Self-Study Questions 31

SUMMARY OF STUDY OBJECTIVE FOR APPENDIX

9 Explain the career opportunities in accounting. accounting. Accounting is a popular major because there
Accounting offers many different jobs in fields such as are many different types of jobs, with unlimited potential
public and private accounting, government, and forensic for career advancement.

GLOSSARY FOR APPENDIX

Auditing The examination of financial statements by a cer- Private (or managerial) accounting An area of account-
tified public accountant in order to express an opinion as to ing within a company that involves such activities as cost
the fairness of presentation. (p. 29). accounting, budgeting, design and support of accounting
Forensic accounting An area of accounting that uses ac- information systems, and tax planning and preparation.
counting, auditing, and investigative skills to conduct inves- (p. 29).
tigations into theft and fraud. (p. 30). Public accounting An area of accounting in which the ac-
Management consulting An area of public accounting countant offers expert service to the general public. (p. 29).
ranging from development of accounting and computer Taxation An area of public accounting involving tax advice,
systems to support services for marketing projects and tax planning, preparing tax returns, and representing clients
merger and acquisition activities. (p. 29). before governmental agencies. (p. 29).

SELF-STUDY QUESTIONS
Answers are at the end of the chapter. 6. Net income will result during a time period when: (SO 6)
(SO 1) 1. Which of the following is not a step in the accounting a. assets exceed liabilities.
process? b. assets exceed revenues.
a. identification. c. recording. c. expenses exceed revenues.
b. verification. d. communication. d. revenues exceed expenses.
(SO 2) 2. Which of the following statements about users of account- 7. Performing services on account will have the following ef- (SO 7)
ing information is incorrect? fects on the components of the basic accounting equation:
a. Management is an internal user. a. increase assets and decrease owner’s equity.
b. Taxing authorities are external users. b. increase assets and increase owner’s equity.
c. Present creditors are external users. c. increase assets and increase liabilities.
d. Regulatory authorities are internal users. d. increase liabilities and increase owner’s equity.
(SO 4) 3. The cost principle states that: 8. As of December 31, 2010, Stoneland Company has assets (SO 7)
a. assets should be initially recorded at cost and adjusted of $3,500 and owner’s equity of $2,000. What are the lia-
when the market value changes. bilities for Stoneland Company as of December 31, 2010?
b. activities of an entity are to be kept separate and dis- a. $1,500. b. $1,000. c. $2,500. d. $2,000.
tinct from its owner. 9. Which of the following events is not recorded in the ac- (SO 7)
c. assets should be recorded at their cost. counting records?
d. only transaction data capable of being expressed in a. Equipment is purchased on account.
terms of money be included in the accounting records. b. An employee is terminated.
(SO 5) 4. Which of the following statements about basic assump- c. A cash investment is made into the business.
tions is correct? d. The owner withdraws cash for personal use.
a. Basic assumptions are the same as accounting principles. 10. During 2010, Gibson Company’s assets decreased $50,000 (SO 7)
b. The economic entity assumption states that there and its liabilities decreased $90,000. Its owner’s equity
should be a particular unit of accountability. therefore:
c. The monetary unit assumption enables accounting to a. increased $40,000.
measure employee morale. b. decreased $140,000.
d. Partnerships are not economic entities. c. decreased $40,000.
(SO 5) 5. The three types of business entities are: d. increased $140,000.
a. proprietorships, small businesses, and partnerships. 11. Payment of an account payable affects the components of (SO 7)
b. proprietorships, partnerships, and corporations. the accounting equation in the following way.
c. proprietorships, partnerships, and large businesses. a. Decreases owner’s equity and decreases liabilities.
d. financial, manufacturing, and service companies. b. Increases assets and decreases liabilities.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 32 Chapter 1 Accounting in Action

c. Decreases assets and increases owner’s equity. c. income statement and owner’s equity statement only.
d. Decreases assets and decreases liabilities. d. income statement, owner’s equity statement, and bal-
(SO 8) 12. Which of the following statements is false? ance sheet.
a. A statement of cash flows summarizes information 14. The financial statement that reports assets, liabilities, and (SO 8)
about the cash inflows (receipts) and outflows (pay- owner’s equity is the:
ments) for a specific period of time. a. income statement.
b. A balance sheet reports the assets, liabilities, and b. owner’s equity statement.
owner’s equity at a specific date. c. balance sheet.
c. An income statement presents the revenues, expenses, d. statement of cash flow.
changes in owner’s equity, and resulting net income or *15. Services provided by a public accountant include: (SO 9)
net loss for a specific period of time. a. auditing, taxation, and management consulting.
d. An owner’s equity statement summarizes the changes b. auditing, budgeting, and management consulting.
in owner’s equity for a specific period of time. c. auditing, budgeting, and cost accounting.
(SO 8) 13. On the last day of the period, Jim Otto Company buys a d. internal auditing, budgeting, and management consulting.
$900 machine on credit. This transaction will affect the:
a. income statement only. Go to the book’s companion website,
b. balance sheet only. www.wiley.com/college/weygandt,
for Additional Self-Study questions. ✓
The Navigator

