(Solution Manual) Principles of Financial Accounting, Australian Edition

Weygandt,Mitrione,Rankin,Chalmers,Kieso,Kimmel, 3

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Solution Manual for Principles of Financial Accounting, Australian Edition, The downloadable file consists of 767 pages, and the total size of the file is 6.11 MB. Purchase now only for highly discounted price.

Author(s): Weygandt, Mitrione, Rankin, Chalmers, Kieso, Kimmel

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1-1 Solutions Manual to accompany Principles of Financial Accounting 3rd edition by Jerry Weygandt, Lorena Mitrione, Michaela Rankin, Keryn Chalmers, Donald Kieso, Paul Kimmel Chapter 1 Accounting in Action Chapter 1 Accounting in action CHAPTER 1 Accounting in Action ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Exercises Problems Set A 1. Explain what accoun ting is. 1, 2, 9 2. Recognise the importance and value of accountin g 3. Identify the role of corporate governance in enhancing the quality of financial reporting 3, 4 4. Identify the users and uses of accounting. 7, 8 5. Explain why ethics is a fundamental bus iness concept. 26, 27 6. Recognise the importance of sustainability, and sustainability reporting for business 7. Explain the meaning of generally accepted accounting principles and the cost principle. 10 8. Explain the meaning of the moneta ry unit assumption and the economic entity assum ption. 11, 12, 13, 14 9. State the basic accounting equation, and explain the meaning of assets, liabilities and owner’s 15, 16, 17 1, 2, 3, 9 1, 2, 3, 7, 13 1A, 2A Solutions manual to accompany Principles in Financial Accounting 3e 1-3 equity. 10. Analyse the effects of business transactions on the basic accoun ting equation. 18, 19, 20, 22 4, 5, 6, 7 2, 3, 4, 6, 7, 13 1A, 2A, 4A, 5A, 7A 11. Understand what the four financial statements are and how they are pr epared. 21, 23, 24, 25 8, 10 5, 8, 9, 10, 11, 12 2A, 3A, 4A, 5A, 6A, 7A 12. Identify the three major fields of the accounting profession and potential careers Chapter 1 Accounting in action ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min. ) 1 Analyse transactions and c alculate profit . Moderate 40–50 2 Analyse transactions and prepare an income stat ement, a statement of changes in equity and a statement of financial position . Moderate 50–60 3 Prepare an inco me stat ement, a statement of changes in equity and statement of financial position. Moderate 50–60 4 Analyse transactions and prepare financial statements . Moderate 40–50 5 Determine financial statement amounts and prepare a stateme nt of changes in equity . Moderate 40–50 6 Calculate profit and prepare a statement of financial position . Moderate 40–50 7 Analyse transactions and prepare financial statements . Moderate 40–50 Solutions manual to accompany Principles in Financial Accounting 3e 1-5 BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End -of-Chapter Exercises and Problems Learning Objective Know ledge Comprehe nsion Application Analysis Synthesis Evaluation 1. Explain what accounting is. Q1-1 Q1-9 Q1-5 2. Understan d the importance and value of accounting 3. Understand the role of corporate governance in enhancing the quality of financial reporting. Q1-3 Q1-4 4. Identify the users and uses of a ccounting. Q1-7 Q1-8 5. Understand why ethics is a fun dame ntal business concept. Q1-27 Q1-26 6. Understand the importance of sustainability, and sustainability reporting for business. Q1-6 Q1-5 7. Explain the meaning of generally a ccepted accounting principles and the cost principle. Q1-10 8. Explain the meaning of the monetary unit assumption and the economic entity assum ption. Q1-12 Q1-13 Q1-11 Q1-14 9. State the basic accounting equation, and explain the meaning of assets, liabilities, and owner’s equity. Q1-15 Q1-16 Q1-17 BE1-9 E1-1 E1-2 E1-3 BE1-1 BE1-2 BE1-3 E1-7 P1-1A P1-2A 10. Analyse the effects of business tran sactions on the basic accounting equation. Q1-18 Q1-19 Q1-20 Q1-22 BE1-4 BE1-5 BE1-6 BE1-7 E1-2 E1-3 E1-4 E1-6 E1-7 P1-1A P1-2A P1-4A P1-5A P1-7A 11. Understand what the four financial statements are and how they are prepared. Q1-21 Q1-23 BE1-10 Q1-24 Q1-25 BE1-8 E1-5 E1-8 E1-10 E1-11 E1-12 E1-13 P1-2A P1-3A P1-4A P1-5A P1-6A P1-7A E1-9 Chapter 1 Accounting in action 12. Identify the three major fields of the accounting profession and pot ential accounting careers. Broadening Your Perspective Exploring the Web Financial Reporting Comparative Analysis Exploring the Web Interpreting Financial reports Research Question Comparative Analysis Group D ecision Communic ation Activity Ethics Case Solutions manual to accompany Principles in Financial Accounting 3e 1-7 ANSWERS TO QUESTIONS 1. Yes, this is correct. Virtually every organi sation and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not -for-profit organi sations must use a ccounting information to operate effectively. 2. Accounting is the process of identifying, recording, and communicating the economic events of an entity to interested users of the information. The first step of the accounting process is therefore to identify events that are: (a) considered evidence of economic activity and (b) relevant to a particular business ent ity. Once identified and measured, the events are recorded to provide a permanent history of the financial activities of the entity . Recording consists of keeping a chronological diary of thes e measured events in an o rderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common of which are called financial report s. A vital element in the communication process is th e accountant’s ability and responsibility to analyse and interpret the reported info rmation. 3. Corporate governance can be defined as the system in which entities are directed or controlled, managed and administered. It influences how the objectives of a company are set and achieved, how risk is monitored and assessed, and how performance of the entity is optimised. It is largely about the decision -making process of the entity, ensuring that the goals and hence the decisions made by management are align ed with those of the shareholders. 