Financial Accounting Exercises

Posted on Oct 16, 2024 in Mathematics

Brief Exercises

BE 164

Match the following external users of financial accounting information with the type of decision that user will make with the information.

Creditor
Investor
Regulatory Agency
Internal Revenue Service

_______ (1) Is the company operating within prescribed guidelines?

_______ (2) Is the company complying with tax laws?

_______ (3) Is the company able to pay its debts?

_______ (4) Is the company a good investment?

Solution 164

1. c

2. d

3. a

4. b

SO2 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 165

Match the following terms and definitions.

Accounts receivable
Creditor
Accounts payable
Note payable

_______ (1) Amounts due from customers

_______ (2) Amounts owed to suppliers for goods and services purchased

_______ (3) Amounts owed to bank

_______ (4) Party to whom money is owed

Solution 165

1. a

2. c

3. d

4. b

SO6 BT: K Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 166

Indicate which of these items is an asset (A), liability (L) or owner’s equity (OE) account.

_______ (1) Supplies

_______ (2) Klein, Drawing

_______ (3) Building

_______ (4) Note Payable

_______ (5) Taxes Payable

Solution 166

1. Asset (A)

2. Owner’s equity (OE)

3. Asset (A)

4. Liability (L)

5. Liability (L)

SO6 BT: K Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 167

Use the accounting equation to answer the following questions.

Force 10 Sails Co. has total assets of $120,000 and total liabilities of $35,000. What is owner’s equity?
Marcy Fun Center has total assets of $225,000 and owner’s equity of $105,000. What are total liabilities?
Franco’s Restaurant has total liabilities of $40,000 and owner’s equity of $95,000. What are total assets?

Solution 167

1. $120,000 – $35,000 = $85,000 owner’s equity

2. $225,000 – $105,000 = $120,000 total liabilities

3. $40,000 + $95,000 = $135,000 total assets

SO6 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 168

Determine the missing items.

Assets	Liabilities	Owner’s Equity
$75,000	$52,000	(a)
(b)	$28,000	$34,000
$84,000	(c)	$55,000

Solution 168

a. $23,000

b. $62,000

c. $29,000

SO6 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 169

Classify each of these items as an asset (A), liability (L), or owner’s equity (OE).

_____ 1. Accounts receivable

_____ 2. Accounts payable

_____ 3. Mantle’s, Capital

_____ 4. Office supplies

_____ 5. Utilities expense

_____ 6. Cash

_____ 7. Note payable

_____ 8. Equipment

Solution 169 (5 min.)

1. A 5. OE

2. L 6. A

3. OE 7. L

4. A 8. A

SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 170

Identify the impact on the accounting equation of each of the following transactions.

Purchase office supplies on account.
Paid secretary weekly salary.
Purchased office furniture for cash.
Received monthly utility bill to be paid at a later time.

Solution 170 (5 min.)

1. Increase assets and increase liabilities.

2. Decrease assets and decrease owner’s equity.

3. Increase assets and decrease assets.

4. Increase liabilities and decrease owner’s equity.

SO7 BT: C Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 171

Balance sheet amounts as of December 31, 2009 for Lori’s Learning Service are listed below. Prepare a balance sheet in good form.

Accounts Payable $200

Accounts Receivable 1,000

Cash 500

Lori’s, Capital ?

Solution 171 (5 min.)

LORI’S TUTORING SERVICE

Balance Sheet

December 31, 2009

Assets		Liabilities and Owner’s Equity
Cash	$500	Accounts Payable
Accounts Receivable	1,000	Lori’s, Capital
Total assets	$1,500	Total liabilities and owner’s equity

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 172

Identify whether the following items would be reported on the income statement (IS) or balance sheet (BS).

Cash
Service Revenue
Notes Payable
Interest Expense
Accounts Receivable

Solution 172

1. Balance Sheet (BS)

2. Income Statement (IS)

3. Balance Sheet (BS)

4. Income Statement (IS)

5. Balance Sheet (BS)

SO8 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 173

Use the following information to calculate for the year ended December 31, 2009 (a) net income (net loss), (b) ending owner’s equity, and (c) total assets.

Supplies $1,000 Revenues $23,000

Operating expenses 12,000 Cash 15,000

Accounts payable 9,000 Drawings 1,000

Accounts receivable 3,000 Notes payable 1,000

Beginning Capital 5,000 Equipment 6,000

Solution 173

(a) $11,000 (b) $15,000 (c) $25,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 174

Listed below in alphabetical order are the balance sheet items of Rowan Company at December 31, 2009. Prepare a balance sheet and include a complete heading.

Accounts payable $6,000

Accounts receivable 15,000

Building 96,000

Cash 11,000

Rowan, Capital 121,000

Office equipment 5,000

Solution 174

ROWAN COMPANY

Balance Sheet

December 31, 2009

ASSETS

Cash $11,000

Accounts receivable 15,000

Office equipment 5,000

Building 96,000

Total assets $127,000

LIABILITIES AND OWNER’S EQUITY

Liabilities

Accounts payable $6,000

Owner’s equity

Rowan, Capital 121,000

Total liabilities and owner’s equity $127,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Exercises

Ex. 175

Below is a list of important abbreviations widely used in business. For each abbreviation give the full designation.

CPA _______________________________________________
IRS _______________________________________________
FBI _______________________________________________
FASB _______________________________________________
GAAP _______________________________________________
SEC _______________________________________________

Solution 175

Certified Public Accountant
Internal Revenue Service
Federal Bureau of Investigation
Financial Accounting Standards Board
Generally Accepted Accounting Principles
Securities and Exchange Commission

SO2, 4 BT: K Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 176

Determine the missing amount for each of the following.

