Basic concepts. Jean’s Marine Supply specializes in the sale of boating equipment and accessories. Identify the items that follow as an asset (A), liability (L), revenue (R), or expense (E) from the !rm’s viewpoint. a. The inventory of boating supplies owned by the company b. Monthly rental charges paid for store space c. A loan owed to Citizens Bank d. New computer equipment purchased to handle daily record keeping e. Daily sales made to customers f. Amounts due from customers g. Land owned by the company to be

Exercises CHAPTER 1
    1. Basic concepts. Jean’s Marine Supply specializes in the sale of boating equipment and accessories. Identify the items that follow as an asset (A), liability (L), revenue (R), or expense (E) from the !rm’s viewpoint. a. The inventory of boating supplies owned by the company b. Monthly rental charges paid for store space c. A loan owed to Citizens Bank d. New computer equipment purchased to handle daily record keeping e. Daily sales made to customers f. Amounts due from customers g. Land owned by the company to be used as a future store site h. Weekly salaries paid to salespeople 2. Basic computations. The following selected balances were extracted from the accounting records of Rossi Enterprises on December 31, 20X3: Accounts Payable $ 3,200 Interest Expense $ 2,500 Accounts Receivable 14,800 Land 18,000 Auto Expense 1,900 Loan Payable 40,000 Building 30,000 Tax Expense 3,300 Cash 7,400 Utilities Expense 4,100 Fee Revenue 56,900 Wage Expense 37,500 a. Determine Rossi’s total assets as of December 31. b. Determine the company’s total liabilities as of December 31. c. Compute 20X3 net income or loss. 3. Impact of business transactions. The following items describe the impact of a business transaction or event on the components of the accounting equation. Present an example of a transaction or event that correctly matches the described impact. a. Increase an asset and increase a liability. b. Increase one asset and decrease another asset. c. Increase an asset and increase in owner’s equity from a transaction or event not related to income-producing activities. d. Increase an asset and increase in owner’s equity from a transaction or event related to income-producing activities. e. Decrease an asset and decrease a liability. f. Decrease an asset and decrease in owner’s equity from a transaction or event not related to income-producing activities Exercises CHAPTER 1 4. Analysis of transactions. Set up the following headings across a piece of paper: Assets 5 Liabilities 1 Owner’s Equity Using “” and “,” indicate the effect of each of the following transactions on total assets, liabilities, and owner’s equity: a. Processed a $5,000 cash withdrawal for the owner. b. Recorded the receipt of May’s utility bill, to be paid in June. c. Provided services to customers on account. d. Paid the current month’s advertising charges. e. Purchased a $27,000 delivery truck by paying $5,000 down and securing a loan for the remaining balance. f. Received $11,000 cash from the owner as an investment in the business. g. Returned a new computer and printer purchased earlier in the month on account. The bill had not as yet been paid. h. Paid the utility bill recorded previously in part (b). 5. Accounting equation; analysis of owner’s equity. Sportscar Repair revealed the following !nancial data on January 1 and December 31 of the current year. Assets Liabilities January 1 $45,000 $20,000 December 31 49,000 31,000 a. Compute the change in owner’s equity during the year by using the accounting equation. b. Assume that there were no owner investments or withdrawals during the year. What is the probable cause of the change in owner’s equity from part (a)? c. Assume that there were no owner investments during the year. If the owner withdrew $17,000, determine and compute the company’s net income or net loss. Be sure to label your answer. d. If owner investments and withdrawals amounted to $13,000 and $2,000, respectively, determine whether the company operated pro!tably during the year. Show appropriate calculations. 6. Balance sheet preparation. The following data relate to Preston Company as of December 31, 20XX: Building $44,000 Accounts Receivable $24,000 Cash 17,000 Loan Payable 30,000 J. Preston, Capital 65,000 Land 21,000 Accounts Payable ? Prepare a balance sheet in good form as of December 31, 20XX. Exercises CHAPTER 1 7. Income statement concepts. Evaluate the following comments as being true or false. If the comment is false, brie”y explain why. a. An income statement reveals the net income or net loss of an entity for a period of time as opposed to a speci!c date. b. Withdrawals are properly classi!ed as an expense of doing business. c. If a company has $50,000 of revenues for March, it stands to reason that cash receipts for March must total $50,000. d. If expenses exceed revenues, a net loss has been generated. e. A computer acquired late in the year for use in the business should be disclosed on a !rm’s income statement. 8. Financial statement relationships. The following information appeared on the !nancial statements of the Altoona Repair Company: Income statement Total expenses $ 64,900 Net income 7,200 Statement of owner’s equity Beginning owner’s equity balance $ 113,200 Owner withdrawals 61,300 Ending owner’s equity balance 70,800 Balance sheet Total liabilities $ 97,000 By picturing the content of and the interrelationships among the !nancial statements, determine the following: a. Total revenues for the year b. Total owner investments c. Total assets 9. Financial statement presentation. The accounting records of Hickory Enterprises revealed the following selected information for the year ended December 31, 20X6. Cash investments by the owner $ 59,000 Services rendered to customers 86,000 Cash withdrawals by the owner 12,000 Total year-end assets 177,800 Salaries, advertising, and utilities for the year totaled $68,500. The year-end asset total included a parcel of land that had cost the company $45,000. Hickory’s accountant used this amount for valuation purposes rather than the land’s current market value of $75,000 (as determined by a recent real estate appraisal). Problems CHAPTER 1 a. Determine the net income to be disclosed on the company’s income statement. b. Compute the increase or decrease in owner’s equity during 20X6. On which !nancial statement would this information appear? c. Determine and justify the proper valuation for Hickory’s year-end assets.     