1. +
Liabilities Stockholders’ Equity
Chapter 1, SE 5.
=
Assets
Chapter 1, SE 1.
Chapter 1, SE 3.
Chapter 1, SE 4.
CHAPTER 1—Solutions
Chapter 1, SE 2.
USES OF ACCOUNTING INFORMATION
AND THE FINANCIAL STATEMENTS
1
1. +
+
$ 700
Beginning of year Assets
=
=
Wages payable
Chapter 1, SE 8.
Globe Compan
y
Liabilities
Balance Sheet
June 30, 2011
Liabilities
Stockholders’ Equity
$ 5,800
Assets
$ 90,000
Chapter 1, SE 7.
Cash *
=
Beginning:
Net income
$50,000
Liabilities
$108,000
Chapter 1, SE 6.
2
$—
$1,890 Accounts payable $ 450
Retained earnings, December 31, 2010
Balance Sheet
For the Year Ended December 31, 2011
Tarech Corporation
Income Statemen
t
For the Year Ended December 31, 2011
Revenue
Liabilities
December 31, 2011
Assets
Statement of Retained Earnings
Cash
Tarech Corporation
Chapter 1, SE 9.
Tarech Corporation
3
Cash * $12,800 Wages payable $ 1,000
Balance Sheet
April 30, 2011
Assets
Liabilities
Chapter 1, SE 10.
Anatole Company
4
$—
$3,780 Accounts payable $ 900
For the Year Ended December 31, 2011
Assets Liabilities
Revenue
Patel Corporation
Statement of Retained Earnings
Retained earnings, December 31, 2011
Patel Corporation
Income Statement
For the Year Ended December 31, 2011
Chapter 1, SE 11.
Patel Corporation
Balance Sheet
December 31, 2011
Cash
5
AICPA:
SEC:
PCAOB:
American Institute of Certified Public Accountants
Securities and Exchange Commission
Public Company Accounting Oversight Board
Chapter 1, SE 13.
Chapter 1, SE 12.
$ 30,000
Net Income
6
1.
2.
1.
2.
3.
cial information they need to make intelligent decisions. It is a valuable discipline
because of the usefulness of the information it generates.
Chapter 1, E 1.
The primary purpose of accounting is to provide decision makers with the finan-
Like managers of profit-seeking businesses, managers of government and not-
main goals: profitability and liquidity. How companies such as CVS and South-
GAAP differ from the laws of science in that they are not unchanging but rather
Chapter 1, E 2.
improved methods of accounting are introduced.
ings component of stockholders’ equity. They are different in that expenses are
are constantly evolving. They may change as business conditions change or as
CVS and Southwest are comparable in that like all companies, they have two
Expenses and dividends are the same in that they both reduce the retained earn-
7
1. a 5. k 9. g
1.
1. b 6.
c
Chapter 1, E 6.
Chapter 1, E 3.
Chapter 1, E 4.
Management
People who are interested in Cellhealth’s financial statements are the following:
Investors (stockholders in the company)
A partnership is a business that has two or more owners. A corporation is a business
unit that has been granted a charter from the state and is legally separate from its
Chapter 1, E 5.
This is not a business transaction because no economic exchange has taken
place.
8
× 1.000 =
× 1.000 =
1. = Liabilities +
= Liabilities +
= $450,000
AssetsCompany
Chapter 1, E 7.
US.Chip
Sales
1,300,000
US.Chip
Company
$2,750,000
2,750,000
$1,300,000
$310,000
Chapter 1, E 8.
Liabilities
Assets Stockholders’ Equity
$760,000
9
1. a. A 2. a.
Accounts payable $ 50,000
Chapter 1, E 9.
IS
$ 25,000
Assets
Liabilities
December 31, 2011
Chapter 1, E 10.
Cash
Rojas Services Compan
y
Balance Sheet
10
$13,200
$8,340
$1,440
$1,550 $ 450
Cash
Accounts payable
Kaisha Corporation
Balance Sheet
Assets Liabilities
December 31, 2011
Kaisha Corporation
Kaisha Corporation
Income Statement
For the Year Ended December 31, 2011
Revenue
Expenses
Statement of Retained Earnings
For the Year Ended December 31, 2011
Retained earnings, December 31, 2010
Wages expense
Chapter 1, E 11.
Service revenue
11
1.
=+
2.
3.
Assets
Change in Stockholders’ Equity
– Stockholders’ investments
Change in Stockholders’ Equity
$26,500
$81,500
Net income is:
Stockholders’ EquityLiabilities
32,500
($ 6,000)
$6,000
$26,500
Net loss is:
Net loss
Net income is:
$26,500
Chapter 1, E 12.
12
$19,000
($62,500)
( 62,500)
$105,000
Retained earnings, January 31, 2010
Retained earnings represent the equity of the stockholders generated from the
income-producing activities of the business and kept for use in the business.
Chapter 1, E 13.
Mrs. Bell’s Pastry, Inc.
Net income
Chapter 1, E 14.
Net cash flows from investing activities
Cash flows from operating activities
Adjustments to reconcile net income to net
Statement of Retained Earnings
For the Year Ended January 31, 2011
Cash flows from investing activities
Purchased equipment
Statement of Cash Flows
For the Year Ended December 31, 2011
Primorsk Corporation
2010
Profit margin has decreased from 12.00 percent to 10.42 percent. The decrease is a
result of revenues increasing by 20 percent coupled with a net income increase of
2011 Profit Margin
Chapter 1, E 15.
2011
less than 5 percent.
14
Utilities expense BS Accounts payable
Building IS Rent expense
IS
BS
1. Matching completed
2. User Insight: Statement associated with profitability identified
The income statement is most closely associated with the goal of profitability.
Chapter 1, P 1.
15
$1,100 $ 6,800 (g) $240
800 (a) 5,200 160 (m)
$ 300 (b) $ 1,600 (h) $80
$6,600 (d) $31,000 $580 (q)
Revenue
Set A
Income Statement
Chapter 1, P 2.
Net income
1. Financial statements completed
Expenses
Total assets
Balance Sheet
2. User Insight: Financial statement order explained
Set B Set C
The income statement must be prepared first because the amount of net income is
16
$248,000
$111,000
38,850
$ 72,150
$ 55,400
$115,750 Accounts payable $ 7,400
9,100 Income taxes payable 13,000
Retained earnings, November 30, 2010
Landscape Design, Inc.
Balance Sheet
Cash
Assets
November 30, 2011
For the Year Ended November 30, 2011
Liabilities
Accounts receivable
Landscape Design, Inc.
Statement of Retained Earnings
For the Year Ended November 30, 2011
Chapter 1, P 3.
1. Financial statements prepared
Net income
Income before income taxes
Income taxes expense
Revenue
Design service revenue
Expenses
Landscape Design, Inc.
Income Statemen
t
17
2. User Insight: Ability to pay bills evaluated
Chapter 1, P 3. (Continued)
18
$78,800
$56,000
$—
$ 2,600 Accounts payable $10,500
13,200 3,000
Revenue
Painting service revenue
Expenses
Collegiate Painters, Inc.
Income Statemen
t
For the Year Ended September 30, 2011
For the Year Ended September 30, 2011
Assets
Collegiate Painters, Inc.
September 30, 2011
Chapter 1, P 4.
1. Financial statements prepared
Collegiate Painters, Inc.
Statement of Retained Earnings
Salaries expense
Liabilities
Cash
Income taxes payable
Accounts receivable
Balance Sheet
Retained earnings, September 30, 2011
Retained earnings, September 30, 2010
19