QUESTIONS
1. “Accounting is ingrained in our society and it is vital to (g) Salaries payable. (i) Rent expense.
our economic system.” Do you agree? Explain. (h) Service revenue.
2. Identify and describe the steps in the accounting process. 14. Can a business enter into a transaction in which only the
3. (a) Who are internal users of accounting data? (b) How left side of the basic accounting equation is affected? If so,
does accounting provide relevant data to these users? give an example.
4. What uses of financial accounting information are made 15. Are the following events recorded in the accounting
by (a) investors and (b) creditors? records? Explain your answer in each case.
5. “Bookkeeping and accounting are the same.” Do you (a) The owner of the company dies.
agree? Explain. (b) Supplies are purchased on account.
(c) An employee is fired.
6. Karen Sommers Travel Agency purchased land for
(d) The owner of the business withdraws cash from the
$90,000 cash on December 10, 2010. At December 31,
business for personal use.
2010, the land’s value has increased to $93,000. What
amount should be reported for land on Karen 16. Indicate how the following business transactions affect
Sommers’s balance sheet at December 31, 2010? the basic accounting equation.
Explain. (a) Paid cash for janitorial services.
(b) Purchased equipment for cash.
7. What is the monetary unit assumption?
(c) Invested cash in the business.
8. What is the economic entity assumption? (d) Paid accounts payable in full.
9. What are the three basic forms of business organizations 17. Listed below are some items found in the financial state-
for profit-oriented enterprises? ments of Alex Greenspan Co. Indicate in which financial
10. Maria Gonzalez is the owner of a successful printing shop. statement(s) the following items would appear.
Recently her business has been increasing, and Maria has (a) Service revenue. (d) Accounts receivable.
been thinking about changing the organization of her (b) Equipment. (e) Alex Greenspan, Capital.
business from a proprietorship to a corporation. Discuss (c) Advertising expense. (f) Wages payable.
some of the advantages Maria would enjoy if she were to 18. In February 2010, Paula King invested an additional
incorporate her business. $10,000 in her business, King’s Pharmacy, which is or-
11. What is the basic accounting equation? ganized as a proprietorship. King’s accountant, Lance
12. (a) Define the terms assets, liabilities, and owner’s equity. Jones, recorded this receipt as an increase in cash and
(b) What items affect owner’s equity? revenues. Is this treatment appropriate? Why or why
13. Which of the following items are liabilities of Stanley not?
Jewelry Stores? 19. “A company’s net income appears directly on the income
(a) Cash. (d) Accounts receivable. statement and the owner’s equity statement, and it is in-
(b) Accounts payable. (e) Supplies. cluded indirectly in the company’s balance sheet.” Do you
(c) Drawings. (f) Equipment. agree? Explain.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 Brief Exercises 33
20. Garcia Enterprises had a capital balance of $168,000 at Revenues earned: for cash $20,000; on account $70,000.
the beginning of the period. At the end of the accounting Expenses incurred: for cash $26,000; on account $40,000.
period, the capital balance was $198,000. Indicate for J. R. Ross Co. (a) the total revenues, (b) the
(a) Assuming no additional investment or withdrawals dur- total expenses, and (c) net income for the month of July.
ing the period, what is the net income for the period?
22. The basic accounting equation is: Assets ⫽ Liabilities ⫹
(b) Assuming an additional investment of $13,000 but no
Owner’s Equity. Replacing the words in that equation
withdrawals during the period, what is the net income
with dollar amounts, what is Coca-Cola’s accounting
for the period?
equation at December 31, 2007? (Hint: Owner’s equity is
21. Summarized operations for J. R. Ross Co. for the month of equivalent to shareowners’ equity.)
July are as follows. ✓
The Navigator