1. Identification of transactions. The following tabulation summarizes several transactions of the Hartford Company: Assets 5 Liabilities 1 Owner’s Equity Cash 1 Accounts Receivable 1 Computer Accounts Payable 1 (Investments 2 Withdrawals) 1 (Revenues 2 Expenses) $5,000 $13,000 $29,000 $17,000 $30,000 Balances a. 2800 2800* b. 11,900 21,900 c. 22,000 22,000 d. 23,000 110,000 17,000 e. 11,500 11,500* f. 12,500 12,500 g. 1900 2900* $1,100 $12,600 $41,500 $24,900 $30,300 Transactions in the Owner’s Equity column designated with an asterisk (*) were caused by the company’s income-producing activities. The $2,000 and $2,500 !gures are unrelated to such activities.           Write a brief explanation of each transaction. 2. Basic transaction processing. On November 1 of the current year, Richard Parker established a sole proprietorship. The following transactions occurred during the month: 1: Received $19,000 from Parker as an investment in the business. 2: Paid $9,000 to acquire a used minivan. Problems CHAPTER 1 3: Purchased $1,800 of office furniture on account. 4: Rendered $2,100 of consulting services on account. 5: Paid $300 of repair expenses. 6: Received $800 from clients who were previously billed in item 4. 7: Paid $500 on account to the supplier of office furniture in item 3. 8: Received a $150 electric bill, to be paid next month. 9: Processed a $600 withdrawal for Parker. 10: Received $250 from clients for consulting services rendered. 11: Returned a $450 office desk to the supplier. The supplier agreed to reduce the balance due.           a. Arrange the following asset, liability, and owner’s equity elements of the accounting equation: Cash, Accounts Receivable, Of!ce Furniture, Van, Accounts Payable, Investments/Withdrawals, and Revenues/Expenses. b. Record each transaction on a separate line. After all transactions have been recorded, compute the balance in each of the preceding items. c. Answer the following questions for Parker. (1) How much does the company owe to its creditors at month-end? On which !nancial statement(s) would this information be found? (2) Did the company have a “good” month from an accounting viewpoint? Brie”y explain. 3. Statement preparation. The following information is taken from the accounting records of Grimball Cardiology at the close of business on December 31, 20X1. Accounts Payable $ 14,700 Surgery Revenue $175,000 Surgical Expenses 80,000 Cash 60,000 Surgical Equipment 37,000 Of!ce Equipment 118,000 Salaries Expense 30,000 Rent Expense 15,000 Accounts Receivable 135,000 Loan Payable 10,300 Utilities Expense 5,000 All equipment was acquired just prior to year-end. Conversations with the practice’s bookkeeper revealed the following data: Rose Grimball, capital (January 1, 20X1) $300,000 19X1 owner investments 2,000 19X1 owner withdrawals 22,000 Problems CHAPTER 1           a. Prepare the income statement for Grimball Cardiology in good form. b. Prepare a statement of owner’s equity in good form. c. Prepare Grimball’s balance sheet in good form. 4. Transaction analysis and statement preparation. The transactions that follow relate to Frisco Enterprises for March 20X1, the company’s !rst month of activity. 3/1: Received $20,000 cash from Joanne Burton, the owner, as an investment in the business. 3/4: Rendered $2,400 of services on account. 3/7: Acquired a small parcel of land by paying $6,000 cash. 3/12: Received $700 from a client, who was billed previously on March 4. 3/15: Paid $800 to the Journal Herald for advertising that ran during the !rst half of the month. 3/18: Acquired $9,000 of equipment from Park Central Out!tters by paying $7,000 down and agreeing to remit the balance owed within the next 2 weeks. 3/22: Received $300 cash from clients for services performed on this date. 3/24: Paid $1,500 on account to Park Central Out!tters in partial settlement of the balance due from the transaction on March 18. 3/28: Rented a car from United Car Rental for use on March 28. Total charges amounted to $75, with United billing Frisco for the amount due. 3/31: Paid $900 for March wages. 3/31: Processed a $600 cash withdrawal from the business for Joanne Burton.           a. Determine the impact of each of the preceding transactions on Frisco’s assets, liabilities, and owner’s equity. Use the following format: Assets 5 Liabilities 1 Owner’s Equity Cash Accounts Receivable Land Equipment Accounts Payable (1) Investments (1) Revenues (2) Withdrawals (2) Expenses Record each transaction on a separate line. Calculate balances only after the last transaction has been recorded. b. Prepare an income statement, a statement of owner’s equity, and a balance sheet in good form. Problems CHAPTER 1 5. Financial statement preparation. On October 1, 20X6, Susan Thompson opened Thompson Decorating Services, a sole proprietorship. Susan began operations with $50,000 cash, 60% of which was acquired via an owner investment. The remaining amount was obtained from a bank loan. A review of the accounting records for October revealed the following: r
Asset purchases: Van, $16,000; office equipment, $4,000; and decorator (household) furnishings, $17,000. These amounts were paid in cash except for $2,100 that is still owed for the furnishings acquisition. r
Services performed: Total billings on account, $18,300. Clients have remitted a total of $14,200 in settlement of their balances due. r
Expenses incurred: Salaries, $8,700; advertising, $2,500; taxes, $150; postage, $1,800; utilities, $100; interest, $450; and miscellaneous, $200. These amounts had been paid by month-end with the exception of $700 of the advertising expenditures. Further information revealed that Thompson withdrew $5,500 of cash from the business on October 31.           a. Prepare an income statement for the month ending October 31, 20X6. b. Prepare a statement of owner’s equity for the month ending October 31, 20X6. c. Prepare a balance sheet as of October 31, 20X6.

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