Chapter 1 Hw

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Exercises
1-1

Year 1Year 2
Net Operating Cash Flows
Cash collected from customers $160,000 $190,000
Cash disbursements:
Salaries paid for services rendered (90,000) (100,000) Utilities (30,000) (40,000)
Purchase of insurance policy (60,000) -0-
Net operating cash flow $(20,000)
$50,000

Income Statement

Year 1Year 2
Revenues $170,000 $220,000
Expenses:
Salaries (90,000) (100,000)
Insurance Policy (20,000) (20,000)
Utilities (35,000) (35,000)
Total Expenses (145,000) (155,000)
Net Income $25,000 $65,000

Year 1:
Accounts Receivable: $170,000 – $160,000 = $10,000

Year 2:
Accounts receivable from year 1 + amount billed to customers in year 2 – cash collected from year 2 $10,000 + 220,000 - $190,000 = $40,000

1-2
RPG Consulting
Income Statement

Year 2Year 3
Revenues $350,000 $450,000
Expenses:
Salaries (140,000) (160,000)
Insurance Policy (40,000) (40,000)
Travel and entertainment (30,000) (40,000)
Advertising(25,000)(20,000)
Total Expenses (235,000) (260,000)
Net Income $115,000 $190,000

Amount owed at the end of year 1$ 5,000
Amount incurred in year 225,000
Total amount owed at the end of year 230,000
Advertising cash disbursement in year 2(15,000)
Amount owed at the end of year 2$ 15,000
Advertising cash disbursement in year 3(35,000)
Advertising expense at the end of year 3$ 20,000

1-4
1. Topic # for business combination: ASC 805
2. Topic # for related party disclosures: ASC 850
3. Topic, subtopic, and section # for the initial measurement of internal-use software: ASC 350 – 40 – 30 4. Topic, subtopic, and section # for the subseq. measure of asset retirement oblig.: ASC 980 – 410 – 35 5. Topic, subtopic, and section # for the recognition of stock compensation: ASC 505 – 20 – 25

1-6
1. Liability
2. Distribution to owners
3. Revenue
4. Assets, liabilities, equity
5. Comprehensive Income
6. Gain
7. Loss
8. Equity
9. Asset
10. Net Income
11. Investments by owners
12. Expense

1-7
1. O11. C
2. H12. M
3. G13. L
4. A14. D
5. J15. B
6. E16. I
7. N
8. F
9. K
10. P
1-8
1. Materiality
2. Neutrality
3. Point of sale
4. Timeliness
5. Relevant information possesses qualities of predictive value and confirmatory value. Confirmatory value is useful in predicting the company’s future cash-generating ability as expectations are revised. Predictive value is the ability to use the information to predict a company’s future earnings. 6. Faithful representation: exists when there is an agreement between a measure or description and the phenomenon it purports to represent. 7. It is using the enhancing qualitative characteristics of consistency. 8. Cost effectiveness occurs when there are perceived benefits of disclosure that exceed the costs of providing the information.

1-9
1. D
2. G
3. E
4. I
5. H
6. C
7. B
8. A
9. F

1-11
1. Historical cost principle
2. Periodicity assumption
3. Realization principle/revenue recognition
4. Economic entity
5. Matching principle
6. Full-disclosure principle

1-14
1. F
2. H
3. G
4. E
5. C
6. A
7. I
8. J
9. K
10. B
11. D

C1-6

Both relevance and faithful representation are critical in order to be useful for decision-making. In this case where the FASB is considering it a standard to include the social costs of pollution in the income statement, the concepts of relevance and faithful representation definitely come into play. Predictive value and/or confirmatory value are both necessary for the information to be relevant. In this case, if the pollution costs on society were to be included in the income statement, the product would sell for more than it would if the costs were not included. The predictability of the...
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