Chapter 2 Exercises & Problems Solutions

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CHAPTER 2 EXERCISES & PROBLEMS SOLUTIONS

E2.1.

CategoryFinancial Statement(s)
Cash……………………………………………ABS
Accounts payable…………….………………..LBS
Common stock…………………………………OEBS
Depreciation expense…………………………..EIS
Net sales………………………………………..RIS
Income tax expense…………………………….EIS
Short term investments………………………...ABS
Gain on sale of land…………………………….GIS
Retained earnings………………………………OEBS
Dividends payable……………………………..LBS
Accounts receivable……………………………ABS
Short term debt…………………………………LBS

E2.2.

CategoryFinancial Statement(s)
Accumulated depreciation……………………...ABS
Long term debt…………………………………LBS
Equipment………………………………………ABS
Loss on sale of short term investments………...LSIS
Net income………………………………………OEIS
Merchandise inventory…………………………ABS
Other accrued liabilities…………………………LBS
Dividends paid………………………………….OENeither*
Cost of goods sold………………………………EIS
Additional paid in capital……………………….OEBS
Interest income………………………………….RIS
Selling expenses………………………………..EIS

* Trick question! “Dividends paid” appears only on the Statement of Changes in Owners’ Equity. Dividends paid are distributions of earnings that reduce retained earnings on the balance sheet. Dividends paid are not expenses, and do not appear on the income statement.

E2.3.
Use the accounting equation to solve for the missing information

Firm A:
A = L + PIC + ( Beg. RE + NI - DIV = End. RE)
$420,000 = $215,000 + $75,000 + ( $78,000 + ? - $50,000 = ? )

In this case, the ending balance of retained earnings must be determined first: $420,000 = $215,000 + $75,000 + End. RE.
Retained earnings, 12/31/10 = $130,000

Once the ending balance of retained earnings is known, net income can be determined: $78,000 + NI – $50,000 = $130,000
Net income for 2010 = $102,000

Firm B:
A = L + PIC + ( Beg. RE + NI - DIV = End. RE )
$540,000 = $145,000 + ? + ( ? + $83,000 - $19,000 = $310,000 )

$540,000 = $145,000 + PIC + $310,000
Paid-in capital, 12/31/10 = $85,000

Beg. RE + $83,000 - $19,000 = $310,000
Retained earnings, 1/1/10 = $246,000

Firm C:
A = L + PIC + ( Beg. RE + NI - DIV = End. RE )
$325,000 = ? + $40,000 + ( $42,000 + $113,000 - $65,000 = ? )

In this case, the ending balance of retained earnings must be determined first: $42,000 + $113,000 - $65,000 = End. RE
Retained earnings, 12/31/10 = $90,000

Once the ending balance of retained earnings is known, liabilities can be determined: $325,000 = L + $40,000 + $90,000
Total liabilities, 12/31/10 = $195,000

E2.4.
Use the accounting equation to solve for the missing information

Firm A:
A = L + PIC + ( Beg. RE + NI - DIV = End. RE )
$ ? = $80,000 + $55,000 + ( $50,000 + 68,000 - $12,000 = ? )

In this case, the ending balance of retained earnings must be determined first: $50,000 + $68,000 - $12,000 = End. RE.
Retained earnings, 12/31/10 = $106,000

Once the ending balance of retained earnings is known, total assets can be determined: A = $80,000 + $55,000 + $106,000
Total assets, 12/31/10 = $241,000

Firm B:
A = L + PIC + ( Beg. RE + NI - DIV = End. RE )
$435,000 = ? + $59,000 + ( $124,000 + $110,000 - ? = $186,000 )

$435,000 = L + $59,000 + $186,000
Total liabilities, 12/31/10 = $190,000

$124,000 + $110,000 - DIV = $186,000
Dividends declared and paid during 2010 = $48,000

Firm C:
A = L + PIC + ( Beg. RE + NI...
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