4. No, corporate governance applies to all forms of entities regardless of how large or small. Whilst the agency relationship in small business especially if they are family businesses does not exist, other governance i ssues exist which can be improved by good governance. Family businesses, for example, still need to focus on strategic business issues and clear lines of responsibility. 5. There are a growing number of investors who assess the entity in terms of their i mpact on society and the environment prior to investing in those companies. That is, these investors invest on an ethical basis and are known as socially responsible investors. Advantages of sustainability reporting: • May attract ethical investors • Allows e ntity to assess its operations in terms of its impact on society and the environment • Ability to manage risk and create value • May lead to increased loyalty from employees, customers and investors through brand and reputation Disadvantages of sustainability reporting: • Difficult to measure and quantify in dollar terms 6. Three components of triple bottom line reporting are: • Social bottom line – how the entity deals with issues such as employee working conditions and safety and security • Environmental bottom li ne – reviews how the entity’s products or operations impact on the environment • Economic bottom line – entity’s profitability and business strategy, that is, financial reporting. Chapter 1 Accounting in action 7. (a) Internal users are those who manage the business and therefore are officers and other decision makers. (b) To assist management, accounting provides internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and for ecasts of cash needs for the next year. 8. (a) Investors (owners) use accounting information to make decisions to buy, hold or sell shares. (b) Creditors use accounting information to evaluate the risks of granting credit or lending money. 9. Bookkeeping usually involves only the record ing of economic events and therefore is just one part of the entire accounting process. Accounting, on the other hand, involves the entire accoun ting pro cess, including identification, measurement, recording, and communication. 10. Jack Jone s Travel Agenc y should report the land at $ 105 000 on its 31 December 2013 statement of financial position . An important concept that accountants follow is the cost principle. The cost pri nciple states that assets should be recorded at their historic cost. Cost has an i mportant adva ntage over other valuations: it is reliable. Cost can be objectively measured and can be ver ified. 11. The monetary unit assumption requires that only transaction data capable of being expressed in terms of money be included in the accounting records. An important part of the monetary unit assumption is the added assumption that the unit of measure remains sufficiently constant over time. The assumption of a stable monetary unit has been challenged because of the significant decline in the pur chasing power of the dollar. 12. The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities. 13. The three basic forms of business organisatio ns are: (1) proprietorship, (2) partnership, and (3) co mpany . 14. One of the advantages Teresa Bono would enjoy is that ownership of a co mpany is represented by transferable shares. This would allow Teresa to raise money easily by selling a part of her ow nership in the company. Another advantage is that because holders of the shares (s hare holders) enjoy limited liability, they are not personally liable for the debts of the compan y. Also, because ownership can be transferred without dissolving the company , the company enjoys an u nlimited life. 15. The basic accounting equation is Assets = Liabilities + Owner’s Equity. 16. (a) Assets are resources controlled by an entity . Liabilities are claims against assets. Put more simply, liabilities are existing debts and obligations. Owner’s equity is the owne rship claim on total assets. (b) Owner’s equity is affected by owner’s investments, drawings, income and e xpenses. 17. The liabilities are: (b) Accounts payable and (g) Salaries payable. 18. Yes, an entity can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a d ecrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash a ccount is a specific example. Solutions manual to accompany Principles in Financial Accounting 3e 1-9 19. Business transactions are the economic events of the ent ity recorded by accountants because they affect the basic equation. (a) The death of the owner of the company is not a business transactio n as it does not affect the basic equation. (b) Supplies purchased on account is a business transaction as it affects the basic equ ation. (c) An employee being fired is not a business transaction as it does not affect the basic equation. (d) A withdrawa l of cash from the business is a business transaction as it affects the basic equ ation. 20. (a) Decrease assets and decrease owner’s equity. (b) Increase assets and decrease assets. (c) Increase assets and increase owner’s equity. (d) Decrease assets a nd decrease liabilities. 21. (a) Income statement. (d) Statement of financial position . (b) Statement of financial position . (e) Statement of financial position and stat ement of changes in equity . (c) Income statement. (f) Statement of financial positio n. 22. No, this treatment is not proper. While the transaction does involve a receipt of cas h, it does not represent revenue . Income, of which revenue is a component , is the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income or profit . This transaction is simply an additional inves tment made by the owner in the business. 