BRIEF EXERCISES
BE1-1 Presented below is the basic accounting equation. Determine the missing amounts. Use basic accounting equation.
(SO 6)
Assets ⴝ Liabilities ⴙ Owner’s Equity
(a) $90,000 $50,000 ?
(b) ? $40,000 $70,000
(c) $94,000 ? $60,000
BE1-2 Given the accounting equation, answer each of the following questions. Use basic accounting equation.
(a) The liabilities of McGlone Company are $120,000 and the owner’s equity is $232,000. What (SO 6)
is the amount of McGlone Company’s total assets?
(b) The total assets of Company are $190,000 and its owner’s equity is $80,000. What is the
amount of its total liabilities?
(c) The total assets of McGlone Co. are $800,000 and its liabilities are equal to one half of its
total assets. What is the amount of McGlone Co.’s owner’s equity?
BE1-3 At the beginning of the year, Hernandez Company had total assets of $800,000 and Use basic accounting equation.
total liabilities of $500,000. Answer the following questions. (SO 6)
(a) If total assets increased $150,000 during the year and total liabilities decreased $80,000, what
is the amount of owner’s equity at the end of the year?
(b) During the year, total liabilities increased $100,000 and owner’s equity decreased $70,000.
What is the amount of total assets at the end of the year?
(c) If total assets decreased $80,000 and owner’s equity increased $120,000 during the year, what
is the amount of total liabilities at the end of the year?
BE1-4 Use the expanded accounting equation to answer each of the following questions: Solve expanded accounting
equation.
(a) The liabilities of Cai Company are $90,000. Meiyu Cai’s capital account is $150,000; drawings
are $40,000; revenues, $450,000; and expenses, $320,000. What is the amount of Cai (SO 6)
Company’s total assets?
(b) The total assets of Pereira Company are $57,000. Karen Perry’s capital account is $25,000;
drawings are $7,000; revenues, $50,000; and expenses, $35,000. What is the amount of the
company’s total liabilities?
(c) The total assets of Yap Co. are $600,000 and its liabilities are equal to two-thirds of its total
assets. What is the amount of Yap Co.’s owner’s equity?
BE1-5 Indicate whether each of the following items is an asset (A), liability (L), or part of Identify assets, liabilities, and
owner’s equity (OE). owner’s equity.
_______(a) Accounts receivable _______(d) Office supplies (SO 6)
_______(b) Salaries payable _______(e) Owner’s investment
_______(c) Equipment _______(f) Notes payable
BE1-6 Presented below are three business transactions. On a sheet of paper, list the letters (a), (b), Determine effect of transactions
(c) with columns for assets, liabilities, and owner’s equity. For each column, indicate whether the trans- on basic accounting equation.
actions increased (⫹), decreased (⫺), or had no effect (NE) on assets, liabilities, and owner’s equity. (SO 7)
(a) Purchased supplies on account.
(b) Received cash for providing a service.
(c) Paid expenses in cash.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 34 Chapter 1 Accounting in Action

Determine effect of BE1-7 Follow the same format as BE1-6 on the previous page. Determine the effect on assets,
transactions on basic account- liabilities, and owner’s equity of the following three transactions.
ing equation.
(a) Invested cash in the business.
(SO 7) (b) Withdrawal of cash by owner.
(c) Received cash from a customer who had previously been billed for services provided.
Classify items affecting owner’s BE1-8 Classify each of the following items as owner’s drawing (D), revenue (R), or expense (E).
equity.
_______(a) Advertising expense _______(e) Bergman, Drawing
(SO 7) _______(b) Commission revenue _______(f) Rent revenue
_______(c) Insurance expense _______(g) Utilities expense
_______(d) Salaries expense
Determine effect of transactions BE1-9 Presented below are three transactions. Mark each transaction as affecting owner’s invest-
on basic owner’s equity. ment (I), owner’s drawings (D), revenue (R), expense (E), or not affecting owner’s equity (NOE).
(SO 7) _______(a) Received cash for services performed
_______(b) Paid cash to purchase equipment
_______(c) Paid employee salaries
Prepare a balance sheet. BE1-10 In alphabetical order below are balance sheet items for Lopez Company at December
(SO 8) 31, 2010. Kim Lopez is the owner of Lopez Company. Prepare a balance sheet, following the for-
mat of Illustration 1-9.
Accounts payable $90,000
Accounts receivable $72,500
Cash $49,000
Kim Lopez, Capital $31,500
Determine where items appear BE1-11 Indicate whether the following items would appear on the income statement (IS),
on financial statements. balance sheet (BS), or owner’s equity statement (OE).
(SO 8) _______(a) Notes payable _______(d) Cash
_______(b) Advertising expense _______(e) Service revenue
_______(c) Trent Buchanan, Capital

DO IT! REVIEW
Review basic concepts. DO IT! 1-1 Indicate whether each of the five statements presented below is true or false.
(SO 1, 2, 4) F 1. The three steps in the accounting process are identification, recording, and examination.
T 2. The two most common types of external users are investors and creditors.
F 3. Congress passed the Sarbanes-Oxley Act of 2002 to ensure that investors invest only in com-
panies that will be profitable.
F 4. The primary accounting standard-setting body in the United States is the Securities and
Exchange Commission (SEC).
T 5. The cost principle dictates that companies record assets at their cost and continue to report
them at their cost over the time the asset is held.
Evaluate effects of transactions DO IT! 1-2 Classify the following items as investment by owner (I), owner’s drawings (D),
on owner’s equity. revenues (R), or expenses (E). Then indicate whether each item increases or decreases owner’s
(SO 6) equity.
(1) Drawings (3) Advertising Expense
(2) Rent Revenue (4) Owner puts personal assets into the business
Prepare tabular analysis. DO IT! 1-3 Transactions made by Orlando Carbrera and Co., a law firm, for the month of
(SO 7) March are shown below. Prepare a tabular analysis which shows the effects of these transactions
on the expanded accounting equation, similar to that shown in Illustration 1-8.
1. The company provided $20,000 of services for customers, on credit.
2. The company received $20,000 in cash from customers who had been billed for services [in
transaction (1)].
3. The company received a bill for $2,000 of advertising, but will not pay it until a later date.
4. Orlando Carbrera withdrew $5,000 cash from the business for personal use.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 Exercises 35
DO IT! 1-4 Presented below is selected information related to Broadway Company at Calculate effects of transactions
December 31, 2010. Broadway reports financial information monthly. on financial statement items.
(SO 8)
Accounts Payable $ 3,000 Salaries Expense $16,500
Cash 7,000 Note Payable 25,000
Advertising Expense 6,000 Rent Expense 10,500
Service Revenue 54,000 Accounts Receivable 13,500
Equipment 29,000 Drawings 7,500