	Assets	Liabilities	Owner’s Equity
1.	(a)	$50,000	$95,000
2.	$125,000	(b)	$85,000
3.	$140,000	$65,000	(c)

Solution 176

1. (a) = $145,000 ($50,000 + $95,000)

2. (b) = $40,000 ($125,000 – $85,000)

3. (c) = $75,000 ($140,000 – $65,000)

SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 177

For the items listed below, fill in the appropriate code letter to indicate whether the item is an asset, liability, or owner’s equity item.

			Code
	Asset		A
	Liability		L
	Owner’s Equity		OE

______ 1. Rent Expense ______ 6. Cash

______ 2. Office Equipment ______ 7. Accounts Receivable

______ 3. Accounts Payable ______ 8. Dan Pine, Drawing

______ 4. Dan Pine, Capital ______ 9. Service Revenue

______ 5. Insurance Expense ______ 10. Notes Payable

Solution 177

1. OE 6. A

2. A 7. A

3. L 8. OE

4. OE 9. OE

5. OE 10. L

SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 178

At the beginning of the year, Keats Company had total assets of $550,000 and total liabilities of $200,000. Answer the following questions viewing each situation as being independent of the others.

If total assets increased $200,000 during the year, and total liabilities decreased $75,000, what is the amount of owner’s equity at the end of the year?
During the year, total liabilities increased $230,000 and owner’s equity decreased $90,000. What is the amount of total assets at the end of the year?
If total assets decreased $40,000 and owner’s equity increased $130,000 during the year, what is the amount of total liabilities at the end of the year?

Solution 178

	Total Assets		Total Liabilities		Owner’s Equity
Beginning	$550,000		$200,000
Change	200,000		(75,000)
Ending	$750,000	–	$125,000	=	$625,000 (1)

	Total Assets		Total Liabilities		Owner’s Equity
Beginning	$550,000		$200,000		$350,000
Change			230,000		(90,000)
Ending	$690,000 (2)	=	$430,000	+	$260,000

	Total Assets		Total Liabilities		Owner’s Equity
Beginning	$550,000		$200,000		$350,000
Change	(40,000)				130,000
Ending	$510,000	=	$30,000 (3)	+	$480,000

SO6 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 179

Jill’s Car Cleaning has the following balance sheet items:

Van
Accounts Payable
Cash
J. Hill, Capital
Cleaning Supplies
J. Hill, Drawing
Equipment
Accounts Receivable

Identify which items are (1) Assets

(2) Liabilities

(3) Owner’s Equity

Solution 179

(1) Assets—Van, Cash, Cleaning Supplies, Accounts Receivable, Equipment

(2) Liabilities—Accounts Payable, Notes Payable

(3) Owner’s Equity—J. Hill, Capital, J. Hill, Drawing

SO6 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 180

On June 1, 2009, Bush Company prepared a balance sheet that shows the following:

………….. Assets (no cash)………………………………………………………. $100,000

………….. Liabilities…………………………………………………………………… 70,000

………….. Owner’s Equity…………………………………………………………. 30,000

Shortly thereafter, all of the assets were sold for cash. How would the balance sheet appear immediately after the sale of the assets for cash for each of the following cases?

	Cash Received for		Balances Immediately After Sale
	the Assets	Assets	–	Liabilities	=	Owner’s Equity
Cash A	$110,000	$________		$________		$________
Cash B	100,000	________		________		________
Cash C	90,000	________		________		________

Solution 180

	Cash Received for		Balances Immediately After Sale
	the Assets	Assets	–	Liabilities	=	Owner’s Equity
Cash A	$110,000	$110,000		$70,000		$40,000
Cash B	100,000	100,000		70,000		30,000
Cash C	90,000	90,000		70,000		20,000

SO6 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 181

At the beginning of 2008, Bonds Company had total assets of $550,000 and total liabilities of $330,000. Answer each of the following questions.

If total assets increased $60,000 and owner’s equity decreased $90,000 during the year, determine the amount of total liabilities at the end of the year.
During the year, total liabilities decreased $75,000 and owner’s equity increased $50,000. Compute the amount of total assets at the end of the year.
If total assets decreased $100,000 and total liabilities increased $55,000 during the year, determine the amount of owner’s equity at the end of the year.

Solution 181

1. Ending Total Liabilities = ($550,000 + $60,000) – ($550,000 – $330,000 – $90,000)

= $610,000 – $130,000 = $480,000

2. Ending Total Assets = ($330,000 – $75,000) + ($550,000 – $330,000 + $50,000)

= $255,000 + $270,000 = $525,000

3. Ending Owner’s Equity = ($550,000 – $100,000) – ($330,000 + $55,000)

= $450,000 – $385,000 = $65,000

SO6 BT: AN Difficulty: Medium TOT: 5 min. AACSB: Analysis AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 182

Compute the missing amount in each category of the accounting equation.

	Assets	Liabilities	Owner’s Equity
(a)	$349,000	?	$143,000
(b)	$223,000	$79,000	?
(c)	?	$253,000	$325,000

Solution 182

(a) $206,000 ($349,000 – $143,000 = $206,000).

(b) $144,000 ($223,000 – $79,000 = $144,000).

