Chapter 3
EXERCISE 3-3
a.
Event |
Assets |
= |
Liab. |
+ |
Equity |
|||
Cash |
Prepaid Rent |
Contributed Capital |
+ |
Retained Earnings |
||||
1. |
(18,000) |
18,000 |
||||||
Adj. |
(6,000)* |
(6,000) |
||||||
*$18,000 x 4/12 = $6,000
b.
Event |
Assets |
= |
Equity |
||||
Cash |
Equipment |
Accumulated Depreciation |
Contributed Capital |
+ |
Retained Earnings |
||
1. |
(5,200) |
5,200 |
|||||
Adj. |
(1,200)* |
(1,200) |
|||||
*$5,200 - $400 = $4,800; $4,800 ¸ 4 = $1,200
c.
Event |
Assets |
= |
Liab. |
+ |
Equity |
|||
Cash |
Unearned Revenue |
Contributed Capital |
Retained Earnings |
|||||
1. |
10,000 |
10,000 |
||||||
Adj. |
(3,333)* |
3,333 |
||||||
*$10,000 x 2/6 = $3,333
EXERCISE 3-5
a.
Help-U Consulting Services Effect of Events on the Accounting Equation |
|||||
Assets |
= |
Equity |
|||
Event |
Cash |
Prepaid Rent |
= |
Cont. Capital |
Retained Earnings |
1. Acquired Cap. |
30,000 |
30,000 |
|||
2. Prepaid Rent |
(24,000) |
24,000 |
|||
3. Provided Service |
36,000 |
36,000 |
|||
4. Used Rent |
(22,000)* |
(22,000) |
|||
Totals |
42,000 |
2,000 |
= |
30,000 |
14,000 |
*$24,000 x 11/12 = $22,000
b.
Help-U Consulting Services Income Statement For the Period Ended December 31, 20X7 |
|||
Revenue |
$36,000 |
||
Expense |
(22,000) |
||
Net Income |
$14,000 |
||
Help-U Consulting Services Statement of Changes in Equity For the Period Ended December 31, 20X7 |
|||||
Beginning Contributed Capital |
$ -0- |
||||
Plus: Acquired Capital |
30,000 |
||||
Ending Contributed Capital |
$30,000 |
||||
Beginning Retained Earnings |
-0- |
||||
Plus: Net Income |
14,000 |
||||
Less: Distributions |
-0- |
||||
Ending Retained Earnings |
14,000 |
||||
Total Equity |
$44,000 |
||||
EXERCISE 3-5 b. (cont.)
Help-U Consulting Services Balance Sheet As of December 31, 20X7 |
||||
Assets |
||||
Cash |
$42,000 |
|||
Prepaid Rent |
2,000 |
|||
Total Assets |
$44,000 |
|||
Liabilities |
$ -0- |
|||
Equity |
||||
Contributed Capital |
$30,000 |
|||
Retained Earnings |
14,000 |
|||
Total Equity |
44,000 |
|||
Total Liabilities and Equity |
$44,000 |
|||
EXERCISE 3-5 b. (cont.)
Help-U Consulting Services Statement of Cash Flows For the Period Ended December 31, 20X7 |
||||
Cash Flows From Operating Activities: |
||||
Cash Receipt from Revenue |
$36,000 |
|||
Cash Payment for Expense |
(24,000) |
|||
Net Cash Flow from Operating Activities |
$12,000 |
|||
Cash Flows From Investing Activities |
-0- |
|||
Cash Flows From Financing Activities |
||||
Cash Investment by Owners |
30,000 |
|||
Net Cash Flow from Financing Activities |
30,000 |
|||
Net Change in Cash |
42,000 |
|||
Plus: Beginning Cash Balance |
-0- |
|||
Ending Cash Balance |
$42,000 |
|||
c. The difference of $2,000 ($14,000 - $12,000) is attributed to recognizing rent expense of $22,000 in the income statement, whereas the cash payment for rent expense is $24,000.
EXERCISE 3-6
a.
