$520,000 PE 1–7A DYNASTY TRAVEL SERVICE Statement of Cash Flows For the Year Ended June 30, 2012 Cash flows from operating activities: Cash received from customers.... $ 210,000 Cash fl
Trang 1CHAPTER 1 INTRODUCTION TO ACCOUNTING
AND BUSINESS
DISCUSSION QUESTIONS
1 Some users of accounting information
include managers, employees, investors,
creditors, customers, and the government.
2 The role of accounting is to provide
information for managers to use in
operating the business In addition,
accounting provides information to others
to use in assessing the economic
performance and condition of the business.
3 The corporate form allows the company to
obtain large amounts of resources by
issuing stock For this reason, most
companies that require large investments
in property, plant, and equipment are
organized as corporations.
4 No The business entity concept limits the
recording of economic data to transactions
directly affecting the activities of the
business The payment of the interest of
$3,200 is a personal transaction of Murray
Stoltz and should not be recorded by
Ontime
Delivery Service.
5 The land should be recorded at its cost of
$82,000 to A2Z Repair Service This is
consistent with the cost concept.
6 a No The offer of $1,000,000 and the
increase in the assessed value should not be recognized in the accounting records.
b Cash would increase by $1,000,000,
land would decrease by $525,000, and owner’s equity would increase by
$475,000.
7 An account receivable is a claim against a
customer for goods or services sold An account payable is an amount owed to a creditor for goods or services purchased Therefore, an account receivable in the records of the seller is an account payable
in the records of the purchaser.
8 (a) The business incurred a net loss of
$185,000 ($615,000 – $430,000).
9 (b) The business realized net income of
$117,000 ($825,000 – $708,000).
10 Net income or net loss
Owner’s equity at the end of the period Cash at the end of the period
buy this full document at http://test-bank.us
Trang 3(2) Expense (Advertising Expense) increases by $1,200; Asset (Cash) decreases
Wages expense $478,000
Office expense 222,000
Miscellaneous expense 16,000
Total expenses 716,000 Net income $234,000
PE 1–4B
ESCAPE TRAVEL SERVICE Income Statement For the Year Ended November 30, 2012 Fees earned $942,500 Expenses:
Wages expense $562,500
Office expense 391,625
Miscellaneous expense 15,875
Total expenses 970,000 Net loss $ 27,500
Trang 4DYNASTY TRAVEL SERVICE Statement of Owner’s Equity For the Year Ended June 30, 2012 Nancy Coleman, capital, July 1, 2011 $250,000 Additional investment by owner during year $ 60,000
Net income for the year 234,000
$294,000 Less withdrawals 36,000
Increase in owner’s equity 258,000 Nancy Coleman, capital, June 30, 2012 $508,000
PE 1–5B
ESCAPE TRAVEL SERVICE Statement of Owner’s Equity For the Year Ended November 30, 2012 Brett Daniels, capital, December 1, 2011 $475,000 Additional investment by owner during year $ 45,000
Net loss for the year (27,500)
$ 17,500 Less withdrawals (25,000)
Decrease in owner’s equity (7,500) Brett Daniels, capital, November 30, 2012 $467,500
PE 1–6A
DYNASTY TRAVEL SERVICE
Balance Sheet June 30, 2012
Cash $156,000 Accounts payable $ 24,000 Accounts receivable 64,000
Supplies 12,000 Owner’s Equity
Land 300,000 Nancy Coleman, capital 508,000
Total liabilities and Total assets $532,000 owner’s equity $532,000
Trang 5ESCAPE TRAVEL SERVICE
Balance Sheet November 30, 2012
Cash $ 56,750 Accounts payable $ 52,500 Accounts receivable 94,375
Supplies 6,375 Owner’s Equity
Land 362,500 Brett Daniels, capital 467,500
Total liabilities and Total assets $520,000 owner’s equity $520,000
PE 1–7A
DYNASTY TRAVEL SERVICE Statement of Cash Flows For the Year Ended June 30, 2012 Cash flows from operating activities:
Cash received from customers $920,000
Deduct cash payments for operating expenses 710,000
Net cash flows from operating activities $ 210,000 Cash flows from investing activities:
Cash payments for purchase of land (208,000) Cash flows from financing activities:
Cash received from owner as investment $ 60,000
Deduct cash withdrawals by owner 36,000
Net cash flows from financing activities 24,000 Net increase in cash during year $ 26,000 Cash as of July 1, 2011 130,000 Cash as of June 30, 2012 $ 156,000
Trang 6ESCAPE TRAVEL SERVICE Statement of Cash Flows For the Year Ended November 30, 2012 Cash flows from operating activities:
Cash received from customers $875,000
Deduct cash payments for operating expenses 912,500
Net cash flows from operating activities $ (37,500) Cash flows from investing activities:
Cash payments for purchase of land (67,500) Cash flows from financing activities:
Cash received from owner as investment $ 45,000
Deduct cash withdrawals by owner 25,000
Net cash flows from financing activities 20,000 Net decrease in cash during year $ (85,000) Cash as of December 1, 2011 141,750 Cash as of November 30, 2012 $
Total owner’s equity 300,000 250,000
Ratio of liabilities to owner’s equity 1.25 1.15
Total owner’s equity 500,000 400,000
Ratio of liabilities to owner’s equity 0.68 0.75
($340,000/$500,000)
b Decreased
Trang 7Ex 1–1
a.