SO6 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 183

From the following list of selected accounts taken from the records of McDreamy Homeopathic Center, identify those that would appear on the balance sheet.

a. D. McDreamy, Capital f. Accounts Payable

b. Patient Revenue g. Cash

c. Land h. Rent Expense

d. Wages Expense i. Medical Supplies

e. Notes Payable j. Utilities Expense

Solution 183

a, c, e, f, g, i

SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 184

Selected transactions for Tall Timber Tree Service are listed below.

Made cash investment to start business.
Paid for monthly advertising.
Purchased supplies on account.
Billed customers for services performed.
Withdrew cash for owner’s personal use.
Received cash from customers billed in (4).
Incurred utilities expense on account.
Purchased additional supplies for cash.
Received cash from customers when service was performed.

Instructions

List the numbers of the above transactions and describe the effect of each transaction on assets, liabilities, and owner’s equity. For example, the first answer is: (1) Increase in assets and increase in owner’s equity.

Solution 184

1. Increase in assets and increase in owner’s equity.

2. Decrease in assets and decrease in owner’s equity.

3. Increase in assets and increase in liabilities.

4. Increase in assets and increase in owner’s equity.

5. Decrease in assets and decrease in owner’s equity.

6. Increase in assets and decrease in assets.

7. Increase in liabilities and decrease in owner’s equity.

8. Increase in assets and decrease in assets.

9. Increase in assets and increase in owner’s equity.

SO6, 7 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 185

Lawrence Legal Eagles Company entered into the following transactions during March 2010.

Purchased office equipment for $21,500 from Business Equipment, Inc. on account.
Paid $4,000 cash for March rent on office furniture.
Received $15,000 cash from customers for legal work billed in February.
Provided legal services to Amy Construction Company for $3,000 cash.
Paid Northern States Power Co. $11,000 cash for electric usage in March.
Lawrence invested an additional $32,000 in the business.
Paid Business Equipment, Inc. for the office equipment purchased in (1) above.
Incurred advertising expense for March of $1,200 on account.

Instructions

Indicate with the appropriate letter whether each of the transactions above results in:

(a) an increase in assets and a decrease in assets.

(b) an increase in assets and an increase in owner’s equity.

(d) a decrease in assets and a decrease in owner’s equity.

(e) a decrease in assets and a decrease in liabilities.

(f) an increase in liabilities and a decrease in owner’s equity.

(g) an increase in owner’s equity and a decrease in liabilities.

Solution 185

1. (c) 5. (d)

2. (d) 6. (b)

3. (a) 7. (e)

4. (b) 8. (f)

SO6, 7 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 186

Two items are omitted from each of the following summaries of balance sheet and income statement data for two proprietorships for the year 2010, Holly Enterprises and Craig Stevens.

	Holly Enterprises	Craig Stevens
Beginning of year:
Total assets	$98,000	$129,000
Total liabilities	85,000	(c)
Total owner’s equity	(a)	85,000
End of year:
Total assets	160,000	180,000
Total liabilities	120,000	50,000
Total owner’s equity	40,000	130,000
Changes during year in owner’s equity:
Additional investment	(b)	25,000
Drawings	25,000	(d)
Total revenues	215,000	100,000
Total expenses	185,000	65,000

Instructions

Determine the missing amounts.

Solution 186

(a) Total assets (beginning of year) $98,000

Total liabilities (beginning of year) (85,000)

Total owner’s equity (beginning of year) $13,000

(b) Total owner’s equity (end of year) $40,000

Total owner’s equity (beginning of year) (13,000)

Increase in owner’s equity $27,000

Total revenues $215,000

Total expenses 185,000

Net income $30,000

Increase in owner’s equity $27,000

Less: Net income $(30,000)

Add: Drawings (25,000) (5,000)

Additional investment $22,000

Total owner’s equity (beginning of year) (85,000)

Total liabilities (beginning of year) $44,000

(d) Total owner’s equity (end of year) $130,000

Total owner’s equity (beginning of year) (85,000)

Increase in owner’s equity $45,000

Total revenues $100,000

Total expenses (65,000)

Net income $35,000

Increase in owner’s equity $45,000

Less: Net income $35,000

Additional investment 25,000 (60,000)

Drawings $(15,000)

SO6, 7 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 187

An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below. Each increase and decrease in owner’s equity is explained.

Accounts Office Accounts Owner’s Equity

Cash + Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital

1. +$15,000 +$15,000 Investment

2. – 2,000 +$5,000 +$3,000

3. – 750 +$750

4. + 2,500 +$3,600 + 6,100 Service Revenue

5. – 1,500 – 1,500

6. – 2,500 – 2,500 Drawings

7. – 650 – 650 Rent Expense

8. + 550 – 550

9. – 3,500 – 3,500 Salaries Expense

10. + 500 – 500 Utilities Expense

Instructions

(a)Determine how much owner’s equity increased for the month.

(b)Compute the amount of net income for the month.

Solution 187

(a) Investment $15,000

Service revenue 6,100

Drawings (2,500)

Rent expense (650)

Salaries expense (3,500)

Utilities expense (500)

Increase in capital $13,950

Solution 187 (cont.)

(b) Service revenue $6,100

Rent expense (650)

Salaries expense (3,500)

Utilities expense (500)

Net income $1,450

SO7 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 188

The Lim Company had the following assets and liabilities on the dates indicated.

December 31 Total Assets Total Liabilities

2008 $480,000 $250,000

2009 $460,000 $210,000

2010 $590,000 $300,000

Lim began business on January 1, 2008, with an investment of $100,000.

