Exercises-Series B

EXERCISE 1–1B Identifying Resources

Resource owners provide three types of resources to conversion agents that transform the resources into products or services that satisfy consumer demands.

Required

Identify the three types of resources. Write a brief memo explaining how resource owners select the particular conversion agents to which they will provide resources.

EXERCISE 1–2B Distributions in a Business Liquidation

L.O. 2

Assume that Clark Company acquires $800 cash from creditors and $900 cash from investors. The company then has operating losses of $600 cash and goes out of business.

Required

Explain the primary differences between investors and creditors.
What amount of cash will Clark’s creditors receive?
What amount of cash will Clark’s investors (stockholders) receive?

EXERCISE 1–3B Identifying the Reporting Entities

L.O. 2

Wonda DeLeo helped organize a charity fund to help cover the medical expenses of a friend of hers who was seriously injured in a bicycle accident. The fund was named Gloria Novin Recovery Fund (GNRF). Wonda contributed $500 of her own money to the fund. The $500 was paid to WRCK, a local radio station that designed and played an advertising campaign to educate the public as to the need for help. The campaign resulted in the collection of $12,000 cash. GNRF paid $10,000 to the Hillsboro Hospital tocover Gloria’s outstanding hospital cost. The remaining $2,000 was contributed to the National Cyclist Fund.

Required

Identify the entities that were mentioned in the scenario and explain what happened to the cash accounts of each entity that you identify.

EXERCISE 1–4B Financial Statement Names

L.O. 3

Accounting reports that are issued to the public normally contain four financial statements. The same statement may have more than one name.

Required

Provide two names that are commonly used for each statement. If a statement has only one name, indicate that this is the case.

EXERCISE 1–5B Titles and Accounts Appearing on Financial Statements

L.O. 3

Annual reports normally include an income statement, statement of changes in equity, balance sheet, and statement of cash flows.

Required

Identify the financial statements on which each of the following titles or accounts would appear. If a title or an account appears on more than one statement, list all statements that would include it.

Retained Earnings
Revenue
Common Stock
Financing Activities
Salaries Expense
Land
Ending Cash Balance
Beginning Cash Balance
Notes Payable
Dividends

EXERCISE 1–6B Components of the Accounting Equation

L.O. 4

Required

The following three requirements are independent of each other.

Jackson Camping Supplies has assets of $8,500 and net assets of $3,200. What is the amount of liabilities? What is the amount of claims?
Betty’s Snow Cones has liabilities of $2,400 and equity of $4,400. What is the amount of its assets? What is the amount of its net assets?
Petrello Company has assets of $98,300 and liabilities of $56,200. What is the amount of its equity? What is the amount of its residual interest?

EXERCISE 1–7B Effect of Events on the Accounting Equation

L.O. 4

Olive Enterprises experienced the following events during 2007.

Acquired cash from the issue of common stock.
Paid cash to reduce the principal on a bank note.
Sold land for cash at an amount equal to its cost.
Provided services to clients for cash.
Paid utilities expenses with cash.
Paid a cash dividend to the stockholders.

Required

Explain how each of the events would affect the accounting equation by writing the letter I for increase, the letter D for decrease, and NA for no effect under each of the components of the accounting equation. The first event is shown as an example.

EXERCISE 1–8B Effects of Issuing Stock

L.O. 3

Lambena Company was started in 2002 when it acquired $24,000 cash by issuing common stock. The cash acquisition was the only event that affected the business in 2002.

Required

Which financial statements would be affected by this event?

EXERCISE 1–9B Effects of Borrowing

L.O. 3

Southern Pacific Company was started in 2003 when it borrowed $19,500 from National Bank.

Required

Which financial statements would be affected by this event?

EXERCISE 1–10B Effects of Revenue, Expense, and Dividend Events

L.O. 3, 4, 5, 5, 8

Kim Company was started on January 1, 2004. During 2004, the company completed three accounting events: (1) earned cash revenues of $12,500, (2) paid cash expenses of $8,600, and (3) paid a $1,000 cash dividend to the owner. These were the only events that affected the company during 2004.

Required

Write an accounting equation, and record the effects of each accounting event under the appropriate general ledger account headings.
Prepare an income statement for the 2004 accounting period and a balance sheet at the end of 2004 for Kim Company.

EXERCISE 1–11B Classifying Items for the Statement of Cash Flows

L.O. 3

Required

Indicate how each of the following would be classified on the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not applicable (NA).

Borrowed $8,000 cash from First State Bank.
Paid $5,000 cash for salary expense.
Signed a contract to provide services in the future.
Performed services for $25,000 cash.
Paid $9,000 cash to purchase land.
Paid $1,500 cash for utilities expense.
Sold land for $5,000 cash.
Paid $4,000 cash on the principal of a bank loan.
Paid a $2,000 cash dividend to the stockholders.
Received $30,000 cash from the issue of common stock.