Trang 9of the accounting information system.
Ex 1–2
As in many ethics issues, there is no one right answer Often times, disclosing only what is legally required may not be enough In this case, it would be best for the company’s chief executive officer to disclose both reports to the county representatives In doing so, the chief executive officer could point out any flaws
or deficiencies in the fired researcher’s report
Trang 10Peat’s Coffee & Tea’s owners’ equity: $176 – $32 = $144
Starbucks’ owners’ equity: $5,577 – $2,531 = $3,046
Ex 1–5
Dollar Tree’s owners’ equity: $2,036 – $783 = $1,253
Target’s owners’ equity: $44,106 – $30,394 = $13,712
Trang 11a Increases assets and increases owner’s equity.
b Increases assets and decreases assets.
c Increases assets and increases liabilities.
d Increases assets and increases owner’s equity.
e Decreases assets and decreases owner’s equity.
Ex 1–10
a (1) Total assets increased $250,000 ($350,000 – $100,000).
(2) No change in liabilities.
(3) Owner’s equity increased $250,000.
b (1) Total assets decreased $75,000.
(2) Total liabilities decreased $75,000.
(3) No change in owner’s equity.
c No , it is false that a transaction always affects at least two elements (Assets, Liabilities, or Owner's Equity) of the accounting equation Some transactions affect only one element of the accounting equation For example, purchasing supplies for cash only affects assets
Trang 12a (1) Provided catering services for cash, $29,000.
(2) Purchase of land for cash, $20,000.
(3) Payment of expenses, $14,000.
(4) Purchase of supplies on account, $1,000.
(5) Withdrawal of cash by owner, $2,000.
(6) Payment of cash to creditors, $7,000.
(7) Recognition of cost of supplies used, $1,800.
No It would be incorrect to say that the business had incurred a net loss of
$10,000 The excess of the withdrawals over the net income for the period is a decrease in the amount of owner’s equity in the business.
Trang 13Aries Owner’s equity at end of year
($750,000 – $300,000) $450,000 Deduct owner’s equity at beginning of year
($400,000 – $100,000) 300,000 Net income (increase in owner’s equity) $ 150,000
Gemini Increase in owner’s equity (as determined for Aries) $150,000 Add withdrawals 40,000 Net income $190,000
Leo Increase in owner’s equity (as determined for Aries) $150,000 Deduct additional investment 90,000 Net income 60,000 $
Pisces Increase in owner’s equity (as determined for Aries) $150,000 Deduct additional investment 90,000
$ 60,000 Add withdrawals 40,000 Net income $100,000
Trang 14a
LOST TRAIL COMPANY Statement of Owner’s Equity For the Month Ended June 30, 2012 Penny Beall, capital, June 1, 2012 $375,000 Net income for June $125,000
Ex 1–19
UNIVERSAL SERVICES Income Statement For the Month Ended October 31, 2012 Fees earned $800,000 Expenses:
Trang 15In each case, solve for a single unknown, using the following equation:
Owner’s equity (beginning) + Investments – Withdrawals + Revenues – Expenses
= Owner’s equity (ending)
Aquarius Owner’s equity at end of year ($420,000 – $110,000) $310,000
Owner’s equity at beginning of year ($300,000 – $120,000) 180,000 Increase in owner’s equity $130,000 Deduct increase due to net income ($190,000 – $80,000) 110,000
$ 20,000 Add withdrawals 25,000 Additional investment in the business (a) $ 45,000
Libra Owner’s equity at end of year ($700,000 – $220,000) $480,000
Owner’s equity at beginning of year ($500,000 – $260,000) 240,000 Increase in owner’s equity $240,000 Add withdrawals 32,000
$272,000 Deduct additional investment 100,000 Increase due to net income $172,000 Add expenses 128,000 Revenue (b) $300,000