Instructions

From an analysis of the change in owner’s equity during the year, compute the net income (or

loss) for:

(a)2008, assuming Lim’s drawings were $25,000 for the year.

(b)2009, assuming Lim made an additional investment of $60,000 and had no drawings in

2009.

$40,000 in 2010.

Solution 188

(a) Owner’s equity—12/31/08 ($480,000 – $250,000) $230,000

Owner’s equity—1/1/08 (100,000)

Increase in owner’s equity 130,000

Add: Drawings 25,000

Net income for 2005 $155,000

(b) Owner’s equity—12/31/09 ($460,000 – $210,000) $250,000

Owner’s equity—1/1/09—see (a) (230,000)

Increase in owner’s equity 20,000

Less: Additional investment 60,000

Net loss for 2009 $ (40,000)

Owner’s equity—1/1/10—see (b) 250,000

Increase in owner’s equity 40,000

Less: Additional investment (15,000)

25,000

Add: Drawings 40,000

Net income for 2010 $ 65,000

SO7 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 189

For each of the following, indicate whether the transaction affects revenue (R), expense (E), owner’s drawing (D), owner’s investment (I), or no effect on owner’s equity (NOE).

1. Made an investment to start the business.

2. Billed customers for services performed.

3. Purchased equipment on account.

4. Paid monthly rent.

5. Withdrew cash for personal use.

Solution 189

1. Investment (I)

2. Revenue (R)

3. No effect (NOE)

4. Expense (E)

5. Drawing (D)

SO7 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 190

Presented below is a balance sheet for Jim Henson Yard Service at December 31, 2008.

JIM HENSON YARD SERVICE

Balance Sheet

December 31, 2009

Assets Liabilities and Owner’s Equity

Cash $13,000 Liabilities

Accounts receivable 6,000 Accounts payable $ 8,000

Supplies 9,000 Notes payable 15,000

Equipment 11,000 Owner’s equity

Jim Henson, Capital 16,000

Total assets $39,000 Total liabilities & owner’s equity $39,000

The following additional data are available for the year which began on January 1: All expenses (excluding supplies expense) total $6,000. Supplies on January 1, were $11,000 and $5,000 of supplies were purchased during the year. Net income for the year was $8,000 and drawings were $6,000.

Instructions

Determine the following: (Show all computations.)

1. Supplies used during the year.

2. Total expenses for the year.

3. Service revenues for the year.

4. Jim Henson’s capital balance on January 1.

Solution 190

1. Computation of Supplies Used:

Beginning Supplies, Jan. 1 $11,000

Add: Purchases 5,000

Less: Ending Supplies, Dec. 31 (9,000)

Equals: Supplies Used $ 7,000

2. Computation of Total Expenses:

All Expenses (excluding supplies expense) $ 6,000

Plus: Supplies Used 7,000

Total Expenses $13,000

3. Computation of Revenues:

Net Income $ 8,000

Plus: Total Expenses 13,000

Total Revenues $21,000

4. Computation of Henson, Capital on January 1:

Capital, December 31 $16,000

Plus: Drawings 6,000

Less: Net Income (8,000)

Capital, January 1 $14,000

SO7 BT: AN Difficulty: Hard TOT: 10 min. AACSB: Analysis AICPA BB: Critical Thinking AICPA PC: Problem Solving

Ex. 191

Analyze the transactions of a business organized as a proprietorship described below and indicate their effect on the basic accounting equation. Use a plus sign (+) to indicate an increase and a minus sign (–) to indicate a decrease.

Assets = Liabilities + Owner’s Equity

1. Received cash for services rendered. _______ _______ _______

2. Purchased office equipment on credit. _______ _______ _______

3. Paid employees’ salaries. _______ _______ _______

4. Received cash from customer in payment

on account. _______ _______ _______

5. Paid telephone bill for the month. _______ _______ _______

6. Paid for office equipment purchased in

transaction 2. _______ _______ _______

7. Purchased office supplies on credit. _______ _______ _______

8. Owner withdrew cash for personal

expenses. _______ _______ _______

9. Obtained a loan from the bank. _______ _______ _______

10. Billed customers for services rendered. _______ _______ _______

Solution 191

Assets = Liabilities + Owner’s Equity

1. Received cash for services rendered. + +

2. Purchased office equipment on credit. + +

3. Paid employees’ salaries. – –

4. Received cash from customer in payment +,–

on account.

5. Paid telephone bill for the month. – –

6. Paid for office equipment purchased in

transaction 2. – –

7. Purchased office supplies on credit. + +

8. Owner withdrew cash for personal

expenses. – –

9. Obtained a loan from the bank. + +

10. Billed customers for services rendered. + +

SO7 BT: C Difficulty: Medium TOT: 10 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 192

For each of the following, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, and owner’s equity using the following format.

Assets = Liabilities + Owner’s Equity

1. Made an investment to start the business.

2. Billed customers for services performed.

3. Purchased equipment on account.

4. Withdrew cash for personal use.

5. Paid for equipment purchased in 3. above.

Solution 192

Assets = Liabilities + Owner’s Equity

1. + NE +

2. + NE +

3. + + NE

4. – NE –

5. – – NE

SO7 BT: C Difficulty: Easy TOT: 10 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 193

Bill Phinnes decides to open a cleaning and laundry service near the local college campus that will operate as a sole proprietorship. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing (–) the dollar amount of each item affected. Indicate the new balance of each item after a transaction is recorded. It is not necessary to identify the cause of changes in owner’s equity.

Transactions

(1) Bill Phinnes invests $20,000 in cash to start a cleaning and laundry business on June 1.

