E1.

1
a. True
b. False. General-purpose financial reporting helps users who lack the ability
to demand all the financial information they need from an entity and
therefore must rely, at least partly, on the information provided in financial
reports. Therefore, it is not the most useful to insiders as they have access to
the most complete, detailed and relevant sources of information about the
entity's business for making strategic business decisions.
c. False. Accounting standards based on individual conceptual frameworks
generally won’t result in consistent and comparable accounting reports since
establishing standards based on individual conceptual frameworks leads to
varying interpretations of similar matters that have been evaluated
previously. Consequently, standards will lack consistency with each other
and past judgments may not reflect future outcomes.
d. False. Capital providers are not the only users who benefit from general-
purpose financial reporting. The objective of general purpose financial
reporting is to provide financial information about the reporting entity that is
useful to present and potential equity investors, lenders, and other creditors
in making decisions about providing resources to the entity. Nonetheless,
that kind of information which is decision-useful to capital providers may
also be helpful to other users of financial reporting who are not capital
providers.
e. False. An implicit assumption is that users need reasonable knowledge of
business and financial accounting matters to understand the information
contained in financial statements. It means that financial statement preparers
assume a level of competence on the part of users. They are not intended to
teach users who have no prior understanding.
f. True

E1.2:
a. Historical cost principle – Fair value changes are not recognized in the
accounting records.
 b. Accrual-basis assumption – Accounts receivable are recorded for sales on
account rather than waiting until cash is received
c. Full disclosure principle – Financial information is presented so that
investors will not be misled
d. Expense recognition principle – Intangible assets are capitalized and
amortized over periods benefited.
e. Fair value principle – Brokerage companies use fair value for purposes of
valuing financial securities.
f. Economic entity assumption – Each enterprise is kept as a unit distinct
from its owner or owners.
g. Full disclosure principle – All significant post-statement of financial
position events are reported.
h. Revenue recognition principle – Revenue is recorded at point of sale
i. Full disclosure principle – All important aspects of bond indentures are
presented in financial statements.

E1.3
1. Salaries and Wages Expense 2,900
Salaries and Wages Payable 2,900
2. Utilities Expense 600
Accounts Payable 600
3. Interest Expense ($60,000 x 8% x 1/12) 400
Interest Payable 400
4. Telephone and Internet Expense 117
Accounts Payable 117

E1.4
ALISTAIR CO.
General Journal
 December 31, 2019
Date Account title and explanation Debit Credit
Dec. 31 Sales Revenue 390,000
2019
Income Summary 390,000
Dec. 31 Income Summary 346,700
2019
Cost of Goods Sold 235,700
Sales Returns and Allowances 12,000
Sales Discounts 15,000
Selling Expenses 16,000
Administrative Expenses 38,000
Income Tax Expense 30,000
Dec. 31 Income Summary 43,300
2019
Retained Earnings 43,300
Dec. 31 Retained Earnings 18,000
2019
Dividends 18,000

E1.5
GAERTNER AG
Income Statement
For the Year Ended December 31, 2019
Net Sales €1,360,000
Cost of Goods Sold 850,000
Gross Profit 510,000
Selling and Administrative Expenses 355,000
Net Income 155,000
Other Comprehensive Income
Unrealized Holding Gain on Non-Trading Equity Securitie 26,500
Comprehensive Income €181,500
 E1.6
a)
CHEKOV CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities
Net income $55,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense $13,000
Patent amortization 2,500
Loss on sale of equipment 3,000
Increase in current liabilities 13,000
Increase in current assets (other than cash) (25,000) 6,500
Net cash provided by operating activities 61,500
Cash flows from investing activities
Sale of equipment 9,000
Addition to building (27,000)
Investment in debt securities (16,000)
Net cash used by investing activities (34,000)
Cash flows from financing activities
Issuance of bonds 50,000
Payment of dividends (25,000)
Purchase of treasury shares (11,000)
Net cash provided by financing activities 14,000
Net increase in cash $41,500
 b)
CHEKOV CORPORATION
Statement of Financial Position
December 31, 2019
Assets
Non-current assets
Long-term investments $ 16,000
Property, plant, and equipment
Land $30,000
Buildings $147,00
0
Less: Accum. depreciation–buildings 34,00 113,000
0
Equipment 70,000
Less: Accum. depreciation–equipment 12,00 58,000
0
Total property, plant, and equipment 217,000
Intangible assets
Patents 37,500
Total non-current assets 254,500
Current assets 301,500
Total assets $556,000
Equity and Liabilities
Equity
Share capital—ordinary $180,00
0
Retained earnings 74,000
Less: Treasury shares 11,000
Total equity $243,000
Non-current liabilities
Bonds payable 150,000
Current liabilities 163,00
0
Total liabilities 313,000
Total equity and liabilities $556,000