(a) Determine the total assets of Broadway Company at December 31, 2010.
(b) Determine the net income that Broadway Company reported for December 2010.
(c) Determine the owner’s equity of Broadway Company at December 31, 2010.

EXERCISES
E1-1 Urlacher Company performs the following accounting tasks during the year. Classify the three activities of
accounting.
______Analyzing and interpreting information.
______Classifying economic events. (SO 1)
______Explaining uses, meaning, and limitations of data.
______Keeping a systematic chronological diary of events.
______Measuring events in dollars and cents.
______Preparing accounting reports.
______Reporting information in a standard format.
______Selecting economic activities relevant to the company.
______Summarizing economic events.
Accounting is “an information system that identifies, records, and communicates the economic
events of an organization to interested users.”
Instructions
Categorize the accounting tasks performed by Urlacher as relating to either the identification
(I), recording (R), or communication (C) aspects of accounting.
E1-2 (a) The following are users of financial statements. Identify users of accounting
information.
______Customers ______Securities and Exchange Commission
______Internal Revenue Service ______Store manager (SO 2)
______Labor unions ______Suppliers
______Marketing manager ______Vice-president of finance
______Production supervisor

Instructions
Identify the users as being either external users or internal users.
(b) The following questions could be asked by an internal user or an external user.
______Can we afford to give our employees a pay raise?
______Did the company earn a satisfactory income?
______Do we need to borrow in the near future?
______How does the company’s profitability compare to other companies?
______What does it cost us to manufacture each unit produced?
______Which product should we emphasize?
______Will the company be able to pay its short-term debts?

Instructions
Identify each of the questions as being more likely asked by an internal user or an external user.
E1-3 Larry Smith, president of Smith Company, has instructed Ron Rivera, the head of the Discuss ethics and the cost
accounting department for Smith Company, to report the company’s land in the company’s principle.
accounting reports at its market value of $170,000 instead of its cost of $100,000. Smith says, (SO 3)
“Showing the land at $170,000 will make our company look like a better investment when we try
to attract new investors next month.”

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 36 Chapter 1 Accounting in Action

Instructions
Explain the ethical situation involved for Ron Rivera, identifying the stakeholders and the
alternatives.
Use accounting concepts. E1-4 The following situations involve accounting principles and assumptions.
(SO 4, 5) 1. Grossman Company owns buildings that are worth substantially more than they originally
cost. In an effort to provide more relevant information, Grossman reports the buildings at
market value in its accounting reports.
2. Jones Company includes in its accounting records only transaction data that can be
expressed in terms of money.
3. Caleb Borke, owner of Caleb’s Cantina, records his personal living costs as expenses of the
Cantina.
Instructions
For each of the three situations, say if the accounting method used is correct or incorrect. If cor-
rect, identify which principle or assumption supports the method used. If incorrect, identify
which principle or assumption has been violated.
Classify accounts as assets, E1-5 Meredith Cleaners has the following balance sheet items.
liabilities, and owner’s equity. Accounts payable Accounts receivable
(SO 6) Cash Notes payable
Cleaning equipment Salaries payable
Cleaning supplies Karin Meredith, Capital
Instructions
Classify each item as an asset, liability, or owner’s equity.
Analyze the effect of E1-6 Selected transactions for Evergreen Lawn Care Company are listed below.
transactions.
1. Made cash investment to start business.
(SO 6, 7) 2. Paid monthly rent.
3. Purchased equipment on account.
4. Billed customers for services performed.
5. Withdrew cash for owner’s personal use.
6. Received cash from customers billed in (4).
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on assets,
liabilities, and owner’s equity. For example, the first answer is: (1) Increase in assets and increase
in owner’s equity.