(2) Purchased laundry equipment for $5,000 paying $3,000 in cash and the remainder due in 30 days.

(3) Purchased laundry supplies for $1,200 cash.

(4) Received a bill from College News for $300 for advertising in the campus newspaper.

(5) Cash receipts from customers for cleaning and laundry amounted to $1,500.

(6) Paid salaries of $200 to student workers.

(7) Billed the Lion Soccer Team $200 for cleaning and laundry services.

(8) Paid $300 to College News for advertising that was previously billed in Transaction 4.

(9) Bill Phinnes withdrew $900 from the business for living expenses.

(10) Incurred utility expenses for month on account, $400.

Trans- Accounts Laundry Laundry Accounts B. Phinnes

action Cash + Receivable + Supplies + Equipment = Payable + Capital

(1)

——————————————————————————————————————————

Balance

(2)

——————————————————————————————————————————

Balance

(3)

——————————————————————————————————————————

Balance

(4)

——————————————————————————————————————————

Balance

(5)

——————————————————————————————————————————

Balance

(6)

——————————————————————————————————————————

Balance

(7)

——————————————————————————————————————————

Balance

(8)

——————————————————————————————————————————

Balance

Ex. 193 (cont.)

(9)

——————————————————————————————————————————

Balance

(10)

——————————————————————————————————————————

Totals

Solution 193

Trans- Accounts Laundry Laundry Accounts B. Phinnes

action Cash + Receivable + Supplies + Equipment = Payable + Capital

(1) +$20,000 +$20,000

——————————————————————————————————————————

Balance $20,000 $20,000

(2) – 3,000 +$5,000 +$2,000

——————————————————————————————————————————

Balance $17,000 $5,000 $2,000 $20,000

(3) – 1,200 +$1,200

——————————————————————————————————————————

Balance $15,800 $1,200 $5,000 $2,000 $20,000

(4) + 300 – 300

——————————————————————————————————————————

Balance $15,800 $1,200 $5,000 $2,300 $19,700

(5) + 1,500 + 1,500

——————————————————————————————————————————

Balance $17,300 $1,200 $5,000 $2,300 $21,200

(6) – 200 – 200

——————————————————————————————————————————

Balance $17,100 $1,200 $5,000 $2,300 $21,000

(7) +$200 + 200

——————————————————————————————————————————

Balance $17,100 $200 $1,200 $5,000 $2,300 $21,200

(8) – 300 – 300

——————————————————————————————————————————

Balance $16,800 $200 $1,200 $5,000 $2,000 $21,200

(9) – 900 – 900

——————————————————————————————————————————

Balance $15,900 $200 $1,200 $5,000 $2,000 $20,300

(10) + 400 – 400

——————————————————————————————————————————

Totals $15,900 $200 $1,200 $5,000 $2,400 $19,900

SO7 BT: AP Difficulty: Medium TOT: 20 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 194

For each of the following, describe a transaction that will have the stated effect on the elements of the accounting equation.

(a) Increase one asset and decrease another asset.

(b) Increase an asset and increase a liability.

(d) Increase an asset and increase owner’s equity.

(e) Increase one asset, decrease one asset, and increase a liability.

Solution 194

(a) Receive cash from customers on account.

Purchase supplies for cash.

(b) Purchase supplies on account.

Purchase equipment and signed a note payable.

Pay cash to reduce a note payable.

(d) Initial contribution by an owner.

Additional contributions by an owner.

Render services on account.

(e) Buy equipment with a cash down payment with the remainder financed by a note payable.

SO7 BT: C Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 195

The following transactions represent part of the activities of Tigger Company for the first month of its existence. Indicate the effect of each transaction upon the total assets of the business by one of the following phrases: increased total assets, decreased total assets, or no change in total assets.

(a) The owner invested cash to start the business.

(b) Purchased a computer for cash.

(d) Paid the first month’s utility bill.

(e) Collected an accounts receivable.

(f) Owner withdrew cash from the business.

Solution 195

(a) Increased total assets.

(b) No change in total assets.

(d) Decreased total assets.

(e) No change in total assets.

Solution 195 (cont.)

(f) Decreased total assets.

SO7 BT: C Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 196

Selected transactions for Parton Company are listed below. List the number of the transaction and then describe the effect of each transaction on assets, liabilities, and owner’s equity.

Sample: Made initial cash investment in the business.

The answer would be—Increase in assets and increase in owner’s equity.

1. Paid monthly utility bill.

2. Purchased new display case for cash.

3. Paid cash for repair work on security system.

4. Billed customers for services performed.

5. Received cash from customers billed in 4.

6. Withdrew cash for owner’s personal use.

7. Incurred advertising expenses on account.

8. Paid monthly rent.

9. Received cash from customers when service was rendered.

Solution 196

1. Decrease in assets and decrease in owner’s equity.

2. No net change in assets.

3. Decrease in assets and decrease in owner’s equity.

4. Increase in assets and increase in owner’s equity.

5. No net change in assets.

6. Decrease in assets and decrease in owner’s equity.

7. Increase in liabilities and decrease in owner’s equity.

8. Decrease in assets and decrease in owner’s equity.

9. Increase in assets and increase in owner’s equity.

SO7 BT: C Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 197

A service proprietorship shows five transactions summarized below. The effect of each transaction on the accounting equation is shown, and also the new balance of each item in the equation. For each transaction (a) to (e) write an explanation of the nature of the transaction.