Kopy King, Inc. Accounting Equation 20X3 |
|||||||||||
Assets |
= |
Liabilities |
+ |
Equity |
|||||||
Event |
Cash |
Supplies |
= |
Accounts Payable |
+ |
Cont. Capital |
+ |
Retained Earnings |
|||
Bal. |
1,000 |
-0- |
-0- |
400 |
600 |
||||||
1 |
3,600 |
3,600 |
|||||||||
2 |
10,000 |
10,000 |
|||||||||
3 |
(2,500) |
(2,500) |
|||||||||
4 |
(3,200) |
(3,200) |
|||||||||
Totals |
8,500 |
400 |
= |
1,100 |
+ |
400 |
+ |
7,400 |
|||
EXERCISE 3-6 (cont.)
b.
Kopy King, Inc. Income Statement For the Period Ended December 31, 20X3 |
|||
Service Revenue |
$10,000 |
||
Supplies Expense |
(3,200) |
||
Net Income |
$ 6,800 |
||
Kopy King, Inc. Statement of Changes in Equity For the Period Ended December 31, 20X3 |
||||
Beginning Contributed Capital |
$ 400 |
|||
Plus: Capital Acquired |
-0- |
|||
Ending Contributed Capital |
$ 400 |
|||
Beginning Retained Earnings |
600 |
|||
Plus: Net Income |
6,800 |
|||
Less: Distributions |
-0- |
|||
Ending Retained Earnings |
7,400 |
|||
Total Equity |
$7,800 |
|||
EXERCISE 3-6 b.(cont.)
Kopy King Inc. Balance Sheet As of December 31, 20X3 |
|||||
Assets |
|||||
Cash |
$8,500 |
||||
Supplies |
400 |
||||
Total Assets |
$8,900 |
||||
|
|||||
Liabilities |
|||||
Accounts Payable |
$1,100 |
||||
Equity |
|||||
Contributed Capital |
$ 400 |
||||
Retained Earnings |
7,400 |
||||
Total Equity |
7,800 |
||||
Total Liabilities and Equity |
$8,900 |
||||
Kopy King, Inc. Statement of Cash Flows For the Period Ended December 31, 20X3 |
||||
Cash Flows From Operating Activities: |
||||
Cash Receipt from Revenue |
$10,000 |
|||
Cash Payment for Accounts Payable |
(2,500) |
|||
Net Cash Flow from Operating Activities |
$7,500 |
|||
Cash Flows From Investing Activities |
-0- |
|||
Cash Flows From Financing Activities |
-0- |
|||
Net Change in Cash |
7,500 |
|||
Add: Beginning Cash Balance |
1,000 |
|||
Ending Cash Balance |
$8,500 |
|||
EXERCISE 3-6 (cont.)
c. The difference in net income and cash flow from operating activities of $700 ($6,800 - $7,500) is attributed to recognizing supplies expense of $3,200 in the income statement, whereas the cash payment on accounts payable (for supplies) was only $2,500.
EXERCISE 3-7
a.
Tasty Bar B Q Accounting Equation for 20X6 |
||||||||
Assets |
= |
Equity |
||||||
Event |
Cash |
Pit |
Accum. Depr. |
= |
Cont. Capital |
+ |
Retained Earnings |
|
1. Acq. Cap. |
24,000 |
24,000 |
||||||
2. Pur. Pit |
(22,000) |
22,000 |
||||||
3. Rev. |
16,000 |
16,000 |
||||||
4. Paid Exp. |
(4,000) |
(4,000) |
||||||
5. Depr. Exp. |
(5,000)* |
(5,000) |
||||||
Totals |
14,000 |
22,000 |
(5,000) |
= |
24,000 |
+ |
7,000 |
|
*(22,000 - $2,000) ¸ 4=$5,000 depreciation per year
EXERCISE 3-7 (cont.)
b.
Tasty Bar B Q Income Statement For the Period Ended December 31, 20X6 |
||||
Service Revenue |
$16,000 |
|||
Expenses |
|
|||
Operating Expenses |
$4,000 |
|||
Depreciation Expense |
5,000 |
|||
Total Expenses |
(9,000) |
|||
Net Income |
$ 7,000 |
|||
Tasty Bar B Q Statement of Changes in Equity For the Period Ended December 31, 20X6 |
||||
Beginning Contributed Capital |
$ -0- |
|||
Plus: Capital Acquired |
24,000 |
|||
Ending Contributed Capital |
$24,000 |
|||
Beginning Retained Earnings |
-0- |
|||
Plus: Net Income |
7,000 |
|||
Less: Distributions |
-0- |
|||
Ending Retained Earnings |
7,000 |
|||
Total Equity |
$31,000 |
|||
EXERCISE 3-7 b. (cont.)
