Exercise 1-2

Code

E
G
A
F
C
D
B

Description
1. Usually created by a pronouncement from an
authoritative body.
2. Requires financial statements reflect the assump-tion
that the business continues operating.
3. Derived from long-used and generally accepted
accounting practices.
4. Requires financial statement information to be
supported by evidence other than someones opinion or
belief.
5. Requires every business to be accounted for separately
from its owner or owners.
6. Requires revenue to be recorded only when the
earnings process is complete.
7. Requires information to be based on actual costs
incurred in transactions.

Principle
Specific accounting
principle
Going-concern
principle
General accounting
principle
Objectivity principle
Business entity
principle
Revenue recognition
principle
Cost principle

Exercise 1-12

Cash

a.

+$50,000

b.

1,600

Bal.

c.

48,400 +

f.

50,400 +
8,000

Bal.

g.

42,400 +
2,400

Bal.

h.

40,000 +
+ 5,000 -

Bal.

i.

45,000 +
12,000

Bal.

j.
Bal.

33,000 +

500

$32,500 +

Accounts
Payable

$10,000 =
10,000 =

12,000

22,000 =
______

50,400 +

Bal.

+ 2,000
_______ +

Equipment

Maben,
Capital

$60,000

______

_______

Bal.

e.

48,400 +

Bal.

d.

Accounts
+ Receivable +

+
$7,000
7,000 +
______ +
7,000 +
______

______

12,000 +
_______
12,000 +
_______

22,000 =
8,000

12,000 +
_______

30,000 =
______
30,000 =

5,000

______

2,000 +

30,000 =

2,000 +

+$12,000

22,000 =

7,000 +

______

______

12,000 +
_______
12,000 +
_______
12,000 +
12,000

30,000 =

0 +

Maben,
Withdrawals + Revenue

- Expenses

______

$1,600

60,000

1,600

______

_____

60,000

______

60,000

2,000

1,600

______

7,000

_____

60,000

9,000

1,600

_____

_____

9,000

1,600

______
60,000

______

$2,000

1,600

_____

60,000

______
60,000

______
60,000

_____

2,400

9,000

4,000

_____

_____

9,000

4,000

_____

_____

9,000

4,000

______

______

_______

______

$500

_____

_____

$2,000 +

$30,000 =

$60,000

$500 +

$9,000

$4,000

0 +

Exercise 1-13
BEST ANSWERS
Income Statement
For Month Ended October 31
Revenues
Consulting fees earned...........................
Expenses
Salaries expense......................................
Rent expense...........................................
Telephone expense.................................
Miscellaneous expenses..........................
Total expenses........................................
Net income.........................................................

$15,000
$6,000
2,550
660
680
9,890
$ 5,110

Exercise 1-14
BEST ANSWERS
Statement of Owners Equity
For Month Ended October 31
S. Shandi, Capital, Oct. 1........................................
Add: Investments by owner...........
Net income (from Exercise 1-13)....................
Less: Withdrawals by owner..................................
S. Shandi, Capital, Oct. 31......................................

0
74,000
5,110
79,110
3,360
$75,750

Exercise 1-15
BEST ANSWERS
Balance Sheet
October 31
Assets
Cash................................... $ 2,000
7,500
Accounts receivable.......... 13,000
Office supplies..................
4,250
Office equipment.............. 28,000
75,750
Land.................................. 36,000
Total assets........................ $83,250
..............................$83,250
* Computation of amount from Exercise 1-14.

Liabilities
Accounts payable.......................
Equity
S. Shandi, Capital*....................
Total liabilities and equity.........

Problem 1-1A
Part 1
Company A:
(a)

Equity on December 31, 2004:

Assets...................................................$45,000
Liabilities........................................................... (23,500)
Equity................................................................ $21,500

(b)

Equity on December 31, 2005:

Equity, December 31, 2004............................... $21,500
Plus owner investments....................................
5,000
Plus net income.................................................
7,500
Less owners withdrawals................................
(2,500)
Equity, December 31, 2005.............................. $31,500

(c)

Amount of liabilities on December 31, 2005:

Assets...................................................$48,000
Equity................................................................ (31,500)
Liabilities........................................................... $16,500

Part 2
Company B:
(a) and (b)
Equity:
12/31/2004
Assets......................................... $35,000
Liabilities.................................. (22,500)
Equity........................................ $12,500

12/31/2005
$41,000
(27,500)
$13,500

(c)

Net income for 2005:

Equity, December 31, 2004............................ $12,500
Plus owner investments.................................
1,500
Plus net income..............................................
?
Less owners withdrawals.............................
(3,000)
Equity, December 31, 2005............................ $13,500
Therefore, net income must have been $2,500.

Part 3
Company C:
First, calculate the beginning balance of equity:
Dec. 31, 2004
Assets...................................................$29,000
Liabilities........................................................... (14,000)
Equity................................................................ $15,000
Next, find the ending balance of equity by completing this table:
Equity, December 31, 2004............................... $15,000
Plus owner investments....................................
7,750
Plus net income.................................................
9,000
Less owners withdrawals................................
(3,875)
Equity, December 31, 2005............................... $27,875
Finally, find the ending amount of assets by adding the ending balance of
equity to the ending balance of liabilities:
Dec. 31, 2005
Liabilities........................................................... $19,000
Equity................................................................ 27,875
Assets...................................................$46,875
Part 4
Company D:
First, calculate the beginning and ending owners equity balances:
12/31/2004 12/31/2005
Assets........................$80,000
$ 125,000
Liabilities.....................................
(38,000)
(64,000)

Owners Equity...........................

$42,000

$ 61,000

Then, find the amount of owner investments during 2005:

Equity, December 31, 2004.................................
Plus owner investments.......................................
Plus net income....................................................
Less owner withdrawals......................................
Equity, December 31, 2005.................................
Thus, owner investments must have been:

$42,000
?
12,000
0
$61,000

$7,000

Part 5
Company E:
First, compute the balance of equity as of December 31, 2005:
Assets.................................................$112,500
Liabilities..........................................................
(75,000)
Equity................................................................ $ 37,500
Next, find the beginning balance of equity as follows:
Equity, December 31, 2004............................... $
?
Plus owner investments....................................
4,500
Plus net income................................................. 18,000
Less owners withdrawals................................
(9,000)
Equity, December 31, 2005.............................. $37,500
Thus, the beginning balance of equity was $24,000.
Finally, find the beginning amount of liabilities by subtracting the beginning
balance of equity from the beginning balance of assets:
Dec. 31, 2004
Assets..................................................$123,000
Equity................................................................ (24,000)
Liabilities.......................................................... $ 99,000