Accounts Equip- Accounts

Cash + Rec. + ment + Land + Building = Payable + Capital

——————————————————————————————————————————

$5,000 $6,500 $10,000 $7,500 $50,000 $3,000 $76,000

a) –2,000 –2,000

3,000 6,500 10,000 7,500 50,000 1,000 76,000

b) +1,000 – 1,000

4,000 5,500 10,000 7,500 50,000 1,000 76,000

Ex. 197 (cont.)

c) + 5,000 +5,000

4,000 5,500 15,000 7,500 50,000 6,000 76,000

d) +2,500 + 2,500

6,500 5,500 15,000 7,500 50,000 6,000 78,500

e) +3,000 + 3,000

$6,500 $8,500 $15,000 $7,500 $50,000 $6,000 $81,500

Solution 197

(a) Paid cash to creditors.

(b) Received cash from customers on account.

(d) Additional investment by owner or services rendered to customers for cash.

(e) Services rendered on account.

SO7 BT: C Difficulty: Medium TOT: 5 min. AACSB: Analysis AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 198

There are ten transactions listed below. Match the transactions that have the identical effect on the accounting equation. You should end up with 5 matches.

a. Receive cash from customers on account.

b. Initial cash contribution by an owner.

c. Pay cash to reduce an accounts payable.

d. Purchase supplies for cash.

e. Pay cash to reduce a notes payable.

f. Purchase supplies on account.

g. Additional cash contribution by an owner.

h. Purchase equipment with a note payable.

i. Pay utilities with cash.

j. Owner withdraws money from the business for personal use.

Solution 198

Match #1 = a, d

#2 = c, e

#3 = f, h

#4 = b, g

#5 = i, j

SO7 BT: C Difficulty: Medium TOT: 10 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 199

An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below. Each increase and decrease in owner’s equity is explained.

Accounts Office Accounts Owner’s Equity

Cash + Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital

1. +$15,000 +$15,000 Investment

2. – 2,000 +$5,000 +$3,000

3. – 750 +$750

4. + 2,500 +$3,600 + 6,100 Service Revenue

5. – 1,500 – 1,500

6. – 2,500 – 2,500 Drawings

7. – 650 – 650 Rent Expense

8. + 550 – 550

9. – 3,500 – 3,500 Salaries Expense

10. + 500 – 500 Utilities Expense

Instructions

(a)Prepare an income statement for the month ending July 31, 2010.

(b)Prepare an owner’s equity statement for the month ending July 31, 2010.

Solution 199

(a)

K. T. LANG & CO.

Income Statement

For the Month Ended July 31, 2010

Revenues

Service revenue $6,100

Expenses

Salaries expense $3,500

Rent expense 650

Utilities expense 500

Total expenses 4,650

Net income $1,450

(b)

K. T. LANG & CO.

Owner’s Equity Statement

For the Month Ended July 31, 2010

K. T. Lang, Capital, July 1 0

Add: Investments $15,000

Net income 1,450 16,450

16,450

Less: Drawings 2,500

K. T. Lang, Capital, July 31 $13,950

SO8 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 200

An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below. Each increase and decrease in owner’s equity is explained.

Accounts Office Accounts Owner’s Equity

Cash + Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital

1. +$15,000 +$15,000 Investment

2. – 2,000 +$5,000 +$3,000

3. – 750 +$750

4. + 2,500 +$3,600 + 6,100 Service Revenue

5. – 1,500 – 1,500

6. – 2,500 – 2,500 Drawings

7. – 650 – 650 Rent Expense

8. + 550 – 550

9. – 3,500 – 3,500 Salaries Expense

10. + 500 – 500 Utilities Expense

Instructions

Prepare a balance sheet at July 31, 2010.

Solution 200

K. T. LANG & CO.

Balance Sheet

July 31, 2010

Assets

Cash $ 7,150

Accounts receivable 3,050

Supplies 750

Office equipment 5,000

Total assets $15,950

Liabilities and Owner’s Equity

Liabilities

Accounts payable $ 2,000

Owner’s equity

K. T. Lang, Capital 13,950

Total liabilities and owner’s equity $15,950

SO8 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 201

The following information relates to Ty Ringo Co. for the year 2010.

Ty Ringo, Capital, January 1, 2010 $ 47,000 Advertising expense $1,500

Ty Ringo, Drawing during 2010 6,000 Rent expense 9,500

Service revenue 62,500 Utilities expense 3,400

Salaries expense 29,000

Instructions

After analyzing the data, prepare an income statement and an owner’s equity statement for the year ending December 31, 2010

Solution 201

TY RINGO CO.

Income Statement

For the Year Ended December 31, 2010

Revenues

Service revenue $62,500

Expenses

Salaries expense $29,000

Rent expense 9,500

Utilities expense 3,400

Advertising expense 1,500

Total expenses 43,400

Net income $19,100

TY RINGO CO.

Owner’s Equity Statement

For the Year Ended December 31, 2010

Ty Ringo, Capital, January 1 $47,000

Add: Net income 19,100

66,100

Less: Drawings 6,000

Ty Ringo, Capital, December 31 $60,100

SO8 BT: AP Difficulty: Easy TOT: 7 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 202

Cyn Sclose is the bookkeeper for Ayala Company. Cyn has been trying to get the balance

sheet of Ayala Company to balance. Ayala’s balance sheet is as follows.

AYALA COMPANY

Balance Sheet

December 31, 2010

Assets Liabilities

Cash $17,400 Accounts payable $30,000

Supplies 7,100 Accounts receivable (9,500)

Equipment 45,000 Ayala, Capital 58,200

Ayala, Drawing 9,200 Total liabilities and

Total assets $78,700 owner’s equity $78,700

Instructions

Prepare a correct balance sheet.

