WEEK 1

Chapter 1
E1-4
1.

The accounting method used is Incorrect. Because the cost principle requires that
assets (such as buildings) be recorded and reported at their cost.

2. The accounting method used is Correct. Because according to the monetary unit
assumption requires that companies include in the accounting records only transaction
data that can be expressed in terms of money be included in the accounting records.
This assumption enables accounting to quantify (measure) economic events. The
monetary unit assumption is vital to applying the cost principle

3. The accounting method used is Incorrect. Because according to The Economic Entity
Assumption says that the activities of the entity are to be kept separate from the
activities of its owner and all other economic entities. The business is accounted for
separately from other business entities, including its owner. The reason for this is that
separate information about each business is necessary for good decisions. Economic
entity can be any organization or unit in society.

E1-7
1. C
2. D
3. A
4. B
5. D
6. B
7. E
8. F

E1-11
For (a)
Total assets (beginning of year) .....................................................................................
Total liabilities (beginning of year) ................................................................................
a) Total stockholders equity (beginning of year) .
$12,000

$ 97,000
85,000

For (b)

Total stockholders equity (end of year) ........................................................................

Total stockholders equity (beginning of year) ..............................................................
Increase in stockholders equity ....................................................................................

$ 40,000
12,000
$ 28,000

Total revenues ...............................................................................................................

Total expenses ...............................................................................................................
Net income .....................................................................................................................

$215,000
175,000
$ 40,000

Increase in stockholders equity ........................................................

Less: Net income ...............................................................................
$(40,000)
Add: Dividends .................................................................................
24,000)
(b) Additional investment
. $12, 000

$ 28,000
(16,000 )

For (c)
Total assets (beginning of year) .....................................................................................
Total stockholders equity (beginning of year) ..............................................................
(c) Total liabilities (beginning of
year)$ 54,000

$129,000
75,000

For (d)
Total stockholders equity (end of year) ........................................................................
Total stockholders equity (beginning of year) ..............................................................
Increase in stockholders equity ....................................................................................

$130,000
75,000
$ 55,000

Total revenues ...............................................................................................................

Total expenses ...............................................................................................................
Net income .....................................................................................................................

$100,000
55,000
$ 45,000

Increase in stockholders equity ........................................................

Less: Net income ...............................................................................
Additional investment........................................................................
(d)
Dividends
$ 15,000

$ 55,000
$(45,000)
(25,000)

(70,000)

PROBLEM P1-2A
a.
DONAHUE VETERINARY CLINIC

Accounts
Office
Notes
Accounts Common
Retained
Cash + Receivable + Supplies + Equipment = Payable + Payable + Stock + Earnings + Revenues Expenses Dividends
$ 9,000 + $1,700
2,900

+ $600

00,000

6,100 +

1,700

1,300

+1,300
7,400 +
800

400

6,600 +

400

400

5,200

5,200

600

600

600

600

$3,600

6,000

6,000

8,100

700

8,100

700

8,100

$700

0
+

13,000

700

13,000

700

13,000

700

+1,300
=

2,000
00,000

2,000

000,000
+

00,000
=

000,000
+

+ $13,000

2,900

+2,100

0000
+

000,000
+

0000

00,000

8,700 +

0000

+4,800

9,100 +

600

$ 6,000
000,000

0000
+

00,000

+2,500

0000

+$7,300
+

13,000

700

7,300

13,000

700

7,300

$400

00,000
=

2,000

400
$1,700
900

2,800

00,000

5,900 +
000,000

5,200

0000
+

00,000

5,900 +

5,200

600

000,000
+

0000
+

600

8,100

2,000

2,170

000,000
+

8,100

+10,000

200

00,000
+

13,000

700

7,300

2,800

13,000

700

7,300

2,970

+ $13,000

$700

400

170

+170

400

+$10,000

$15,900 + $5,200

+ $600

$ 8,100

= +$10,000 + $2,170

$7,300

$ 2,970

b.

Income Statement
For the Month Ended September 30, 2014
Revenues
Service revenue............................................................................
Expenses
Salaries and wages expense.........................................................
Rent expense................................................................................
Advertising expense .....................................................................
Utilities expense ...........................................................................
Total expenses ...................................................................

$7,300
$1,700
900
200
170
2,970

$400

Net income . ......................................................................... ..

$4, 330

Retained Earnings Statement

For the Month Ended September 30, 2014
Retained earnings, September 1 .............................................................................
Add: Net income ....................................................................................................
Less: Dividends ........................................................................................................
Retained earnings ...................................................................................................

$ 700
4,330
5,030
400
$4,630

Balance Sheet
September 30, 2014
Assets
Cash ..
$15,900
Accounts receivable ................................................................................
Supplies ...................................................................................................
Equipment ...............................................................................................
Total assets .............................................................................................

5,200
600
8,100
$29,800

Liabilities and Stockholders Equity

Notes payable ...............................................................................
Accounts payable ..........................................................................
Total liabilities ..............................................................................
Stockholders equity
Common stock ..............................................................................
Retained earnings .........................................................................
Total liabilities and stockholders equity ....................................

CHAPTER 1 HW SCREENSHOT

Exercise 1-4

$10,000
2,170
12,170
$13,000
4,630

17,630
$29,800

Your answer is correct.

The following situations involve accounting principles and assumptions.
For each of the three situations, state if the accounting method used is correct or incorrect.
If correct, identify which principle or assumption supports the method used. If incorrect,
identify which principle or assumption has been violated.
Accounting
method

Principle/Assumption

1. Julia Company owns buildings that

are worth substantially more than
they originally cost. In an effort to
provide more relevant information,
Julia reports the buildings at fair
value in its accounting reports.