Analyze the effect of transac- E1-7 Brandon Computer Timeshare Company entered into the following transactions during
tions on assets, liabilities, and May 2010.
owner’s equity.
1. Purchased computer terminals for $20,000 from Digital Equipment on account.
(SO 6, 7) 2. Paid $4,000 cash for May rent on storage space.
3. Received $15,000 cash from customers for contracts billed in April.
4. Provided computer services to Fisher Construction Company for $3,000 cash.
5. Paid Northern States Power Co. $11,000 cash for energy usage in May.
6. Brandon invested an additional $32,000 in the business.
7. Paid Digital Equipment for the terminals purchased in (1) above.
8. Incurred advertising expense for May of $1,200 on account.
Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
(a) an increase in assets and a decrease in assets.
(b) an increase in assets and an increase in owner’s equity.
(c) an increase in assets and an increase in liabilities.
(d) a decrease in assets and a decrease in owner’s equity.
(e) a decrease in assets and a decrease in liabilities.
(f) an increase in liabilities and a decrease in owner’s equity.
(g) an increase in owner’s equity and a decrease in liabilities.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 Exercises 37

E1-8 An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, Analyze transactions and com-
for the month of August is shown below. The expenses were $650 for rent, $4,900 for salaries, and pute net income.
$500 for utilities. (SO 7)
Accounts Office Accounts S. Moses, S. Moses,
Cash ⫹ Receivable ⫹ Supplies ⫹ Equipment ⫽ Payable ⫹ Capital ⫺ Drawings ⫹ Revenues ⫺ Expenses
1.⫹$15,000 ⫹$15,000
2. ⫺2,000 ⫹$5,000 ⫹$3,000
3. ⫺750 ⫹$750
4. ⫹4,600 ⫹$3,700 ⫹$8,300
5. ⫺1,500 ⫺1,500
6. ⫺2,000 ⫺$2,000
7. ⫺650 −$650
8. ⫹450 ⫺450
9. ⫺4,900 ⫺4,900
10. ⫹500 −500
Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much owner’s equity increased for the month.
(c) Compute the amount of net income for the month.
E1-9 An analysis of transactions for S. Moses & Co. was presented in E1–8. Prepare financial statements.
Instructions (SO 8)
Prepare an income statement and an owner’s equity statement for August and a balance sheet at
August 31, 2010.
E1-10 Lily Company had the following assets and liabilities on the dates indicated. Determine net income (or loss).
December 31 Total Assets Total Liabilities (SO 7)

2009 $400,000 $250,000

2010 $460,000 $300,000
2011 $590,000 $400,000
Lily began business on January 1, 2009, with an investment of $100,000.
Instructions
From an analysis of the change in owner’s equity during the year, compute the net income (or
loss) for:
(a) 2009, assuming Lily’s drawings were $15,000 for the year.
(b) 2010, assuming Lily made an additional investment of $50,000 and had no drawings in 2010.
(c) 2011, assuming Lily made an additional investment of $15,000 and had drawings of $30,000
in 2011.
E1-11 Two items are omitted from each of the following summaries of balance sheet and income Analyze financial statements
statement data for two proprietorships for the year 2010, Craig Cantrel and Mills Enterprises. items.
Craig Mills (SO 6, 7)
Cantrel Enterprises
Beginning of year:
Total assets $ 95,000 $129,000
Total liabilities 85,000 (c)
Total owner’s equity (a) 80,000
End of year:
Total assets 160,000 180,000
Total liabilities 120,000 50,000
Total owner’s equity 40,000 130,000
Changes during year in owner’s equity:
Additional investment (b) 25,000
Drawings 24,000 (d)
Total revenues 215,000 100,000
Total expenses 175,000 55,000
Instructions
Determine the missing amounts.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 38 Chapter 1 Accounting in Action

Prepare income statement and E1-12 The following information relates to Linda Stanley Co. for the year 2010.
owner’s equity statement.
Linda Stanley, Capital, January 1, 2010 $ 48,000 Advertising expense $ 1,800
(SO 8)
Linda Stanley, Drawing during 2010 6,000 Rent expense 10,400
Service revenue 62,500 Utilities expense 3,100
Salaries expense 30,000
Instructions
After analyzing the data, prepare an income statement and an owner’s equity statement for the
year ending December 31, 2010.
Correct an incorrectly prepared E1-13 Mary Close is the bookkeeper for Mendez Company. Mary has been trying to get the
balance sheet. balance sheet of Mendez Company to balance. Mendez’s balance sheet is shown below.
(SO 8)
MENDEZ COMPANY
Balance Sheet
December 31, 2010
Assets Liabilities
Cash $15,000 Accounts payable $20,000
Supplies 8,000 Accounts receivable (8,500)
Equipment 46,000 Mendez, Capital 67,500
Mendez, Drawing 10,000 Total liabilities and
Total assets $79,000 owner’s equity $79,000