23. Yes. P rofit does appear on the income statement — it is the result of subtracting e xpenses from income . In addition, profit appears in the statement of changes in equity — it is shown as an addition to the beginning -of-period capital. Indirectly, the profit of an entity is also included in the statement of financial position . It is included in the capital account which appears in the owner’s equity section of the statement of financial position . 24. (a) Ending capital balance ................................ ................................ ................ $218 000 Beginning capital balance ................................ ................................ ........... 178 000 Profit ................................ ................................ ................................ ............ $ 40 000 (b) Ending capital balance ................................ ................................ ................ $218 000 Beginning capital balance ................................ ................................ ........... 178 000 ................................ ................................ ................................ ..................... 40 000 Deduct: Investment ................................ ................................ .................... 23 000 Profit ................................ ................................ ................................ ............ $ 17 000 25. (a) Total income ($30 000 + $70 000) ................................ .............................. $140 000 (b) Total expenses ($26 000 + $40 000) ................................ .......................... $106 000 (c) Total income ................................ ................................ ................................ $140 000 Total expenses ................................ ................................ ............................ 106 000 Profit ................................ ................................ ................................ ............ $ 34 000 Chapter 1 Accounting in action 26. There has been quite a bit of research done in relation to this question, however, there is no definitive answer. Students may like to consider the following points: • Impact of one ’s values and upbringing • Impact of religion on ethics • Impact of importance of family • One’s principles and morals • Impact of various codes of conduct • Legal and professional consequences of acting ethically/unethically • Impact of personal reputation and commun ity standing. 27. The steps involved in solving an ethical dilemma are: (a) recognise if an ethical dilemma exists and determine the ethical issues involved. You may wish to refer to the professional association’s code of conduct for assistance in determining if an ethical dilemma exists. (b) Analyse the principle elements involved — namely the stakeholders who may be harmed or may benefit. (c) Identify alternatives, selecting the most ethical alternative. Need to consider the impact of each alternative on each stakeh older. Solutions manual to accompany Principles in Financial Accounting 3e 1-11 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1 -1 (a) $45 000 – $25 000 = $ 20 000 (Owner’s Equity). (b) $90 000 + $ 140 000 = $ 230 000 (Assets). (c) $188 000 – $130 000 = $ 58 000 (Liabilities). BRIEF EXERCISE 1 -2 (a) $200 000 + $ 464 000 = $ 664 000 (Total assets). (b) $95 000 – $40 000 = $ 55 000 (Total liabilities). (c) $300 000 – 0.5($300 000) = $ 150 000 (Owner’s equity). BRIEF EXERCISE 1 -3 (a) ($435 000 + $ 75 000) – ($250 000 – $50 000) = $ 300 000 (Owner’s equity). (b) ($250 000 + $ 50 000) + ($ 435 000 – $250 000 – $35 000) = $ 450 000 (Assets). (c) ($435 000 – $40 000) – ($435 000 – $250 000 + $ 60 000) = $ 150 000 (Liabilities). BRIEF EXERCISE 1 -4 Assets Liabi lities Owner’s E quity (a) + + NE (b) + NE + (c) – NE – BRIEF EXERCISE 1 -5 Assets Liabi lities Owner’s E quity (a) + NE + (b) – NE – (c) NE NE NE BRIEF EXERCISE 1 -6 E (a) Advertising expense D (e) Carland, Dra wings R (b) Commission revenue R (f) Rent revenue E (c) Insurance ex pense E (g) Utilities expense E (d) Salaries expense Chapter 1 Accounting in action BRIEF EXERCISE 1 -7 R (a) Received cash for services performed NE (b) Paid cash to purchase equipment E (c) Paid employee salaries BRIEF EXERCISE 1 -8 WATTS WAFERS Statement of Financial Pos ition as at 31 December 2013 Assets Cash ................................ ................................ ................................ .............................. $ 48 400 Accounts receivable ................................ ................................ ................................ ....... 79 750 Total assets ................................ ................................ ................................ .......... $128 150 Liabilities and Owner’s Equity Liabilities Accounts payable ................................ ................................ ................................ . $ 93 500 Owner’s equity Kim Watts , Capital ................................ ................................ ............................... 34 650 Total liabilities and owne r’s equity ................................ ............................. $128 15 0 BRIEF EXERCISE 1 -9 A (a) Accounts receivable A (d) Office supplies L (b) Salaries payable OE (e) Owner’s investment A (c) Equipment L (f) Notes payable BRIEF EXERCISE 1 -10 SFP (a) Notes payable IS (b) Advertising expense SCE, SFP (c) Billy Little , Capital SFP (d) Cash IS (e) Service revenue Solutions manual to accompany Principles in Financial Accounting 3e 1-13 SOLUTIONS TO EXERCISES EXERCISE 1 -1 Asset Liability Owner’s E quity Cash Accounts pa yable Kate Roberts , Cap ital Cleaning equi pment Notes payable Cleaning su pplies Salaries pa yable Accounts r eceivable EXERCISE 1 -2 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 incr ease 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 i ncrease in owner’s equity. EXERCISE 1 -3 1. (c) 5. (d) 2. (d) 6. (b) 3. (a) 7. (e) 4. (b) 8. (f) EXERCISE 1 -4 (a) 1. Owner invested $ 30 000 cash in the firm . 2. Purchased office equipment for $ 10 000, paying $4 000 in cash and the balance of $ 6000 on account. 3. Paid $ 1500 cash for supplies. 