Solution 202

AYALA COMPANY

Balance Sheet

December 31, 2010

Assets

Cash $17,400

Accounts receivable 9,500

Supplies 7,100

Equipment 45,000

Total assets $79,000

Liabilities and Owner’s Equity

Liabilities

Accounts payable $30,000

Owner’s equity

Ayala, Capital ($58,200 – $9,200) 49,000

Total liabilities and owner’s equity $79,000

SO8 BT: AN Difficulty: Medium TOT: 5 min. AACSB: Analytical AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 203

Presented below is information related to the sole proprietorship of Anthony Scalici, consultant.

Consulting service revenue—2010 $340,000

Total expenses—2010 213,000

Assets, January 1, 2010 85,000

Liabilities, January 1, 2010 64,000

Assets, December 31, 2010 165,000

Liabilities, December 31, 2010 80,000

Drawings—2010 ?

Instructions

Prepare the 2010 owner’s equity statement for Anthony Scalici’s consulting company.

Solution 203

ANTHONY SCALICI, ATTORNEY

Owner’s Equity Statement

For the Year Ended December 31, 2010

Anthony Scalici, Capital, January 1 $ 21,000 (a)

Add: Net income 127,000 (b)

148,000

Less: Drawings 63,000

Anthony Scalici, Capital, December 31 $ 85,000 (c)

Supporting Computations

(a) Assets, January 1, 2010 $85,000

Liabilities, January 1, 2010 (64,000)

Capital, January 1, 2010 $21,000

(b) Legal fees earned $340,000

Total expenses (213,000)

Net income $127,000

Liabilities, December 31, 2010 (80,000)

Capital, December 31, 2010 $ 85,000

SO8 BT: AP Difficulty: Medium TOT: 7 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 204

Prepare an income statement, an owner’s equity statement, and a balance sheet for the accupuncture practice of Bi Loi, from the items listed below for the month of September.

Bi Loi, Capital, September 1 $42,000

Accounts payable 7,000

Equipment 30,000

Service revenue 25,000

Bi Loi, Drawings 6,000

Dental supplies expense 3,500

Cash 6,000

Utilities expense 700

Dental supplies 2,800

Salaries expense 9,000

Accounts receivable 14,000

Rent expense 2,000

BI LOI, ACCURPUNCTURIST

Income Statement

For the Month Ended September 30, 2009

——————————————————————————————————————————

Revenues $

Expenses $ $

Total expenses $

Net income $

BI LOI, ACCURPUNCTURIST

Owner’s Equity Statement

For the Month Ended September 30, 2009

——————————————————————————————————————————

Bi Loi, Capital, September 1 $

Add:

Less:

Ex. 204 (cont.)

BI LOI, ACCURPUNCTURIST

Balance Sheet

September 30, 2009

——————————————————————————————————————————

Assets

Total assets

Liabilities and Owner’s Equity

Liabilities

Owner’s Equity $

Total liabilities and owner’s equity $

Solution 204

BI LOI, ACCURPUNCTURIST

Income Statement

For the Month Ended September 30, 2009

——————————————————————————————————————————

Revenues

Service revenue…………………………………………………………………….. $25,000

Expenses

Salaries expense……………………………………………………………………. $9,000

Dental supplies expense………………………………………………………….. 3,500

Rent expense…………………………………………………………………………. 2,000

Utilities expense……………………………………………………………………… 700

Total expenses…………………………………………………………………. 15,200

Net income……………………………………………………………………….. $ 9,800

BI LOI, ACCURPUNCTURIST

Owner’s Equity Statement

For the Month Ended September 30, 2009

Bi Loi, Capital, September 1…………………………………………………………… $42,000

Add: Net income…………………………………………………………………………… 9,800

51,800

Less: Drawings…………………………………………………………………………… 6,000

Bi Loi, Capital, September 30…………………………………………………………. $45,800

Solution 204 (cont.)

BI LOI, ACCURPUNCTURIST

Balance Sheet

September 30, 2009

——————————————————————————————————————————

Assets

Cash…………………………………………………………………………………………… $ 6,000

Accounts receivable…………………………………………………………………….. 14,000

Dental supplies…………………………………………………………………………….. 2,800

Equipment……………………………………………………………………………………. 30,000

Total assets…………………………………………………………………………… $52,800

Liabilities and Owner’s Equity

Liabilities

Accounts payable…………………………………………………………………… $ 7,000

Owner’s Equity

Bi Loi, Capital………………………………………………………………………….. 45,800

Total liabilities and owner’s equity…………………………………………….. $52,800

SO8 BT: AP Difficulty: Hard TOT: 15 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 205

Indicate whether the following items would appear on the balance sheet (BS), income statement (IS), or owner’s equity statement (OE).

1. Advertising expense

2. Accounts receivable

3. Jones, drawing

4. Rent revenue

5. Salaries payable

6. Supplies

Solution 205 (5 min.)

1. Income statement (IS) 4. Income statement (IS)

2. Balance sheet (BS) 5. Balance sheet (BS)

3. Owner’s equity statement (OE) 6. Balance sheet (BS)

SO8 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 206

Listed below in alphabetical order are the balance sheet items of Pieter Company at December 31, 2009. Prepare a balance sheet and include a complete heading.

