
25,000
+
40,000
=
+
80,000
d.
+
+
Bal.
15,000
+
+
26,700
+
40,000
=
2,900
+
80,000
– 500
Bal.
14,500
+
1,200
+
26,700
+
40,000
=
2,900
+
80,000
–
500
+
$2,800
Bal.
14,500
+
2,800
+
1,200
+
26,700
+
40,000
=
2,900
+
80,000
+
2,800
–
500
g.
+ 4,000
+
4,000
Bal.
18,500
+
2,800
+
1,200
+
26,700
+
40,000
=
2,900
+
80,000
+
6,800
–
500
h.
– 3,275
–
$3,275
Bal.
15,225
+
2,800
+
1,200
+
26,700
+
40,000
=
2,900
+
80,000
–
3,275
+
6,800
–
500
i.
+ 1,800
–
1,800
Bal.
17,025
+
1,000
+
1,200
+
26,700
+
40,000
=
2,900
+
80,000
–
3,275
+
6,800
–
500
j.
Bal.
1,000
+
+
26,700
+
=
2,200
–
– 1,800
1,800
Problem 1-8A (Concluded)
Part 2
Biz Consulting’s net income = $6,800 – $2,300 = $4,500
Problem 1-9A (60 minutes) Part 1
Assets
=
Liabilities
+
Equity
Date
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Office
Equipment
+
Electrical
Equipment
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
Revenues
–
Expenses
Dec.
1
+$65,000
=
+
$65,000
2
– 1,000
–
$1,000
Bal.
64,000
=
65,000
–
1,000
3
– 4,800
+
$13,000
+ $8,200
Bal.
59,200
+
=
8,200
+
65,000
–
1,000
5
– 800
+
$ 800
Bal.
58,400
+
+
13,000
=
8,200
+
65,000
–
1,000
6
+ 1,200
+
$1,200
Bal.
59,600
+
800
+
13,000
=
8,200
+
65,000
+
1,200
–
1,000
8
+
$2,530
+ 2,530
Bal.
59,600
+
800
+
2,530
+
13,000
=
10,730
+
65,000
+
1,200
–
1,000
15
+
$5,000
+
5,000
Bal.
59,600
+
5,000
+
800
+
2,530
+
13,000
=
10,730
+
65,000
+
6,200
–
1,000
18
+
350
+ 350
Bal.
59,600
+
5,000
+
1,150
+
2,530
+
13,000
=
11,080
+
65,000
+
6,200
–
1,000
20
– 2,530
– 2,530
Bal.
57,070
+
5,000
+
1,150
+
2,530
+
13,000
=
8,550
+
65,000
+
6,200
–
1,000
24
+
900
+
900
Bal.
57,070
+
5,900
+
1,150
+
2,530
+
13,000
=
8,550
+
65,000
+
7,100
–
1,000
28
Bal.
62,070
+
900
+
1,150
+
2,530
+
13,000
=
8,550
+
65,000
+
7,100
–
1,000
29
– 1,400
–
1,400
30
– 540
–
Bal.
60,130
+
900
+
1,150
+
2,530
+
13,000
=
8,550
+
65,000
+
7,100
–
2,940
31
– 950
Bal.
Problem 1-9A (Continued)
Part 2
Sony Electric
Income Statement
For Month Ended December 31
Revenues
Electrical fees earned …………………. $7,100
Expenses
Sony Electric
Statement of Retained Earnings
For Month Ended December 31
Retained earnings, December 1 ……………. $ 0
Add: Net income ……………………………….. 4,160
4,160
Less: Dividends …………………………………. 950
Retained earnings, December 31 ………….. $ 3,210
Sony Electric
Balance Sheet
December 31
Assets Liabilities
Problem 1-9A (Concluded)
Part 3
Sony Electric
Statement of Cash Flows
For Month Ended December 31
Cash flows from operating activities
Cash received from customers1 …………………………...
$ 6,200
Cash paid for rent ………………………………………………..
(1,000)
Cash paid for supplies …………………………………………
Cash paid for utilities …………………………………………..
Cash paid to employees ……………………………………….
(1,400)
Net cash provided by operating activities ……………..
Cash flows from investing activities
Cash paid for office equipment …………………………….
(2,530)
Cash paid for electrical equipment ……………………….
(4,800)
Net cash used by investing activities ……………………
(7,330)
Cash flows from financing activities
Cash investment from shareholder ……………………….
65,000
Cash dividend to shareholder ………………………………
(950)
Net increase in cash …………………………………………….
Cash balance, Dec. 1 ……………………………………………
Problem 1-10A (15 minutes)
1. Return on assets is net income divided by the average total assets.
Kyzera’s return: $65,000 / $250,000 = 0.26 or 26%.
3. We know that revenues less expenses equal net income. Taking the
revenues and net income numbers for Kyzera we obtain:
$475,000 – Expenses = $65,000 → Expenses must equal $410,000.
Problem 1-11A (20 minutes)
1. Return on assets equals net income divided by average total assets.
a. Coca-Cola return: $8,634 / $76,448 = 0.113 or 11.3%.
b. PepsiCo return: $6,462 / $70,518 = 0.092 or 9.2%.
4. The reported figures suggest that Coca-Cola yields a marginally higher
return on assets than PepsiCo. Based on this information alone, we
would be better advised to invest in Coca-Cola than PepsiCo.
Nevertheless, and because the returns are not dramatically different, we
would look for additional information in financial statements and other
sources for further guidance. For example, if Coca-Cola could dispose
of some assets without curtailing its sales level, it would look even more
attractive; or, PepsiCo could do likewise, and close the gap. We would
also look for consumer trends, market expansion, competition, product
development, and promotion plans.
Problem 1-12AA (5 minutes)
a. 3 Lowest-risk corporate bond.
b. 2 Medium-risk corporate bond.
Problem 1-13AB (15 minutes)
1.
F Shareholders investing in business.
5.
I Purchasing equipment.
2.
I Purchasing a building.
6.
O Selling and distributing products.
4.
F Borrowing cash from a bank.
8.
O Paying employee wages.
Problem 1-14AB (15 minutes)
An organization pursues three major business activities: financing,
investing, and operating.
(1) Financing is the means used to pay for resources.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 1
PROBLEM SET B
Problem 1-1B (25 minutes)
a.
b.
Balance Sheet
Income
Statement
Statement of Cash Flows
Transaction
Total
Assets
Total
Liab.
Total
Equity
Net
Income
Operating
Activities
Investing
Activities
Financing
Activities
1
Owner invests
$800 cash in
business in
exchange for
stock
+800
+800
+800
2
Purchases $100
supplies on
credit
+100
–400
4
Provide services
for $900 cash
+900
+900
+900
+900
5
Pays $400 cash
for rent incurred
–400
–400
–400
–400
6
Buys $200 of
equipment on
credit
+200
+200
8
Pays $50 cash in
dividends
9
Provide $600
services on
10
Collects $600
cash on
accounts
receivable
+600
–600
+600
Problem 1-2B (40 minutes)
Part 1
Company V
(a) and (b)
Calculation of equity: 12/31/2018 12/31/2019
Assets ………………………..
$54,000
$59,000
Liabilities ……………………
(25,000)
(36,000)
Equity …………………………
$29,000
$23,000
(c) Calculation of net income for 2019:
Equity, December 31, 2018 …………………… $29,000
Part 2
Company W
(a) Calculation of equity at December 31, 2018:
Assets …………………………………………………. $80,000
Liabilities …………………………………………….. (60,000)
Equity …………………………………………………. $20,000
(b) Calculation of equity at December 31, 2019:
(c) Calculation of the amount of liabilities at December 31, 2019:
Assets ………………………………………………….$100,000
Equity …………………………………………………. (78,000)
Liabilities …………………………………………….. $ 22,000
Problem 1-2B (Continued)
Part 3
Company X
First, compute the beginning and ending equity balances:
12/31/2018 12/31/2019
Assets ………………………..
$141,500
$186,500
Liabilities ……………………
(68,500)
(65,800)
Equity …………………………
$ 73,000
$120,700
Then, find the amount of stock issuances during 2019 as follows:
Thus, the stock issuances must have been … $ 29,200
Part 4
Company Y
First, compute the beginning balance of equity:
Dec. 31, 2018
Assets …………………………………………………. $92,500
Liabilities …………………………………………….. 51,500
Equity …………………………………………………. $41,000
Finally, find the ending amount of assets by adding the ending balance of
equity to the ending balance of liabilities:
Dec. 31, 2019
Liabilities …………………………………………….. $ 42,000
Equity …………………………………………………. 93,100
Assets …………………………………………………. $135,100
Problem 1-2B (Concluded)
Part 5
Company Z
First, compute the balance of equity as of December 31, 2019:
Assets …………………………………………………. $170,000
Liabilities …………………………………………….. (42,000)
Equity …………………………………………………. $128,000
Next, find the beginning balance of equity as follows:
Problem 1-3B (20 minutes)
Audi Company
Income Statement
For Year Ended December 31, 2019
Revenues
Consulting revenue ………………………… $6,600
Rental revenue ……………………………….. 4,400
Total revenues………………………………… $11,000
Expenses