Scorpio Owner’s equity at end of year ($90,000 – $80,000) $ 10,000
Owner’s equity at beginning of year ($100,000 – $76,000) 24,000 Decrease in owner’s equity $
(14,000)
Deduct decrease due to net loss ($115,000 – $122,500) (7,500)
$ (6,500) Deduct additional investment 10,000 Withdrawals from the business (c) $
(16,500)
Taurus Owner’s equity at end of year ($248,000 – $136,000) $112,000
Add decrease due to net loss ($112,000 – $128,000) 16,000
$128,000 Add withdrawals 60,000
Deduct additional investment 40,000
$148,000 Add liabilities at beginning of year 120,000 Assets at beginning of year (d) $268,000
Trang 16LADY INTERIORS Balance Sheet July 31, 2012
Cash $ 80,000 Accounts payable $ 90,000 Accounts receivable 200,000
Supplies 20,000 Owner’s Equity
Garth Jacobs, capital 210,000 Total liabilities and
Total assets $300,000 owner’s equity $300,000
LADY INTERIORS Balance Sheet August 31, 2012
Cash $ 95,000 Accounts payable $100,000 Accounts receivable 240,000
Supplies 15,000 Owner’s Equity
Garth Jacobs, capital 250,000 Total liabilities and
Total assets $350,000 owner’s equity $350,000
b Owner’s equity, August 31 $250,000 Owner’s equity, July 31 210,000 Net income $ 40,000
c Owner’s equity, August 31 $250,000 Owner’s equity, July 31 210,000 Increase in owner’s equity $ 40,000 Add withdrawal 35,000 Net income $ 75,000
Trang 17a Balance sheet: 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 13
Income statement: 5, 12, 14, 15
b Yes, an item can appear on more than one financial statement For example, cash appears on both the balance sheet and statement of cash flows However, the same item cannot appear on both the income statement and balance sheet.
c Yes, the accounting equation is relevant to all companies including ExxonMobil Corporation
Ex 1–23
1 (a) operating activity
2 (a) operating activity
Cash received from customers $187,500
Deduct cash payments for operating expenses 127,350
Net cash flows from operating activities $ 60,150 Cash flows from investing activities:
Cash payments for purchase of land (30,000) Cash flows from financing activities:
Cash received from owner as investment $ 40,000
Deduct cash withdrawals by owner 5,000
Net cash flows from financing activities 35,000 Net increase in cash during year $ 65,150 Cash as of August 1, 2011 27,100 Cash as of July 31, 2012 $ 92,250
Trang 181 All financial statements should contain the name of the business in their heading The statement of owner’s equity is incorrectly headed as “Bertram Mitchell” rather than Empire Realty The heading of the balance sheet needs the name of the business.
2 The income statement and statement of owner’s equity cover a period of time and should be labeled “For the Month Ended May 31, 2012.”
3 The year in the heading for the statement of owner’s equity should be 2012 rather than 2011.
4 The balance sheet should be labeled “May 31, 2012,” rather than “For the Month Ended May 31, 2012.”
5 In the income statement, the miscellaneous expense amount should be listed
as the last expense.
6 In the income statement, the total expenses are incorrectly subtracted from the sales commissions, resulting in an incorrect net income amount The correct net income should be $22,050 This also affects the statement of owner’s equity and the amount of Bertram Mitchell, Capital, that appears on the balance sheet.
7 In the statement of owner’s equity, the additional investment should be added first to Bertram Mitchell, capital, as of May 1, 2012 The net income should be presented next, followed by the amount of withdrawals, which is subtracted from the net income to yield a net increase in owner’s equity.