Accounts Payable $ 14,000

Accounts Receivable 15,000

Building 46,000

Cash 17,000

Jan Pieter, Capital 120,000

Land 52,000

Office Equipment 4,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Solution 206 (5 min.)

PIETER COMPANY

Balance Sheet

December 31, 2009

ASSETS

Cash $ 17,000

Accounts receivable 15,000

Office equipment 4,000

Building 46,000

Land 52,000

Total assets $134,000

LIABILITIES

Accounts payable $ 14,000

OWNER’S EQUITY

Jan Pieter, Capital 120,000

Total liabilities and owner’s equity $134,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 207

One item is omitted in each of the following summaries of balance sheet and income statement data for three different sole proprietorships, X, Y, and Z. Determine the amounts of the missing items, identifying each proprietorship by letter.

Proprietorship

X Y Z

Beginning of the Year:

Assets $380,000 $150,000 $199,000

Liabilities 250,000 105,000 168,000

End of the Year:

Assets 450,000 185,000 195,000

Liabilities 280,000 95,000 169,000

During the Year:

Additional Investment by the owner ? 79,000 80,000

Withdrawals by the owner 90,000 83,000 ?

Revenue 195,000 ? 187,000

Expenses 170,000 113,000 175,000

Solution 207

Proprietorship X ($105,000)

Beginning Capital balance ($380,000 – $250,000) $130,000

Additional investments ($260,000 – $130,000 – $25,000) 105,000

Net income for year ($195,000 – $170,000) 25,000

260,000

Less withdrawals 90,000

Ending Capital balance ($450,000 – $280,000) $170,000

Proprietorship Y ($162,000)

Beginning Capital balance ($150,000 – $105,000) $ 45,000

Additional investments 79,000

Net income for year 49,000

[Revenues = $162,000 ($113,000 + $49,000)] 173,000

Less withdrawals 83,000

Ending Capital balance ($185,000 – $95,000) $ 90,000

Proprietorship Z ($97,000)

Beginning Capital balance ($199,000 – $168,000) $ 31,000

Additional investments 80,000

Net income for year ($187,000 – $175,000) 12,000

123,000

Less withdrawals ($123,000 – $26,000) 97,000

Ending Capital balance ($195,000 – $169,000) $ 26,000

SO8 BT: AN Difficulty: Hard TOT: 10 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA PC: Problem Solving

Ex. 208

Indicate in the space provided by each item whether it would appear on the Income Statement (IS), Balance Sheet (BS), or Owner’s Equity Statement (OE):

a. _____ Service Revenue g. _____ Accounts Receivable

b. _____ Utilities Expense h. _____ White, Capital (ending)

c. _____ Cash i. _____ Equipment

d. _____ Accounts Payable j. _____ Advertising Expense

e. _____ Office Supplies k. _____ White, Drawing

f. _____ Wage Expense l. _____ Notes Payable

Solution 208

a. IS g. BS

b. IS h. OE, BS

c. BS i. BS

d. BS j. IS

e. BS k. OE

f. IS l. BS

SO8 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 209

Pam Sophly was reviewing her business activities at the end of the year (2009) and decided to prepare an Owner’s Equity Statement. At the beginning of the year her assets were $500,000 and her liabilities were $200,000. At the end of the year the assets had grown to $950,000 but liabilities had also increased to $350,000. The net income for the year was $420,000. Pam had withdrawn $120,000 during the year for his personal use.

Prepare an Owner’s Equity Statement in good form.

Solution 209

PAM SOPHLEY

Owner’s Equity Statement

For the Year Ended 2009

P. Sophley, Beginning Capital $300,000

Add: Net Income 420,000

720,000

Less: Drawings 120,000

P. Sophley, Ending Capital $600,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 210

At September 1, the balance sheet accounts for Stanley’s Restaurant were as follows:

Accounts Payable $ 3,800 Land $33,000

Accounts Receivable 1,600 Stanley, Capital ?

Building 68,000 Notes Payable 48,000

Cash 10,000 Supplies 6,600

Furniture 18,700

The following transactions occurred during the next two days:

Stanley invested an additional $22,000 cash in the business. The accounts payable were paid in full. (No payment was made on the notes payable.)

Instructions

Prepare a balance sheet at September 3, 2009.

Solution 210

STANLEY’S RESTAURANT

Balance Sheet

September 3, 2009

ASSETS

Cash $ 28,200

Accounts receivable 1,600

Supplies 6,600

Furniture 18,700

Building 68,000

Land 33,000

Total assets $156,100

LIABILITIES

Accounts payable $ -0-

Notes payable 48,000

OWNER’S EQUITY

Stanley, Capital 108,100

Total liabilities and owner’s equity $156,100

Cash ($10,000 + $22,000 – $3,800) = $28,200

Accounts Payable ($3,800 – $3,800) = $0

Stanley, Capital: Beginning balance ($137,900 – $51,800) $ 86,100

Additional investment 22,000

Ending balance $108,100

SO8 BT: AP Difficulty: Hard TOT: 10 min. AACSB: Analysis AICPA BB: Critical Thinking AICPA PC: Problem Solving

Ex. 211

Presented below are balance sheet items for Wilson Company at December 31, 2009.

Accounts payable $35,000

Accounts receivable 36,000

Cash 27,000

Equipment 52,000

Wilson, capital 30,000

Notes payable 50,000

Compute each of the following:

1. Total assets.

2. Total liabilities.

Solution 211

1. Total assets = $115,000 ($36,000 + $27,000 + $52,000)

2. Total liabilities = $85,000 ($35,000 + $50,000)