Incorrect

Cost principle

2. Dekalb Company includes in its

accounting records only transaction
data that can be expressed in terms
of money.

Correct

Monetary unit assumption

3. Omar Shariff, president of Omars

Oasis, records his personal living
costs as expenses of the Oasis.

Incorrect

Economic entity assumption

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Question Attempts: 1 of 3 used

Exercise 1-7
Your answer is correct.
Collins Computer Timeshare Company entered into the following transactions during May
2014.
Describe the effect of each transaction on assets, liabilities, and stockholder's equity.
1. Purchased
computer
terminals for
$20,000
from Digital
Equipment
on account.

An increase in assets and an increase in liabilities

2. Paid $3,000
cash for May
rent on
storage
space.

A decrease in assets and a decrease in stockholders equity

3. Received
$15,000
cash from
customers
for contracts
billed in
April.

An increase in assets and a decrease in assets

4. Provided
computer
services to
Schmidt
Construction
Company for
$2,400
cash.

An increase in assets and an increase in stockholders equity

5. Paid Central
States
Power Co.
$11,000
cash for
energy
usage in
May.

A decrease in assets and a decrease in stockholders equity

6. Stockholders
invested an
additional
$32,000 in
the
business.

An increase in assets and an increase in stockholders equity

7. Paid Digital
Equipment
for the
terminals
purchased in
(1) above.

A decrease in assets and a decrease in liabilities

8. Incurred
advertising
expense for
May of $900
on account.

An increase in liabilities and a decrease in stockholders equity

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Question Attempts: 1 of 3 used

Exercise 1-11
Your answer is correct.
Two items are omitted from each of the following summaries of balance sheet and income
statement data for two corporations for the year 2014, Steven Craig and Georgia
Enterprises.
Determine the missing amounts.
Steven
Craig

Georgia
Enterprises

Beginning of year:
Total assets

$97,000

Total liabilities

$129,000

85,000

Total stockholders equity

12,000

54,000

(a)

(c)

75,000

End of year:
Total assets

160,000

180,000

Total liabilities

120,000

50,000

40,000

130,000

Total stockholders equity

Changes during year in stockholders equity:
Additional investment
Dividends

12,000

24,000

(b)

25,000
15,000

(d)

Total revenues

215,000

100,000

Total expenses

175,000

55,000

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Question Attempts: 1 of 3 used

*Problem 1-2A
On August 31, the balance sheet of Donahue Veterinary Clinic showed Cash $9,000, Accounts
Receivable $1,700, Supplies $600, Equipment $6,000, Accounts Payable $3,600, Common Stock
$13,000, and Retained Earnings $700. During September, the following transactions occurred.

1.

Paid $2,900 cash for accounts payable due.

2.

Collected $1,300 of accounts receivable.

3.

Purchased additional office equipment for $2,100, paying $800 in cash and the balance on
account.

4.

Earned revenue of $7,300, of which $2,500 is paid in cash and the balance is due in
October.

5.

Declared and paid a $400 cash dividend

6.

Paid salaries $1,700, rent for September $900, and advertising expense $200.

7.

Incurred utilities expense for month on account $170.

8.

Received $10,000 from Capital Bank on a 6-month note payable.

*(a)
Your answer is correct.
Prepare a tabular analysis of the September transactions beginning with August 31 balances. (If
a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a
negative sign (or parentheses) in front of the amount entered for the particular Asset,
Liability or Equity item that was reduced. See Illustration 1-8 for example.)
DONAHUE VETERINARY CLINIC
Assets

Liabilities

Stockholders' Equity

Account
Accou
Retain
Office Notes
Comm
+
s
+
+
=
+ nts +
+ ed +

Suppli Equipm Paya

on
Reven Expen Divide
Cash Receiva
Payabl
Earnin
es
ent
ble
Stock
ues
ses
nds
ble
e
gs
Ba
$
$
$ 1700 $ 600
$ 6000
$ $ 3600
$ 700
$
$
$
l. 9000
13000
1.

2900

2.

+130
0

3.

-800

4.

+250
0

5.

-400

6.

2800

-2900

-1300

+2100

+1300

+4800

+7300

-400

-2800

7.

8.

+170
+100
00

+100
00

-170

$
1590
0

$ 5200

$ 600

$
$ 8100=
$ 2170
10000

$
13000

$ 700

$ 7300

$2970

$ -400

Attempts: 3 of 3 used

*(b1)
Your answer is correct.
Prepare an income statement for September.
DONAHUE VETERINARY CLINIC
Income Statement
For the Month Ended September 30, 2014
Revenues
$ 7300
Expenses
$ 1700
900
200
170
Total Expenses
Net Income / (Loss)

2970
$ 4330
Attempts: 1 of 3 used

*(b2)
Your answer is correct.
Prepare a retained earnings statement for September. (List items that increase retained
earnings first.)
DONAHUE VETERINARY CLINIC
Retained Earnings Statement
For the Month Ended September 30, 2014
Retained Earnings, September 1

$ 700

Add: Net Income / (Loss)

4330
5030

Less: Dividends

400

Retained Earnings, September 30 $ 4630

Attempts: 1 of 3 used

*(b3)
Your answer is correct.
Prepare a balance sheet at September 30. (List assets in order of liquidity.)
DONAHUE VETERINARY CLINIC
Balance Sheet
September 30, 2014
Assets
$ 15900
5200
600
8100
Total Assets

$ 29800
Liabilities and Stockholders Equity

Liabilities
$ 10000
2170
Total Liabilities

12170

Stockholders' Equity
$ 13000
4630
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity

17630
$ 29800
Attempts: 3 of 3 used