EXERCISE 1–12B Effect of Transactions on General Ledger Accounts

L.O. 3, 4, 5, 5, 6

At the beginning of 2001, Pete’s Pest Control’s accounting records had the following general ledger accounts and balances.

Pete’s completed the following transactions during 2001.

Purchased land for $5,000 cash.
Acquired $25,000 cash from the issue of common stock.
Received $65,000 cash for providing services to customers.
Paid cash operating expenses of $42,000.
Borrowed $10,000 cash from the bank.
Paid a $2,500 cash dividend to the stockholders.
Determined that the market value of the land is $30,000.

Required

Record the transactions in the appropriate general ledger accounts. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table.
Determine the net cash flow from financing activities.
What is the balance in the Retained Earnings Accounts as of January 1, 2002?

EXERCISE 1–13B Preparing Financial Statements

L.O. 3, 4, 5, 5, 6, 8

J & A, Inc., experienced the following events during 2004.

Acquired $55,000 cash from the issue of common stock.
Paid $15,000 cash to purchase land.
Borrowed $5,000 cash from First Bank.
Provided services for $21,000 cash.
Paid $1,500 cash for utilities expense.
Paid $11,000 cash for other operating expenses.
Paid a $2,000 cash dividend to the stockholders.
Determined that the market value of the land purchased in Event 2 is $20,000.

Required

The January 1, 2004, general ledger account balances are shown in the following accounting equation. Record the eight events in the appropriate general ledger accounts. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table. The first event is shown as an example.
Prepare an income statement, statement of changes in stockholders’ equity, year-end balance sheet, and statement of cash flows for the 2004 accounting period.

Determine the percentage of assets that were provided by retained earnings. How much cash is in the retained earnings account?

EXERCISE 1–14B Classifying Events as Asset Source, Use, or Exchange

L.O. 7

Hill Company experienced the following events during its first year of operations.

Acquired $8,000 cash from the issue of common stock.
Paid $3,500 cash for salary expenses.
Borrowed $10,000 cash from New South Bank.
Paid $6,000 cash to purchase land.
Provided boarding services for $6,500 cash.
Acquired an additional $1,000 cash from the issue of common stock.
Paid $1,200 cash for utilities expense.
Paid a $1,500 cash dividend to the stockholders.
Provided additional services for $3,000 cash.
Purchased additional land for $2,500 cash.
The market value of the land was determined to be $12,000 at the end of the accounting period.

Required

Classify each event as an asset source, use, or exchange transaction.

EXERCISE 1–15B Financial Statement Elements

L.O. 3

Western Company was organized by issuing $550 of common stock and by borrowing $250. During the accounting period, the company earned and retained $200. Also during the accounting period, the company purchased land for $950.

Required

What asset accounts would appear on the company’s balance sheet? What are the balance sheet amounts in these accounts?
Determine the percentage of total assets that were provided by investors, creditors, and earnings.
How much cash is in the retained earnings account?

EXERCISE 1–16B Historical Cost versus Market Value

L.O. 6

ACCO, Inc. purchased land in January 2004 at a cost of $230,000. The estimated market value of the land is $270,000 as of December 31, 2006.

Required

Name the December 31, 2006, financial statement(s) on which the land will be shown.
At what dollar amount will the land be shown in the financial statement(s)?
Name the key concept that will be used in determining the dollar amount that will be reported for land that is shown in the financial statement(s).

EXERCISE 1–17B Relating Accounting Events to Entities

L.O. 2, 7

Jackling Company sold land for $50,000 cash to Power Company in 2004.

Required

Was this event an asset source, use, or exchange transaction for Jackling Company?
Was this event an asset source, use, or exchange transaction for Power Company?
Was the cash flow an operating, investing, or financing activity on Jackling Company’s 2004 statement of cash flows?
Was the cash flow an operating, investing, or financing activity on Power Company’s 2004 statement of cash flows?

EXERCISE 1–18B Missing Information in the Accounting Equation

L.O. 4

Required

Calculate the missing amounts in the following table.

EXERCISE 1–19B Missing Information in the Accounting Equation

L.O. 4

As of December 31, 2004, Stone Company had total assets of $132,000, retained earnings of $74,300, and common stock of $45,000. During 2005 Stone earned $42,000 of cash revenue, paid $21,500 for cash expenses, and paid a $600 cash dividend to the stockholders. Stone also paid $5,000 to reduce its debt during 2005.

Required

Determine the amount of liabilities at December 31, 2004.
Determine the amount of net income earned in 2005.
Determine the amount of total assets as of December 31, 2005.
Determine the amount of total liabilities as of December 31, 2005.