Instructions
Prepare a correct balance sheet.
Compute net income and E1-14 Jan Nab is the sole owner of Deer Park, a public camping ground near the Lake Mead
prepare a balance sheet. National Recreation Area. Jan has compiled the following financial information as of December
(SO 8) 31, 2010.
Revenues during 2010—camping fees $140,000 Market value of equipment $140,000
Revenues during 2010—general store 50,000 Notes payable 60,000
Accounts payable 11,000 Expenses during 2010 150,000
Cash on hand 23,000 Supplies on hand 2,500
Original cost of equipment 105,500
Instructions
(a) Determine Jan Nab’s net income from Deer Park for 2010.
(b) Prepare a balance sheet for Deer Park as of December 31, 2010.
Prepare an income statement. E1-15 Presented below is financial information related to the 2010 operations of Summers
(SO 8) Cruise Company.
Maintenance expense $ 95,000
Property tax expense (on dock facilities) 10,000
Salaries expense 142,000
Advertising expense 3,500
Ticket revenue 325,000
Instructions
Prepare the 2010 income statement for Summers Cruise Company.
Prepare an owner’s equity E1-16 Presented below is information related to the sole proprietorship of Kevin Johnson,
statement. attorney.
(SO 8) Legal service revenue—2010 $350,000
Total expenses—2010 211,000
Assets, January 1, 2010 85,000
Liabilities, January 1, 2010 62,000
Assets, December 31, 2010 168,000
Liabilities, December 31, 2010 85,000
Drawings—2010 ?
Instructions
Prepare the 2010 owner’s equity statement for Kevin Johnson’s legal practice.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 Problems: Set A 39
ga ndt
ey

ollege/w
EXERCISES: SET B

www
/c

.
w
i l e y. c o m

Visit the book’s companion website at www.wiley.com/college/weygandt, and choose the Student
Companion site, to access Exercise Set B.

PROBLEMS: SET A
P1-1A Barone’s Repair Shop was started on May 1 by Nancy Barone. A summary of May Analyze transactions and
transactions is presented below. compute net income.
1. Invested $10,000 cash to start the repair shop. (SO 6, 7)
2. Purchased equipment for $5,000 cash.
3. Paid $400 cash for May office rent.
4. Paid $500 cash for supplies.
5. Incurred $250 of advertising costs in the Beacon News on account.
6. Received $5,100 in cash from customers for repair service.
7. Withdrew $1,000 cash for personal use.
8. Paid part-time employee salaries $2,000.
9. Paid utility bills $140.
10. Provided repair service on account to customers $750.
11. Collected cash of $120 for services billed in transaction (10).
Instructions
(a) Prepare a tabular analysis of the transactions, using the following column headings: Cash, (a) Total assets $12,310
Accounts Receivable, Supplies, Equipment,Accounts Payable, N. Barone, Capital; N. Barone,
Drawings; Revenues, and Expenses.
(b) From an analysis of the owner’s equity columns, compute the net income or net loss for May. (b) Net income $3,060

P1-2A Maria Gonzalez opened a veterinary business in Nashville, Tennessee, on August 1. On Analyze transactions and
August 31, the balance sheet showed Cash $9,000, Accounts Receivable $1,700, Supplies $600, prepare income statement,
Office Equipment $6,000, Accounts Payable $3,600, and M. Gonzalez, Capital $13,700. During owner’s equity statement, and
September the following transactions occurred. balance sheet.
(SO 6, 7, 8)
1. Paid $2,900 cash on accounts payable.
2. Collected $1,300 of accounts receivable.
3. Purchased additional office equipment for $2,100, paying $800 in cash and the balance on ac-
count.
4. Earned revenue of $8,000, of which $2,500 is paid in cash and the balance is due in October.
5. Withdrew $1,000 cash for personal use.
6. Paid salaries $1,700, rent for September $900, and advertising expense $300.
7. Incurred utilities expense for month on account $170.
8. Received $10,000 from Capital Bank–money borrowed on a note payable.
Instructions
(a) Prepare a tabular analysis of the September transactions beginning with August 31 balances. (a) Total assets $29,800
The column headings should be as follows: Cash ⫹ Accounts Receivable ⫹ Supplies ⫹ Office
Equipment ⫽ Notes Payable ⫹ Accounts Payable ⫹ M. Gonzalez, Capital ⫺ M. Gonzalez,
Drawings ⫹ Revenues ⫺ Expenses.
(b) Prepare an income statement for September, an owner’s equity statement for September, (b) Net income $4,930
and a balance sheet at September 30. Ending capital $17,630

P1-3A On May 1, Jeff Wilkins started Skyline Flying School, a company that provides flying Prepare income statement,
lessons, by investing $45,000 cash in the business. Following are the assets and liabilities of the owner’s equity statement, and
company on May 31, 2010, and the revenues and expenses for the month of May. balance sheet.
(SO 8)
Cash $ 5,600 Notes Payable $30,000
Accounts Receivable 7,200 Rent Expense 1,200
Equipment 64,000 Repair Expense 400
Lesson Revenue 7,500 Fuel Expense 2,500
Advertising Expense 500 Insurance Expense 400
Accounts Payable 800

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 40 Chapter 1 Accounting in Action