Tasty Bar B Q Balance Sheet As of December 31, 20X6 |
|||||
Assets |
|||||
Cash |
$14,000 |
||||
Pit |
$22,000 |
||||
Less: Accum. Depreciation |
(5,000) |
17,000 |
|||
Total Assets |
$31,000 |
||||
|
|||||
Liabilities |
$ -0- |
||||
Equity |
|||||
Contributed Capital |
$24,000 |
||||
Retained Earnings |
7,000 |
||||
Total Equity |
31,000 |
||||
Total Liabilities and Equity |
$31,000 |
||||
EXERCISE 3-7 b. (cont.)
Tasty Bar B Q Statement of Cash Flows For the Period Ended December 31, 20X6 |
||||
Cash Flows From Operating Activities: |
||||
Cash Receipt from Revenue |
$16,000 |
|||
Cash Payment for Accounts Payable |
(4,000) |
|||
Net Cash Flow from Operating Activities |
$12,000 |
|||
Cash Flows From Investing Activities: |
||||
Cash Outflow to Purchase Pit |
(22,000) |
|||
Net Cash Flow from Investing Activities |
(22,000) |
|||
Cash Flows From Financing Activities: |
||||
Cash Receipts from Owner Investment |
24,000 |
|||
Net Cash Flow from Financing Activities |
24,000 |
|||
Net Change in Cash |
14,000 |
|||
Plus: Beginning Cash Balance |
-0- |
|||
Ending Cash Balance |
$14,000 |
|||
c. $5,000 each year.
d. $10,000 of accumulated depreciation ($5,000 for 20X6 + $5,000 for 20X7).
e. No, because depreciation is a non-cash expense. Depreciation is the systematic allocation of the cost of an asset to expense. The cash payment occurred when the pit was purchased.
EXERCISE 3-8 a.
Chris Dew Personal Financial Planning Accounting Equation |
|||||||
Assets |
= |
Liabilities |
+ |
Equity |
|||
Event |
Cash |
= |
Unearned Revenue |
+ |
Cont. Capital |
+ |
Retained Earnings |
1. Advance Payment |
+36,000 |
+36,000 |
|||||
2. Revenue Earned |
(30,000)* |
+30,000 |
|||||
Totals |
+36,000 |
= |
+6,000 |
+30,000 |
|||
*$36,000 x 10/12 = $30,000
b.
Chris Dew Personal Financial Planning Income Statement For the Period Ended December 31, 20X3 |
|||
Revenue |
|||
Consulting Revenue |
$30,000 |
||
Expense |
-0- |
||
Net Income |
$30,000 |
||
EXERCISE 3-8 b. (cont.)
Chris Dew Personal Financial Planning Statement of Changes in Equity For the Period Ended December 31, 20X3 |
||||
Beginning Contributed Capital |
$ -0- |
|||
Ending Contributed Capital |
$ -0- |
|||
Beginning Retained Earnings |
-0- |
|||
Plus: Net Income |
30,000 |
|||
Ending Retained Earnings |
30,000 |
|||
Total Equity |
$30,000 |
|||
Chris Dew Personal Financial Planning Balance Sheet As of December 31, 20X3 |
||||
Assets |
||||
Cash |
$36,000 |
|||
Total Assets |
$36,000 |
|||
|
||||
Liabilities |
||||
Unearned Revenue |
$ 6,000 |
|||
Total Liabilities |
$ 6,000 |
|||
Equity |
||||
Contributed Capital |
-0- |
|||
Retained Earnings |
30,000 |
|||
Total Equity |
30,000 |
|||
Total Liabilities and Equity |
$36,000 |
|||
EXERCISE 3-8 b. (cont.)
Chris Dew Personal Financial Planning Statement of Cash Flows For the Period Ended December 31, 20X3 |
||||
Cash Flows From Operating Activities: |
||||
Cash Receipt from Revenue |
$36,000 |
|||
Net Cash Flow from Operating Activities |
$36,000 |
|||
Cash Flows From Investing Activities |
-0- |
|||
Cash Flows From Financing Activities |
-0- |
|||
Net Increase in Cash |
36,000 |
|||
Plus: Beginning Cash Balance |
-0- |
|||
Ending Cash Balance |
$36,000 |
|||
c. Revenue that will be recognized in 20X4 is $6,000, the remainder of the unearned revenue.
d. $-0-, no cash is received. All cash was received in 20X3.