4. Earned $ 12 600 in revenue , receiving $ 5200 cash and $ 7400 on account. 5. Paid $ 3000 cash on accounts payable. 6. Owner withdrew $ 4000 cash for personal use. 7. Paid $ 1300 cash for rent. 8. Collected $ 900 cash from customers on account. 9. Paid salaries of $ 7800. 10. Incurred $ 1000 of utilities expense on account. (b) Investment ................................ ................................ ................................ ............ $30 000 Service revenue ................................ ................................ ................................ ... 12 600 Drawings ................................ ................................ ................................ .............. (4 000) Rent expense ................................ ................................ ................................ ....... (1 300) Salaries expense ................................ ................................ ................................ .. (7 800) Utilities expense ................................ ................................ ................................ ... (1 000) Increase in capital ................................ ................................ ................................ $28 50 0 Chapter 1 Accounting in action EXERCISE 1 -4 (continued) (c) Service revenue ................................ ................................ ................................ ... $12 6 00 Rent expense ................................ ................................ ................................ ....... (1 30 0) Salaries expense ................................ ................................ ................................ .. (7 800) Utilities expense ................................ ................................ ................................ ... ( 1 000) Profit ................................ ................................ ................................ ..................... $2 500 EXERCISE 1 -5 J. L. KUA NG & ASSOCIATES Income Statement For the Month Ending 31 August 2013 Income Service revenue ................................ ................................ ............ $12 600 Expenses Salaries expense ................................ ................................ ........... $7 800 Rent expense ................................ ................................ ................ 1 300 Utilities expense ................................ ................................ ............ 1 000 Total expenses ................................ ................................ .... 10 10 0 Profit ................................ ................................ ............................. $2 500 J. L. KUA NG & ASSOCIATES Statement of Changes in Equity For the Month End ing 31 August 2013 J. L. K uang, Capital , 1 August ................................ ................................ 0 Add: Investments ................................ ................................ .................. $30 000 Profit ................................ ................................ ......................... 2 500 32 50 0 ................................ ................................ ................................ ................. 32 500 Less: Drawings ................................ ................................ ....................... 4 000 J. L. Kuang, Capital , 31 August ................................ .............................. $28 50 0 J. L. KUA NG & ASSOCIATES Statement of Financial Position as at 31 August 2013 Assets Cash ................................ ................................ ................................ .............................. $ 14 50 0 Accounts receivable ................................ ................................ ................................ ....... 6 500 Supplies ................................ ................................ ................................ .......................... 1 500 Office equipment ................................ ................................ ................................ ............ 10 000 Total assets ................................ ................................ ................................ .......... $32 500 Liabilities and Owner’s Equity Liabilities Accounts payabl e ................................ ................................ ................................ . $ 4 000 Owner’s equity J. L. K ong Capital ................................ ................................ ................................ 28 50 0 Total liabilities and owner’s equity ................................ ............................. $32 50 0 Solutions manual to accompany Principles in Financial Accounting 3e 1-15 EXERCISE 1 -6 (a) Owner’s equity — 31/12/ 13 ($380 000 – $250 000) ................................ ............ $130 000 Owner’s equity — 1/1/13 ................................ ................................ ...................... 100 000 Increase in owner’s equity ................................ ................................ .................... 30 000 Add: Drawings ................................ ................................ ................................ ..... 15 000 Profit for 2013 ................................ ................................ ................................ ........ $ 45 000 (b) Owner’s equity — 31/12/ 14($460 000 – $310 000) ................................ ........... $150 000 Owner’s equity — 1/1/14 — see (a) ................................ ................................ ... 130 000 Increase in owner’s equity ................................ ................................ .................. 20 000 Less: Additional investment ................................ ................................ ............... 50 000 Loss for 2014 ................................ ................................ ................................ ...... $ 30 000 (c) Owner’s equity — 31/12/ 15 ($590 000 – $400 000) ................................ .......... $190 000 Owner’s equity — 1/1/15 — see (b) ................................ ................................ ... 150 000 Increase in owner’s equity ................................ ................................ .................. 40 000 Less: Additional investment ................................ ................................ ............... 15 000 25 000 Add: Drawings ................................ ................................ ................................ .. 30 000 Profit for 2015 ................................ ................................ ................................ ...... $ 55 000 EXERCISE 1 -7 (a) Total assets (beginning of year) ................................ ................................ ...... $97 000 Total liabilities (beginning of year) ................................ ................................ ... 85 000 Total owner’s equity (beginning of year) ................................ ......................... $12 000 (b) Total owner’s equity (end of year) ................................ ................................ ... $40 000 Total owner’s equity (beg inning of year) ................................ ......................... 12 000 Increase in owner’s equity ................................ ................................ ............... $28 000 Total revenue ................................ ................................ ................................ ... $215 000 Total expenses ................................ ................................ ................................ . 175 000 Profit ................................ ................................ ................................ ................. $ 40 000 Increase in owner’s equity ................................ ...................... $28 000 Less: Profit ................................ ................................ ............. $(40 000) Add: Drawings ................................ ................................ ...... 24 000) (16 000) Additional investment ................................ .............................. $12 000 (c) Total assets (beginning of year) ................................ ................................ ...... $129 000 Total owner’s equity (beginning of year) ................................ ......................... 75 000 Total liabilities (beginning of year) ................................ ................................ ... $ 54 000 (d) Total owner’s equity (end of year) ................................ ................................ ... $130 000 Total owner’s eq uity (beginning of year) ................................ ......................... 75 000 Increase in owner’s equity ................................ ................................ ............... $ 55 000 Chapter 1 Accounting in action EXERCISE 1 -7 (continued) Total revenue ................................ ................................ ................................ ... $100 000 Total expenses ................................ ................................ ................................ . 55 000 Profit ................................ ................................ ................................ ................. $ 45 000 Increase in owner’s equity ................................ ...................... $55 000 Less: Profit ................................ ................................ ............. $(45 000) Additiona l investment ................................ ............... (25 000) (70 000) Drawings ................................ ................................ ................. $ 15 000 EXERCISE 1 -8 ERIC NG CONSULTING Income Statement For the Year Ending 31 December 2013 Income Service revenue ................................ ................................ ............ $31 25 0 Expenses Salaries expense ................................ ................................ ........... $14 000 Rent expense ................................ ................................ ................ 5 200 Utilities expense ................................ ................................ ............ 1 550 Advertising expense ................................ ................................ ...... 900 Total expenses ................................ ................................ .... 21 65 0 Profit ................................ ................................ ............................. $9 600 ERIC NG CONSULTING Statement of Changes in Equity For the Year Ending 31 December 2013 Eric Ng, Capital, 1 January ................................ ................................ ............................ $24 000 Add: Net profit ................................ ................................ ................................ .............. 9 600 ................................ ................................ ................................ ................................ ........ 33 600 Less: Drawings ................................ ................................ ................................ .............. 2 500 Eric Ng, Capital, 31 December ................................ ................................ ...................... $31 100 Solutions manual to accompany Principles in Financial Accounting 3e 1-17 EXERCISE 1 -9 SHED WORKS Statement of Financial Position as at 31 December 2013 Assets Cash ................................ ................................ ................................ .............................. $33 0 00 Accounts receivable ................................ ................................ ................................ ....... 17 000 Supplies ................................ ................................ ................................ .......................... 16 000 Equipment ................................ ................................ ................................ ...................... 92 000 Total assets ................................ ................................ ................................ .......... $158 000 Liabilities and Owner’s Equity Liabilities Accounts payable ................................ ................................ ................................ . $40 000 Owner’s equity Shed , Capital ($135 000 – $17 0 00) ................................ ................................ .... 118 000 Total liabilities and owner’s equity ................................ ............................. $158 000 EXERCISE 1 -10 (a) Camping fee revenue ................................ ................................ ........................... $140 000 General store reve nue ................................ ................................ ......................... 47 000 Total income ................................ ................................ ............................... 187 000 Expenses ................................ ................................ ................................ .............. 150 000 Profit ................................ ................................ ................................ .................... $ 37 000 (b) HAPPY HOLIDAY CAMPING Statement of Financial Position as at 31 December 2013 Assets Cash ................................ ................................ ................................ .............................. $ 20 000 Supplies ................................ ................................ ................................ .......................... 2 500 Equipment ................................ ................................ ................................ ...................... 105 500 Total assets ................................ ................................ ................................ .......... $128 000 Liabilities and Owner’s Equity Liabilities Notes payable ................................ ................................ ................................ ...... $ 60 000 Accounts payable ................................ ................................ ................................ . 11 000 Total liabilities ................................ ................................ ............................. 71 000 Owner’s equity Ven Woo, Capital ($128 000 – $71 000) ................................ ............................. 57 000 Total liabilities and owner’s equity ................................ ............................. $128 000 Chapter 1 Accounting in action EXERCISE 1 -11 SUMM ER CARNIVAL Income Statement For the Year End ing 31 December 2013 Income Ticket revenue ................................ ................................ ............... $335 000 Expenses Salaries expense ................................ ................................ ........... $142 000 Maintenance expense ................................ ................................ ... 97 000 Electricity expense ................................ ................................ ........ 10 000 Advertising expense ................................ ................................ ...... 3 500 Total expenses ................................ ................................ .... 252 500 Profit ................................ ................................ ............................. $ 82 500 EXERCISE 1 -12 GEOFF BUTTERS , SOLICITOR Statement of Changes in Equity For the Year End ing 31 December 2013 Geoff Butters , Capital, 1 January ................................ ................................ ........... $ 23 000 (a) Add: Profit ................................ ................................ ................................ ............. 129 000 (b) 152 000 Less: Drawings ................................ ................................ ................................ ....... 64 000 Geoff Butters , Capital, 31 December ................................ ................................ ...... $ 88 000 (c) Supporting Computations (a) Assets, 1 January 2013 ................................ ................................ ....................... $85 000 Liabilities, 1 January 2013 ................................ ................................ ................... 62 000 Capital, 1 January 2013 ................................ ................................ ....................... $23 000 (b) Legal fees earned ................................ ................................ ................................ $340 000 Total expenses ................................ ................................ ................................ ..... 211 000 Profit ................................ ................................ ................................ ..................... $129 000 (c) Assets, 31 December 2013 ................................ ................................ ................. $168 000 Liabilities, 31 December 2013 ................................ ................................ ............. 80 000 Capital, 31 December 2013 ................................ ................................ ................. $ 88 000 (d) Capital, 31 December 2013 ................................ ................................ .................. $88 000 Less Capital, 1 January 2013 ................................ ................................ ............... 23 000 Increase in owner’s equity ................................ ................................ .................... $65 000 Solutions manual to accompany Principles in Financial Accounting 3e 1-19 Exercis e 1-13 (a) At 1 October 2013 Assets = Liabilities + Owner’s equity 2000 = 0 + 2 000 (b) Income Revenue ................................ ................................ ................................ ................ $8 600 Less Expenses ................................ ................................ ................................ ..... 6 200 Profit ................................ ................................ ................................ ...................... $2 400 (c) At 31 December 2013 Assets = Liabilities + Owner’s equity 23 800 = 20 600 + 3200 (d) J. Mills, Capital , 1 Octo ber 2013 ................................ ................................ .......... $2 000 Plus net profit ................................ ................................ ................................ ....... 2 400 ................................ ................................ ................................ .............................. 4 400 Less drawings ................................ ................................ ................................ ....... 1 200 J. Mills, Capital , 31 December 2013 ................................ ................................ .... $3 200 (e) Cash at Bank Account Opening balance ................................ ................................ ................................ .. $2 000 Revenue received in cash ................................ ................................ .................... +8 600 ................................ ................................ ................................ .............................. 10 600 Expenses paid in cash ................................ ................................ ......................... –5 600 ................................ ................................ ................................ .............................. 5 000 Drawings ................................ ................................ ................................ ............... – 1 200 Closing balance ................................ ................................ ................................ .... $3 800 Note: As there was a trade creditor, $600 of expenses must have been billed for but not yet paid. Alternatively: Assets at 31 December 2013 total of $23 8 00. Only other asset is the delivery van of $20 000, hence the diff erence is in the Cash at bank account. 1-20 SOLUTIONS TO PROBLEMS PROBLEM 1 -1 (a) PLENTY TRAVEL AGENCY Cash + Accounts Recei vable + Supplies + Office Equi pment = Accounts Payable + Leanne Aisling , Capital 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. +$11 000 + 11 000 + –440 + 10 56 0 + –2 750 + 7 810 +000 000 + 7 810 + –660 + 7 150 – +1 100 + 8 250 + –220 + 8 030 + –330 + 7 700 + –2 420 + 5 280 – +5 500 +$ 10 78 0 + + + + + +$7 150 + 7 150 + 0 000 + 7 150 + 0 000 + 7 150 + 0 000 + 7 150 +–5 500 +$1 650 + + + + + + +$660 + 660 +0000 + 660 +0000 + 660 +0000 + 660 +0000 + 660 +0000 +$660 + + + + + + + + +$2 750 + 2 750 +00 000 + 2 750 +00 000 + 2 750 +00 000 + 2 750 +00 000 + 2 750 +00 000 + 2 750 +00 000 2 750 +00 000 +$2 750 = = = = = = = = = = +$330 + 330 +0000 + 330 +0000 + 330 +0000 + 330 +–330 + 0 +0000 +0000 +$ 0 + + + + + +$11 000 + 11 000 + –440 + 10 560 +000 000 + 9 600 + –330 + 10 56 0 +000 000 + 10 23 0 – +8 25 0 + 18 48 0 + –220 + 18 26 0 +000 000 + 18 26 0 + –2 420 + 15 840 +000 000 +$15 840 Investment Rent Expense Adv. Expense Serv. Rev enue Drawings Salaries Exp. 1-21 PROBLEM 1 -1 (continued) (b) Ending capital ................................ ................................ ................................ ....... $15 84 0 Add: Drawings ................................ ................................ ................................ .... 220 ................................ ................................ ................................ .............................. 16 06 0 Deduct: Investments ................................ ................................ ........................... 11 000 Profit ................................ ................................ ................................ ..................... $ 5 060 OR Service revenue ................................ ................................ ............ $8 25 0 Expenses Salaries ................................ ................................ ............... $2 200 Rent ................................ ................................ ................... 400 Advertising ................................ ................................ ........... 300 3 190 Profit ................................ ................................ ................... $5 060 ✓ Accuracy check ed PROBLEM 1 -2 (a) Marie Trigger , MEDICAL PRACTITIONER Cash + Accounts Receivable + Supplies + Office Equipment = Notes Payable + Accounts Payable + Colleen Pham, Capital Bal . 1. 2. 3. 4. 5. 6. 7. 8. $4 000 +1 400 5 400 –2 700 2 700 +3 000 5 700 –400 5 300 –4 250 1 050 –550 500 +2 000 2 500 00 000 $2 500 + + + + + + + + + $1 500 –1 400 100 00 000 100 +4 500 4 600 00 000 4 600 00 000 4 600 00 000 4 600 00 000 4 600 00 000 $4 600 + + + + + + + + + $500 0000 500 0000 500 0000 500 0000 500 0000 500 0000 500 0000 500 0000 $500 + + + + + + + + + $5 000 00 000 5 000 00 000 5 000 00 000 5 000 +1 000 6 000 00 000 6 000 00 000 6 000 00 000 6 000 00 00 0 $6 000 = = = = = = = = = +$2 000 + 2 000 +00 000 +$2 000 + + $4 200 00 000 4 200 –2 700 1 500 00 000 1 500 +600 2 100 00 000 2 100 00 000 2 100 00 000 2 100 +250 $2 350 + + + + + + + + + $ 6 800 000 000 6 800 000 000 6 800 +7 500 14 300 000 000 14 300 –3 000 –900 –350 10 050 –550 9 500 000 000 9 500 –250 $ 9 250 Service Revenue Salaries Expense Rent Expense Advertising E xpense Drawings Utilities Expens e 1-23 PROBLEM 1 -2 (continued) (b) MARIE TRIGGER , MEDICAL PRACTITIONER Income Statement For the Month End ing 31 August 2013 Income Service revenue ................................ ................................ .. $7 500 Expenses Salaries expense ................................ ................................ . $3 000 Rent expense ................................ ................................ ...... 900 Advertising expense ................................ ............................ 350 Utilities expense ................................ ................................ .. 250 Total expenses ................................ .......................... 4 500 Profit ................................ ................................ ................... $3 000 MARIE TRIGGER , MEDICAL PRACTITIONER Statement of Changes in Equity For the Month End ing 31 August 2013 Marie Trigger , Capital, 1 August ................................ ................................ ............. $6 800 Add: Profit ................................ ................................ ................................ .............. 3 000 9 800 Less: Drawings ................................ ................................ ................................ ....... 550 Marie Trigger , Capital, 31 August ................................ ................................ ........... $9 250 MARIE TRIGGER , MEDICAL PRACTITIONER Statement of Financial Position as at 31 August 2013 Assets Cash ................................ ................................ ................................ ....................... $ 2 500 Accounts receivable ................................ ................................ ................................ 4 600 Supplies ................................ ................................ ................................ ................... 500 Office equipment ................................ ................................ ................................ ..... 6 000 Total assets ................................ ................................ ................................ ... $13 600 Liabilities and Owner’s Equity Liabilities Notes payable ................................ ................................ ............................... $ 2 000 Accounts payable ................................ ................................ .......................... 2 350 Total liabilities ................................ ................................ ...................... 4 350 Owner’s equity Marie Trigger , Capital ................................ ................................ ................... 9 250 Total liabil ities and owner’s equity ................................ ...................... $13 600 Chapter 1 Accounting in action PROBLEM 1 -3 (a) DELISH COSMETICS Income Statement For the Month End ing 30 June 2013 Income Service revenue ................................ ................................ .. $5 500 Expenses Supplies expense ................................ ................................ $1 600 Gas and electricity expense ................................ ................ 800 Advertising expens e ................................ ............................ 500 Utilities expense ................................ ................................ .. 300 Total expenses ................................ .......................... 3 200 Profit ................................ ................................ ................... $2 300 DELISH COSMETICS Statement of Changes in Equity For the Month End ing 30 June 2013 Jennifer Stevens, Capital , 1 June ................................ ................. Add: Investments ................................ ................................ ......... $26 200 Profit ................................ ................................ ............... 2 300 $28 500 ................................ ................................ ................................ ....... 28 500 Less: Drawings ................................ ................................ ............. 1 700 Jennifer Stevens, Capital , 30 June ................................ ............... $26 800 DELISH COSMETICS Statement of Financial Position as at 30 June 2013 Assets Cash ................................ ................................ ................................ .................... $10 000 Accounts receivable ................................ ................................ ............................. 4 000 Cosmetic supplies ................................ ................................ ................................ 2 000 Equipment ................................ ................................ ................................ ............ 25 000 Total assets ................................ ................................ ................................ $41 000 Liabilities and Owner’s Equity Liabilities Notes payable ................................ ................................ ............................ $13 000 Accounts payable ................................ ................................ ....................... 1 200 Total liabilities ................................ ................................ ................... 14 200 Owner’s equity Jennifer Stevens, Capital ................................ ................................ ........... 26 800 Total liabilities and owner’s equity ................................ ................... $41 000 Solutions manual to accompany Principles in Financial Accounting 3e 1-25 PROBLEM 1 -3 (continued) (b) DELISH COSMETICS Income Statement For the Month End ing 30 June 2013 Income Service revenue ($5500 + $800) ................................ ............. $6 300 Expenses Supplies expense ................................ ................................ ..... $1 600 Gas and electricity expense ($800 + $100) ............................. 900 Advertising expense ................................ ................................ . 500 Utilities expense ................................ ................................ ....... 300 Total expenses ................................ ............................... 3 300 Profit ................................ ................................ ........................ $3 000 DELISH COSMETICS Statement of Changes in Equity For the Month End ing 30 June 2013 Jennifer Stevens , Capital , 1 June ................................ ...................... $ 0 Add: Investments ................................ ................................ .............. $26 200 Profit ................................ ................................ .................... 3 000 29 200 ................................ ................................ ................................ ............ 29 200 Less: Drawings ................................ ................................ .................. 1 700 Jennifer Stevens, Capital , 30 June ................................ .................... $27 500