Jeff Wilkins made no additional investment in May, but he withdrew $1,500 in cash for personal use.
Instructions
(a) Net income $2,500 (a) Prepare an income statement and owner’s equity statement for the month of May and a bal-
Owner’s equity $46,000 ance sheet at May 31.
Total assets $76,800 (b) Prepare an income statement and owner’s equity statement for May assuming the following
(b) Net income $1,900
Owner’s equity $45,400 data are not included above: (1) $900 of revenue was earned and billed but not collected at
May 31, and (2) $1,500 of fuel expense was incurred but not paid.
Analyze transactions and pre- P1-4A Mark Miller started his own delivery service, Miller Deliveries, on June 1, 2010. The fol-
pare financial statements. lowing transactions occurred during the month of June.
(SO 6, 7, 8) June 1 Mark invested $10,000 cash in the business.
2 Purchased a used van for deliveries for $12,000. Mark paid $2,000 cash and signed a
note payable for the remaining balance.
3 Paid $500 for office rent for the month.
5 Performed $4,400 of services on account.
9 Withdrew $200 cash for personal use.
12 Purchased supplies for $150 on account.
15 Received a cash payment of $1,250 for services provided on June 5.
17 Purchased gasoline for $100 on account.
20 Received a cash payment of $1,500 for services provided.
23 Made a cash payment of $500 on the note payable.
26 Paid $250 for utilities.
29 Paid for the gasoline purchased on account on June 17.
30 Paid $1,000 for employee salaries.
Instructions
(a) Total assets $23,500 (a) Show the effects of the previous transactions on the accounting equation using the following
format.

Assets Liabilities Owner’s Equity

Accounts Delivery Notes Accounts M. Miller, M. Miller,
Date Cash ⫹ Receivable ⫹ Supplies ⫹ Van ⫽ Payable ⫹ Payable ⫹ Capital ⫺ Drawings ⫹ Revenues ⫺ Expenses

(b) Net income $4,050 (b) Prepare an income statement for the month of June.
(c) Cash $8,200 (c) Prepare a balance sheet at June 30, 2010.
Determine financial statement P1-5A Financial statement information about four different companies is as follows.
amounts and prepare owner’s
Karma Yates McCain Dench
equity statement.
Company Company Company Company
(SO 7, 8)
January 1, 2010
Assets $ 95,000 $110,000 (g) $170,000
Liabilities 50,000 (d) 75,000 (j)
Owner’s equity (a) 60,000 45,000 90,000
December 31, 2010
Assets (b) 137,000 200,000 (k)
Liabilities 55,000 75,000 (h) 80,000
Owner’s equity 60,000 (e) 130,000 170,000
Owner’s equity changes in year
Additional investment (c) 15,000 10,000 15,000
Drawings 25,000 (f) 14,000 20,000
Total revenues 350,000 420,000 (i) 520,000
Total expenses 320,000 385,000 342,000 (l)
Instructions
(a) Determine the missing amounts. (Hint: For example, to solve for (a), Assets ⫺ Liabilities ⫽
Owner’s equity ⫽ $45,000.)
(b) Prepare the owner’s equity statement for Yates Company.
(c) Write a memorandum explaining the sequence for preparing financial statements and
the interrelationship of the owner’s equity statement to the income statement and balance sheet.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 Problems: Set B 41