EXERCISE 3-9
Vega Enterprises 20X4 Accounting Equation |
||||||
Assets |
= |
Equity |
||||
Event |
Cash |
Land |
= |
Cont. Capital |
+ |
Retained Earnings |
a.1 |
+11,000 |
(12,000) |
= |
(1,000) |
||
b.1 |
+14,000 |
(12,000) |
= |
+2,000 |
||
a. (1) See above.
a. (2) Loss of $1,000 ($12,000 cost - $11,000 sales price).
a. (3) Cash inflow from investing activities, $11,000.
b. (1) See above.
b. (2) Gain of $2,000 ($12,000 cost - $14,000 sales price).
b. (3) Cash inflow from investing activities, $14,000.
EXERCISE 3-10
Net Income |
Cash Flow from Operating Activities |
|||
Event No. |
Direction of Change |
Amount of Change |
Direction of Change |
Amount of Change |
a. |
Decrease |
$1,200 |
Decrease |
$7,200 |
b. |
Decrease |
8,000* |
No Effect |
|
c. |
Decrease |
700 |
Decrease |
600 |
d. |
Decrease |
3,000 |
No Effect |
|
e. |
Increase |
6,000 |
Increase |
5,000 |
f. |
Increase |
900 |
Increase |
1,200 |
g. |
No Effect |
No Effect |
||
h. |
Increase |
1,000 |
No Effect |
|
i. |
Decrease |
1,000 |
Decrease |
1,000 |
j. |
Increase |
3,000 |
Increase |
3,000 |
*($40,000 - $8,000) ¸ 4=$8,000 depreciation expense per year.
EXERCISE 3-11
Dowes Attorney At Law Effect of Transactions on the Financial Statements for 20X2 |
||||||||||||||||||
Balance Sheet |
Income Statement |
Statement of |
||||||||||||||||
Assets |
= |
Liabilities |
+ |
Equity |
Rev |
- |
Exp. |
= |
Net Inc. |
Cash Flows |
||||||||
No. |
Cash |
+ |
Supp. |
= |
Acc. Pay. |
+ |
Unearn. Rev. |
+ |
Ret. Earn. |
|||||||||
1. |
18,000 |
+ |
n/a |
= |
n/a |
+ |
18,000 |
+ |
n/a |
n/a |
- |
n/a |
= |
n/a |
18,000 OA |
|||
2. |
n/a |
+ |
1,600 |
= |
1,600 |
+ |
n/a |
+ |
n/a |
n/a |
- |
n/a |
= |
n/a |
n/a |
|||
3. |
25,600 |
+ |
n/a |
= |
n/a |
+ |
n/a |
+ |
25,600 |
25,600 |
- |
n/a |
= |
25,600 |
25,600 OA |
|||
4. |
(13,400) |
+ |
n/a |
= |
n/a |
+ |
n/a |
+ |
(13,400) |
n/a |
- |
13,400 |
= |
(13,400) |
(13,400) OA |
|||
5. |
(8,000) |
+ |
n/a |
= |
n/a |
+ |
n/a |
+ |
(8,000) |
n/a |
- |
n/a |
= |
n/a |
(8,000) FA |
|||
6. |
(1,400) |
+ |
n/a |
= |
(1,400) |
+ |
n/a |
+ |
n/a |
n/a |
- |
n/a |
= |
n/a |
(1,400) OA |
|||
7. |
n/a |
+ |
(1,450) |
= |
n/a |
+ |
n/a |
+ |
(1,450) |
n/a |
- |
1,450 |
= |
(1,450) |
n/a |
|||
8. |
n/a |
+ |
n/a |
= |
n/a |
+ |
(12,000)* |
+ |
12,000 |
12,000 |
- |
n/a |
= |
12,000 |
n/a |
|||
Totals |
20,800 |
+ |
150 |
= |
200 |
+ |
6,000 |
+ |
14,750 |
37,600 |
- |
14,850 |
= |
22,750 |
20,800 NC |
|||
*$18,000 x 8/12 = $12,000