8 Accounts payable should be listed as a liability on the balance sheet.
9 Accounts receivable and supplies should be listed as assets on the balance sheet.
10 The balance sheet assets should equal the sum of the liabilities and owner’s equity.
Trang 19Corrected financial statements appear as follows:
EMPIRE REALTY Income Statement For the Month Ended May 31, 2012 Sales commissions $233,550 Expenses:
Office salaries expense $145,800
EMPIRE REALTY Statement of Owner’s Equity For the Month Ended May 31, 2012 Bertram Mitchell, capital, May 1, 2012 $46,800 Additional investment during May $11,250
Net income for May 22,050
$33,300 Less withdrawals during May 9,000
Increase in owner’s equity 24,300 Bertram Mitchell, capital, May 31, 2012 $71,100
EMPIRE REALTY Balance Sheet May 31, 2012
Cash $14,850 Accounts payable $17,100 Accounts receivable 64,350
Supplies 9,000 Owner’s Equity
Bertram Mitchell, capital 71,100 Total liabilities and
Total assets $88,200 owner’s equity $88,200
Trang 20d Lowe’s ratio of liabilities to stockholders’ equity is less than 1 In comparison, The Home Depot’s ratio of liabilities to stockholders’ equity is greater than 1 for 2009 and 2008 Thus, the creditors of The Home Depot are more at risk than are the creditors of Lowe’s.
Trang 212 Owner’s equity is the right of owners to the assets of the business These rights are increased by owner’s investments and revenues and decreased by owner’s withdrawals and expenses.
3 $4,600 ($11,000 – $2,700 – $1,900 – $900 – $600 – $300)
21
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Trang 22September’s net income of $4,600 over Maria Edsall’s withdrawals of $1,800.
22
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accessible website, in whole or in part.
Trang 23NEW WORLD TRAVEL AGENCY
Income Statement For the Year Ended December 31, 2012 Fees earned $200,000 Expenses:
2.
NEW WORLD TRAVEL AGENCY Statement of Owner’s Equity For the Year Ended December 31, 2012 Kris Taber, capital, January 1, 2012 $120,000 Net income for the year $40,000
Cash $110,000 Accounts payable $ 25,000 Accounts receivable 60,000
Supplies 5,000 Owner’s Equity
Kris Taber, capital 150,000 Total liabilities and
Total assets $175,000 owner’s equity $175,000
4 Kris Taber, Capital of $150,000
23
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accessible website, in whole or in part.
Trang 24FREEDOM FINANCIAL SERVICES
Income Statement For the Month Ended March 31, 2012 Fees earned $118,500 Expenses:
FREEDOM FINANCIAL SERVICES Statement of Owner’s Equity For the Month Ended March 31, 2012 Heidi Fritz, capital, March 1, 2012 $ 0 Investment on March 1, 2012 $45,000
Net income for March 26,400
$71,400 Less withdrawals 15,000
Increase in owner’s equity 56,400 Heidi Fritz, capital, March 31, 2012 $56,400 3.
FREEDOM FINANCIAL SERVICES
Balance Sheet March 31, 2012
Cash $24,600 Accounts payable $ 4,740 Accounts receivable 34,500
Supplies 2,040 Owner’s Equity
Heidi Fritz, capital 56,400 Total liabilities and
Total assets $61,140 owner’s equity $61,140
24
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accessible website, in whole or in part.
Trang 254 (Optional)
FREEDOM FINANCIAL SERVICES Statement of Cash Flows For the Month Ended March 31, 2012 Cash flows from operating activities:
Cash received from customers $84,000
Deduct cash payments for expenses
and payments to creditors 89,400*
Net cash flow used for operating activities $ (5,400) Cash flows from investing activities 0 Cash flows from financing activities:
Cash received as owner’s investment $45,000
Deduct cash withdrawal by owner 15,000
Net cash flow from financing activities 30,000 Net cash flow and March 31, 2012, cash balance $24,600
*$1,800 + $22,500 + $17,100 + $48,000
25
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accessible website, in whole or in part.
Trang 26
26
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accessible website, in whole or in part.
Trang 27VISTA REALTY Income Statement For the Month Ended January 31, 2012 Sales commissions $25,500 Expenses:
VISTA REALTY Statement of Owner’s Equity For the Month Ended January 31, 2012 Carlton Myers, capital, January 1, 2012 $ 0 Investment on January 1, 2012 $25,000
Net income for January 12,150
$37,150 Less withdrawals 8,000
Increase in owner’s equity 29,150 Carlton Myers, capital, January 31, 2012 $29,150
VISTA REALTY Balance Sheet January 31, 2012
Cash $29,200 Accounts payable $ 900 Supplies 850
Owner’s Equity Carlton Myers, capital 29,150 Total liabilities and
Total assets $30,050 owner’s equity $30,050
27
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accessible website, in whole or in part.
Trang 28
Cash + Receivable + Supplies + Land = Payable + Wally Lowman, Capital
$15,000 + $31,000 + $3,000 + $36,000 = $13,000 + Wally Lowman, Capital
$85,000 = $13,000 + Wally Lowman, Capital
$72,000 = Wally Lowman, Capital
28
© 2012 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.