Exercise 1-1
Chapter #1: Introduction to Financial Statements
Brief Exercises
BE 1-1 Match each of the following forms of business organization with a set of characteristics: sole proprietorships (SP), partnership (P), corporation (C).
_P__ Shared control, tax advantages, increased skills and resources.
_SP_ Simple to set up and maintains control with owner.
_C__ Easier to transfer ownership and rise funds, no personal liability.
BE 1-2 Match each of the following types of evaluation with one of the listed users of accounting information.
Trying to determine whether the company complied with tax laws.
Trying to determine whether the company can pay its obligations.
Trying to determine whether an advertising proposal will be cost-effective. …show more content…
_5_ Chief Financial Officer.
_1_ Internal Revenue Service.
BE 1-3 Indicate in which part of the statement of cash flows each item would appear: operating activities (O), investing activities (I), or financing activities (F).
_O_ Cash received from customers.
_F_ Cash pay to stockholders (dividends).
_F_ Cash received from issuing new common stock.
_O_ Cash paid to suppliers.
_I__ Cash paid to purchase a new office building.
BE 1-4 Presented below are a number of transactions. Determine whether each transaction affects common stock (C), dividends (D), revenue (R), expense (E), or does not affects stockholder’s equity (NSE). Provide titles for the revenues and expenses.
Costs incurred for advertising. _E_ → Advertising expense
Assets received for services performed. _R_ → Service revenue
Costs incurred for insurance. _E_ → Insurance expense
Amount paid to employees. _E_ → Salaries and wage expense
Cash distributed to stockholders. _D_ → Dividends
Assets received in exchange for allowing the use of the company’s building. _R_ → Rent revenue
Costs incurred for utilities used. _E_ → Utilities expense
Cash purchase of equipment. _NSE_ → Cash purchase of …show more content…
Its net income represents a 17% return on the initial investment ($3,800 ÷ $22,100).
Distributing a dividend after only one month of operation is probably unusual. Most new businesses choose to build up a cash balance to provide for future operating and investing activities or pay down debt. Hightower distributes 37% ($1,400 ÷ $3,800) of its first month’s income but had adequate cash to do so and still showed a significant increase in retained earnings.
The items listed above that should be included in a statement of cash flows are:
Cash paid to suppliers
Cash dividends paid
Cash at beginning of period
Cash paid to purchase equipment
Cash received from customers
Cash received from issuing
Wenger Corporation
Statement of Cash Flows
For the Year Ended December 31,
Brief Exercises
BE 1-1 Match each of the following forms of business organization with a set of characteristics: sole proprietorships (SP), partnership (P), corporation (C).
_P__ Shared control, tax advantages, increased skills and resources.
_SP_ Simple to set up and maintains control with owner.
_C__ Easier to transfer ownership and rise funds, no personal liability.
BE 1-2 Match each of the following types of evaluation with one of the listed users of accounting information.
Trying to determine whether the company complied with tax laws.
Trying to determine whether the company can pay its obligations.
Trying to determine whether an advertising proposal will be cost-effective. …show more content…
_5_ Chief Financial Officer.
_1_ Internal Revenue Service.
BE 1-3 Indicate in which part of the statement of cash flows each item would appear: operating activities (O), investing activities (I), or financing activities (F).
_O_ Cash received from customers.
_F_ Cash pay to stockholders (dividends).
_F_ Cash received from issuing new common stock.
_O_ Cash paid to suppliers.
_I__ Cash paid to purchase a new office building.
BE 1-4 Presented below are a number of transactions. Determine whether each transaction affects common stock (C), dividends (D), revenue (R), expense (E), or does not affects stockholder’s equity (NSE). Provide titles for the revenues and expenses.
Costs incurred for advertising. _E_ → Advertising expense
Assets received for services performed. _R_ → Service revenue
Costs incurred for insurance. _E_ → Insurance expense
Amount paid to employees. _E_ → Salaries and wage expense
Cash distributed to stockholders. _D_ → Dividends
Assets received in exchange for allowing the use of the company’s building. _R_ → Rent revenue
Costs incurred for utilities used. _E_ → Utilities expense
Cash purchase of equipment. _NSE_ → Cash purchase of …show more content…
Its net income represents a 17% return on the initial investment ($3,800 ÷ $22,100).
Distributing a dividend after only one month of operation is probably unusual. Most new businesses choose to build up a cash balance to provide for future operating and investing activities or pay down debt. Hightower distributes 37% ($1,400 ÷ $3,800) of its first month’s income but had adequate cash to do so and still showed a significant increase in retained earnings.
The items listed above that should be included in a statement of cash flows are:
Cash paid to suppliers
Cash dividends paid
Cash at beginning of period
Cash paid to purchase equipment
Cash received from customers
Cash received from issuing
Wenger Corporation
Statement of Cash Flows
For the Year Ended December 31,