EXERCISE 1–20B Missing Information for Determining Revenue

L.O. 3, 4

Total stockholders’ equity of Zullo Company increased by $46,500 between December 31, 2005, and December 31, 2006. During 2006 Zullo acquired $15,000 cash from the issue of common stock. The company paid a $5,000 cash dividend to the stockholders during 2006. Total expenses during 2006 amounted to $22,000.

Required

Determine the amount of revenue that Zullo reported on its 2006 income statement. (Hint: Remember that stock issues, net income, and dividends all change total stockholders’ equity.)

EXERCISE 1–21B Effect of Events on a Horizontal Financial Statements Model

L.O. 6, 9

Lourens Auto Repair, Inc., experienced the following events during 2007.

Purchased land for cash.
Issued common stock for cash.
Collected cash for providing auto repair services to customers.
Paid a cash dividend to the stockholders.
Paid cash for operating expenses.
Paid cash to reduce the principal balance on a liability.
Determined that the market value of the land is higher than its historical cost.

Required

Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (I), decreases (D), or does not affect (NA) each element of the financial statements. Also, in the Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first transaction is shown as an example.

EXERCISE 1–22B Record Events in the Horizontal Statements Model

L.O. 3, 9

Eaton Boat Repairs was started in 2002. During 2002, the company (1) acquired $9,000 cash from the issue of common stock, (2) earned cash revenue of $22,000, (3) paid cash expenses of $12,800, and (4)paid an $800 cash dividend to the stockholders.

Required

Record these four events in a horizontal statements model. Also, in the Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first event is shown as an example.
Why is the net income different from the net increase in cash for this business?

EXERCISE 1–23B Effect of Events on a Horizontal Statements Model

L.O. 6, 9

Joyce Higgins started Computer Software Services on January 1, 2006. The company experienced the following events during its first year of operation.

Acquired $20,000 cash by issuing common stock.
Paid $5,000 cash to purchase land.
Received $32,000 cash for providing computer consulting services to customers.
Paid $12,500 cash for salary expenses.
Acquired $4,000 cash from the issue of additional common stock.
Borrowed $15,000 cash from the bank.
Purchased additional land for $15,000 cash.
Paid $14,000 cash for other operating expenses.
Paid a $2,500 cash dividend to the stockholders.
Determined that the market value of the land is $18,000.

Required

Record these events in a horizontal statements model. Also, in the Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first event is shown as an example.
What is the net income earned in 2006?
What is the amount of total assets at the end of 2006?
What is the net cash flow from operating activities for 2006?
What is the net cash flow from investing activities for 2006?
What is the net cash flow from financing activities for 2006?
What is the cash balance at the end of 2006?
As of the end of the year 2006, what percentage of total assets were provided by creditors, investors, and earnings?

EXERCISE 1–24B Types of Transactions and the Horizontal Statements Model

L.O. 6, 7, 9

Computer Parts experienced the following events during its first year of operations, 2007.

Acquired cash by issuing common stock.
Purchased land with cash.
Borrowed cash from a bank.
Signed a contract to provide services in the future.
Paid a cash dividend to the stockholders.
Paid cash for operating expenses.
Determined that the market value of the land is higher than the historical cost.

Required

Indicate whether each event is an asset source, use, or exchange transaction.
Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (I), decreases (D), or does not affect (NA) each element of the financial statements. Also, in the Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). The first transaction is shown as an example.

EXERCISE 1–25B Price-Earnings Ratio

L.O. 10

The following information is available for two companies:

Required

Compute the price-earnings ratio for each company.
Which company would you expect to have the higher earnings growth potential?

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Home > Chapter 1 > Exercises-Series B

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		Learning Objectives The Curious Accountant Chapter Opening Role of Accounting in ... Measurement Rules Reporting Entities Elements of Financial ... Accounting Equation Recording Business Eve... Historical Cost and Re... Recap: Types of Transa... Summary of Transactions Preparing Financial St... The Horizontal Financi... Real-World Financial R... a look back a look forward Self-Study Review Prob... Key Terms Questions Exercises-Series A Problems-Series A Exercises-Series B Problems-Series B Analyze, Think, Commun...

	More Resources
		PowerPoint Presentations
	eBook
		Learning Objectives The Curious Accountant Chapter Opening Role of Accounting in ... Measurement Rules Reporting Entities Elements of Financial ... Accounting Equation Recording Business Eve... Historical Cost and Re... Recap: Types of Transa... Summary of Transactions Preparing Financial St... The Horizontal Financi... Real-World Financial R... a look back a look forward Self-Study Review Prob... Key Terms Questions Exercises-Series A Problems-Series A Exercises-Series B Problems-Series B Analyze, Think, Commun...