Problem 1-4B (LO 1-3)
(Suggested order of calculation)
On the statement of stockholders’ equity,
$7,000 + $5,000 − (d) = $8,000
(d) = $4,000
Problem 1-5B (LO 1-3)
Tar Heel Corporation
Income Statement
For the year ended December 31, 2018
Service revenues
$69,400
Expenses:
Net income
Tar Heel Corporation
Statement of Stockholders’ Equity
For the year ended December 31, 2018
Retained
Earnings
Total
Stockholders’
Equity
Beginning balance
$26,800
$47,800
Issuance of common stock
Add: Net income
Less: Dividends
Ending balance
Chapter 1 – A Framework for Financial Accounting
Problem 1-5B (concluded)
Tar Heel Corporation
Balance Sheet
December 31, 2018
Assets
Liabilities
Cash
Accounts payable
Accounts receivable
13,200
Salaries payable
3,300
Supplies
Note payable
Building
Total liabilities
Stockholders’ Equity
Common stock
Retained earnings
Total assets
Problem 1-6B (LO 1-7)
Assumption violated
1.
Periodicity
2.
Monetary unit
4.
Economic entity
Problem 1-7B (LO 1-7)
1.
h.
2.
g.
3.
f.
4.
a.
6.
e.
7.
i.
8.
b.
9.
c.
Chapter 1 – A Framework for Financial Accounting
ADDITIONAL PERSPECTIVES
Additional Perspective 1-1
Requirement 1
The three primary forms of business organizations include sole proprietorship, partnership, and
corporation. The major advantage of a corporation is limited liability. Stockholders of a corporation
Requirement 2
Typical financing activities include issuing common stock, borrowing, and repayment of borrowing.
Typical investing activities include the purchase of long-term assets such as land, buildings,
Requirement 3
Assets – cash, accounts receivable, supplies, and equipment.
Requirement 4
Income statement – revenues less expenses equal net income during an interval of time.
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-2
Requirement 1
Total assets = $1,696,908 ($ in thousands)
Requirement 2
Requirement 3
Net sales = $3,282,867 ($ in thousands)
Requirement 4
Inflows
Outflows
Investing activities
Sale of available-for-sale
Capital expenditures for
Requirement 5
The company’s auditor is Ernst & Young LLP. The auditor states, “In our opinion, the
financial statements referred to above present fairly, in all material respects, the
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-3
Requirement 1
Total assets = $542,993 ($ in thousands)
Requirement 2
Requirement 3
Net sales = $1,153,142 ($ in thousands)
Requirement 4
Inflows
Outflows
Investing activities
Proceeds from
sales/maturities of
Purchases of property and
equipment
Requirement 5
The company’s auditor is Deloitte & Touche LLP. The auditor states, “In our opinion,
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-4
Requirement 1
The total assets of American Eagle are higher than the total assets of Buckle.
Requirement 2
The total liabilities of American Eagle are higher than the total liabilities of Buckle. A
higher amount of liabilities does not necessarily mean a higher chance of bankruptcy.
Requirement 3
Requirement 4
The net income of Buckle is higher than the net income of American Eagle. When one
Requirement 5
Net income provides a measure of a company’s ability to generate profit for its
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-5
It is the responsibility of auditors to act independently of a company when providing a
professional opinion as to the conformity of the company’s financial statements with
GAAP. An auditor’s ethics might be challenged because of the need to retain the
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-6
Requirement 1
The mission of the U.S. Securities and Exchange Commission is to protect investors,
maintain fair, orderly, and efficient markets, and facilitate capital formation.
The Securities Act of 1933 has two basic objectives:
by companies with publicly traded securities.
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-6 (continued)
Requirement 2
The four main financial statements discussed by the SEC are: (1) balance sheets;
(2) income statements; (3) cash flow statements; and (4) statements of shareholders’
equity.
A balance sheet provides detailed information about a company’s assets, liabilities and
shareholders’ equity.
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-6 (concluded)
Requirement 3
The mission of the FASB is to establish and improve standards of financial accounting
and reporting for the guidance and education of the public, including issuers, auditors,
Requirement 4
Chapter 1 – A Framework for Financial Accounting
Additional Perspective 1-7
The functions of financial accounting are to measure business activities of a company
and to communicate information about those activities to investors and creditors and
other outside users for decision-making purposes.
The four financial statements include:
1. Income statement, which shows revenues and expenses during the reporting period.