ACCOUNTING Chapter 1

Answer to the homework

Home work:
  

Exercise 1-8 Exercise 1-9 Exercise 1-10

   

Problem 1-1 Problem 1-4 Problem 1-7 Problem 1-9

Exercise 1-8 1-

Perez Company
Balance Sheet
December 31, 1997
Assets Cash Accounts receivable Land Building Office equipment Total Liabilities & Owners Equity Liabilities: $36300 Notes payable 56700 Accounts payable 90000 Owner s equity: 210000 Eduardo Perez, 10200 Capital $403200 Total 213600 43800

145800 $403200

Exercise 1-9 1a. The supplies should be valued at historical cost, that is $1700, on the balance sheet. b. The appropriate balance sheet valuation of the asset under generally accepted accounting principles is $320000. The accounting principles that justify this valuation are stable-dollar assumption and cost principle.

Exercise 1-9 1c. The presentation of the balance sheet is correct. An asset should be shown in the balance sheet at its historical cost, that is, the price paid to acquire the computer system. Based on the adequate disclosure principle, however, the significant financial events occurring subsequent to the balance sheet date but before the financial statements have been issued to outsiders should be disclosed in notes accompanying the financial statements.

Exercise 1-10 1Assets a. b. c. = Liabilities + $342,000 562,500 165,000 Owner s Equity $216,000 375,000 142,500

$558,000 937,500 307,500

Problem 1-1 1-

Mystery Company
Balance Sheet
December 31, 1997
Assets Liabilities & Owners Equity Liabilities: $21400 Notes payable 10600 Accounts payable 425000 Salaries payable 450000 Interest payable 29200 Owner s equity: 15400 Stanley Gardner, 58700 Capital $1010300 Total 290000 $1010300 $ 620000 54800 33500 12000

Cash Accounts receivable Land Building Office equipment Snowmobiles Furnishings Total

Problem 1-1 1B. The company was not in a strong financial position as of December 31, 1997, since its debt ratio was too high.

Problem 1-2 11. Purchased delivery equipment for cash at a cost of $3200. 2. Collected its account receivable $900 from a customer. 3. Purchased an office equipment for $13500, paying $3500 in cash, remaining will be due within 60 days. 4. Made a payment of $14500 on its account payable. 5. The owner invested cash $15000 in the business. 6. Purchased a computer of $2100 on credit.

Analysis of Business Transactions P1-4

Cash Bal. 1 2 3 4 5 6 Total

A/R
8900

Truck
58000

Office E
3800

= N/P
20000

A/P
5200

Capital
55000

2700 = -4000 = = = 30500 = = 4900 88500 6500 = 45500 2000 10000 15500 20000 75000 -3200

Problem 1-7 1-

Julian Bakery
Balance Sheet
August 1, 1997
Assets Liabilities & Owners Equity Liabilities: $6940 Notes payable 11260 Accounts payable 67000 Salaries payable 84000 Owner s equity: 44500 Stanley Gardner, 7000 Capital $220700 Total 120700 $220700 $ 74900 16200 8900

Cash Accounts receivable Land Building Equipment & fixtures Supplies Total

Problem 1-7 1-

Julian Bakery
Balance Sheet
August 3, 1997
Assets Liabilities & Owners Equity Liabilities: $14490 Notes payable 11260 Accounts payable 67000 Salaries payable 84000 Owner s equity: 51700 Stanley Gardner, 8250 Capital $236700 Total 145700 $236700 $ 74900 7200 8900

Cash Accounts receivable Land Building Equipment & fixtures Supplies Total

Problem 1-7 1The company was not in a strong financial position as of August 1 and August 3, since its current liabilities is larger than its current assets.

Problem 1-9 1-

Old Town Playhouse

Cash Accounts receivable Props & costumes Lighting equipment Total