Chapter 01 – A Framework for Financial Accounting
Chapter 1
A Framework for Financial Accounting
EXERCISES
Exercise 1-1
1.
a.
6.
a.
Exercise 1-2
Transaction
Account
Activity
1. Falcon provides services to customers.
Revenue
Operating
Expense
Operating
Equity
Financing
Financing
Exercise 1-3
Transaction
Account
Activity
1. Wildcat pays rent for the current month.
Expense
Operating
Operating
Equity
Financing
4. Wildcat repays previously borrowed amount.
Liability
Financing
Chapter 01 – A Framework for Financial Accounting
Exercise 1-4
Requirement 1
−
Expenses
=
Net Income
−
=
Requirement 2
=
Liabilities
+
Stockholders’
equity
=
+
−
=
Exercise 1-5
Requirement 1
−
Expenses
=
Net Loss
−
=
Requirement 2
=
Liabilities
+
Stockholders’
equity
=
+
−
=
Exercise 1-6
Cowboy Law Firm
Income Statement
Service revenue
$12,700
Expenses:
Net income
$ 8,600
Exercise 1-7
Buffalo Drilling
Statement of Stockholders’ Equity
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Beginning balance
$ 8,700
$ 7,900
$16,600
Issuance of common stock
Add: Net income
Less: Dividends
Ending balance
$32,700
Exercise 1-8
Wolfpack Construction
Balance Sheet
Assets
Liabilities
Cash
$ 7,500
Accounts payable
$ 4,200
Equipment
Total liabilities
Stockholders’ Equity
Common stock
12,700
*
Assets
=
Liabilities
+
Stockholders’ equity
$42,500
=
$16,400
+
($12,700 + Retained earnings)
$42,500
$16,400
Exercise 1-9
Requirement 1
Beginning balance
$ 5,100
Cash received from sale of products to customers
27,300
Cash received from the bank for long-term loan
Cash paid to merchandise suppliers
Cash received from the sale of an unused warehouse
Cash paid to workers
Cash received for sale of services to customers
Cash paid for dividends to stockholders
Ending balance
Requirement 2
Tiger Trade
Statement of Cash Flows
Cash Flows from Operating Activities
Cash inflows:
From sale of products to customers
$27,300
Cash outflows:
For workers
(25,400)
Cash Flows from Investing Activities
Purchase factory equipment
(40,200)
Cash Flows from Financing Activities
Borrow from bank
36,900
Net increase in cash
Cash at the beginning of the year
Cash at the end of the year
Exercise 1-10 (LO 1-3)
Requirement 1
Fighting Okra Cooking Services
Income Statement
Service revenue
$76,000
Expenses:
Salaries
$22,000
Supplies
Rent
Legal fees
Postage
Net income
Requirement 2
Fighting Okra Cooking Services
Statement of Stockholders’ Equity
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Beginning balance
$300,000
$28,000
$328,000
Issuance of common stock
Add: Net income
Less: Dividends
Ending balance
Exercise 1-11 (LO 1-3)
Requirement 1
Artichoke Academy
Statement of Stockholders’ Equity
For the period ended December 31, 2018
Common
Stock
Retained
Earnings
Total
Stockholders’
Equity
Beginning balance
$160,000
$40,000
$200,000
Issuance of common stock
Less: Dividends
Ending balance
Requirement 2
Artichoke Academy
Balance Sheet
December 31, 2018
Assets
Liabilities
Cash
$23,600
Accounts payable
$ 8,100
Supplies
13,000
Utilities payable
2,600
Prepaid rent
Salaries payable
Total liabilities
Stockholders’ Equity
Total assets
Exercise 1-12 (LO 1-3)
Requirement 1
Squirrel Tree Services
Balance Sheet
Assets
Liabilities
Supplies
Salaries payable
Prepaid insurance
Notes payable
Building
Total liabilities
Stockholders’ Equity
Common stock
41,000
Retained earnings
10,800
51,800
Total assets
Requirement 2
Squirrel Tree Services
Statement of Cash Flows
Cash Flows from Operating Activities
Cash inflows from customers
$ 58,000
Cash outflows for salaries
Cash outflows for supplies
Cash Flows from Investing Activities
Sale investments
11,000
Purchase building
Cash Flows from Financing Activities
Borrow from bank
22,000
Pay dividends
Net increase in cash
Cash at the beginning of the year*
Cash at the end of the year
Exercise 1-13
1.
Revenues
−
Expenses
=
Net Income
=
2.
Change in
stockholders’
equity
=
Issue common
stock
+
Net
Income
−
Dividends
−
=
3.
Assets
=
Liabilities
+
Stockholders’
equity
4.
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
=
+
=
Exercise 1-14
Year
Net
Income
Retained
Earnings*
Exercise 1-15
($ in billions)
Change in
retained
earnings
=
Net Income
−
Dividends
1.
Change in
retained
earnings
=
Net Income
−
Dividends
$2.7
$2.7
2.
Change in
retained
earnings
=
Net Income
−
Dividends
$2.1
$2.1
3.
Change in
retained
earnings
=
Net Income
−
Dividends
$1.2
$1.2
4.
Change in
retained
earnings
=
Net
Income
−
Dividends
5.
Change in
retained
earnings
=
Net
Income
−
Dividends
Exercise 1-16
($ in billions)
Assets
=
Liabilities
+
Stockholders
’ equity
1.
Assets
=
Liabilities
+
Stockholders’
equity
$68
$68
2.
Assets
=
Liabilities
+
Stockholders’
equity
3.
Assets
=
Liabilities
+
Stockholders’
equity
$9.9
$9.9
4.
Change in
Assets
=
Change in
liabilities
+
Change in
stockholders’
equity
5.
Change in
Assets
=
Change in
liabilities
+
Change in
stockholders’
equity
Chapter 01 – A Framework for Financial Accounting
Exercise 1-17
($ in billions)
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
1.
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
2.
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
3.
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
4.
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
$0.44
$0.67
5.
Total change
in cash
=
Operating
cash flows
+
Investing
cash flows
+
Financing
cash flows
$0.56
Chapter 01 – A Framework for Financial Accounting
Exercise 1-18 (LO 1-5)
1.
d.
3.
e.
4.
g.
5.
6.
b.
Exercise 1-19
1.
h. Verifiability
6.
a. Confirmatory value
Exercise 1-20
1.
b.
2.
a.
4.
c.