PROBLEMS: SET B
P1-1B On April 1, Vinnie Venuchi established Vinnie’s Travel Agency. The following transac- Analyze transactions and
tions were completed during the month. compute net income.
1. Invested $15,000 cash to start the agency. (SO 6, 7)
2. Paid $600 cash for April office rent.
3. Purchased office equipment for $3,000 cash.
4. Incurred $700 of advertising costs in the Chicago Tribune, on account.
5. Paid $800 cash for office supplies.
6. Earned $11,000 for services rendered: $3,000 cash is received from customers, and the bal-
ance of $8,000 is billed to customers on account.
7. Withdrew $500 cash for personal use.
8. Paid Chicago Tribune amount due in transaction (4).
9. Paid employees’ salaries $2,200.
10. Received $4,000 in cash from customers who have previously been billed in transaction (6).
Instructions
(a) Prepare a tabular analysis of the transactions using the following column headings: Cash, (a) Total assets $22,000
Accounts Receivable, Supplies, Office Equipment, Accounts Payable, V. Venuchi, Capital;
V. Venuchi, Drawings; Revenues, and Expenses.
(b) From an analysis of the owner’s equity columns, compute the net income or net loss for April. (b) Net income $7,500
P1-2B Jenny Brown opened a law office, on July 1, 2010. On July 31, the balance sheet showed Analyze transactions and pre-
Cash $5,000, Accounts Receivable $1,500, Supplies $500, Office Equipment $6,000, Accounts pare income statement, owner’s
Payable $4,200, and Jenny Brown, Capital $8,800. During August the following transactions occurred. equity statement, and balance
sheet.
1. Collected $1,200 of accounts receivable.
2. Paid $2,800 cash on accounts payable. (SO 6, 7, 8)
3. Earned revenue of $8,000 of which $3,000 is collected in cash and the balance is due in
September.
4. Purchased additional office equipment for $2,000, paying $400 in cash and the balance on
account.
5. Paid salaries $2,500, rent for August $900, and advertising expenses $400.
6. Withdrew $700 in cash for personal use.
7. Received $1,500 from Standard Federal Bank—money borrowed on a note payable.
8. Incurred utility expenses for month on account $220.
Instructions
(a) Prepare a tabular analysis of the August transactions beginning with July 31 balances. The (a) Total assets $16,800
column headings should be as follows: Cash ⫹ Accounts Receivable ⫹ Supplies ⫹ Office
Equipment ⫽ Notes Payable ⫹ Accounts Payable ⫹ J. Brown, Capital ⫺ J. Brown, Drawings ⫹
Revenues ⫺ Expenses.
(b) Prepare an income statement for August, an owner’s equity statement for August, and a bal- (b) Net income $3,980
ance sheet at August 31. Ending capital $12,080
P1-3B On June 1, Michelle Sasse started Divine Creations Co., a company that provides craft Prepare income statement,
opportunities, by investing $15,200 cash in the business. Following are the assets and liabilities of owner’s equity statement, and
the company at June 30 and the revenues and expenses for the month of June. balance sheet.
Cash $13,750 Notes Payable $9,000 (SO 8)
Accounts Receivable 3,000 Accounts Payable 1,200
Service Revenue 7,000 Supplies Expense 1,600
Craft Supplies 2,000 Gas and Oil Expense 200
Advertising Expense 400 Utilities Expense 150
Equipment 10,000
Michelle made no additional investment in June, but withdrew $1,300 in cash for personal use
during the month.
Instructions
(a) Prepare an income statement and owner’s equity statement for the month of June and a bal- (a) Net income $4,650
ance sheet at June 30, 2010. Owner’s equity $18,550
(b) Prepare an income statement and owner’s equity statement for June assuming the following Total assets $28,750
data are not included above: (1) $900 of revenue was earned and billed but not collected at (b) Net income $5,400
Owner’s equity $19,300
June 30, and (2) $150 of gas and oil expense was incurred but not paid.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark
 42 Chapter 1 Accounting in Action

Analyze transactions and P1-4B Michelle Rodriguez started her own consulting firm, Rodriguez Consulting, on May 1,
prepare financial statements. 2010. The following transactions occurred during the month of May.
(SO 6, 7, 8) May 1 Michelle invested $7,000 cash in the business.
2 Paid $900 for office rent for the month.
3 Purchased $600 of supplies on account.
5 Paid $125 to advertise in the County News.
9 Received $4,000 cash for services provided.
12 Withdrew $1,000 cash for personal use.
15 Performed $6,400 of services on account.
17 Paid $2,500 for employee salaries.
20 Paid for the supplies purchased on account on May 3.
23 Received a cash payment of $4,000 for services provided on account on May 15.
26 Borrowed $5,000 from the bank on a note payable.
29 Purchased office equipment for $3,100 on account.
30 Paid $175 for utilities.
Instructions
(a) Total assets $20,800 (a) Show the effects of the previous transactions on the accounting equation using the following
format.

Assets Liabilities Owner’s Equity

Accounts Office Notes Accounts M. Rodriguez, M. Rodriguez,
Date Cash ⫹ Receivable ⫹ Supplies ⫹ Equipment ⫽ Payable ⫹ Payable ⫹ Capital ⫺ Drawing ⫹Revenues ⫺Expenses

(b) Net income $6,700 (b) Prepare an income statement for the month of May.
(c) Cash $14,700 (c) Prepare a balance sheet at May 31, 2010.
Determine financial statement P1-5B Financial statement information about four different companies is as follows.
amounts and prepare owner’s
equity statement. Donatello Raphael Michelangelo Leonardo
(SO 7, 8) Company Company Company Company
January 1, 2010
Assets $ 80,000 $90,000 (g) $150,000
Liabilities 48,000 (d) 80,000 (j)
Owner’s equity (a) 40,000 49,000 90,000
December 31, 2010
Assets (b) 112,000 180,000 (k)
Liabilities 60,000 72,000 (h) 100,000
Owner’s equity 40,000 (e) 70,000 145,000
Owner’s equity changes in year
Additional investment (c) 8,000 10,000 15,000
Drawings 15,000 (f) 12,000 10,000
Total revenues 350,000 410,000 (i) 500,000
Total expenses 333,000 385,000 350,000 (l)

Instructions
(a) Determine the missing amounts. (Hint: For example, to solve for (a), Assets − Liabilities ⫽
Owner’s equity ⫽ $32,000.)
(b) Prepare the owner’s equity statement for Donatello Company.
(c) Write a memorandum explaining the sequence for preparing financial state-
ments and the interrelationship of the owner’s equity statement to the income statement
and balance sheet.
ga ndt
ey
ollege/w

PROBLEMS: SET C
www
/c

w
i l e y. c o m

Visit the book’s companion website at www.wiley.com/college/weygandt, and

choose the Student Companion site, to access Problem Set C.

PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermark