Solutions Guide: This is meant as a solutions guide.

Please try reworking the questions and reword the answers

(especially essay type parts) so as to guarantee that your answer is an original. Do not submit as your own.

Problem 1-1A)

1
2
3
4

5
6

8
9

Transaction
Owner invests cash
for stock

Balance Sheet
Total Total Total
Assets Liab. Equity
+

Incurs legal costs

on credit

Borrows cash by
signing L-T note
payable

Receives cash for

services provided
Buys land by
signing note
payable
Buys office
equipment
for cash
Provides ser-vices
on credit
Collects cash on
receivable

+/

Investing
Activities

+
+

Statement of
Cash Flows
Operating Financing
Activities
Activities

+
+

Pays cash for

employee wages

Income
Statement
Net
Income

from (8)

+/

10 Pays cash
dividend

Problem 1-8A)
Assets
Accounts
+ Receivable

= Liabilities
Office
Accounts
+ Equipment = Payable

Date

Cash

May 1

+$60,000

3,200

Equity

Common
Stock

$60,000

Dividends

+ Revenues Expenses

800

+ 4,600

$4,600

3,000

15

20

+ 3,000

850

22
25

+ 2,800

26

1,680

27
28

$3,000

850

$3,200

800

850

60

850

$1,680 = + $1,680

12

3,000

2,800

2,800

1,680

= +

60

2,800

30

200

200

30

480

480

31

1,200

$6,440

$61,140

$1,680 =

60

$60,000

$1,200

$1,200

Part 3
THE SIMPSON CO.
Income Statement
For Month Ended May 31
Revenues:
Consulting services revenue ...................
Expenses:
Rent expense .............................................
Salaries expense ........................................
Advertising expense ..................................
Cleaning expense ......................................
Telephone expense ....................................
Utilities expense ........................................
Total expenses ...........................................
Net income .........................................................

$10,400
$3,200
1,700
60
800
200
480
6,440
$ 3,960

THE SIMPSON CO.

Statement of Retained Earnings
For Month Ended May 31
Retained earnings, May 1 ...................................................

$10,400

Plus: Net income ..................................................................

Less: Cash dividends ..........................................................
Retained earnings, May 31 .................................................

Assets
Cash ...................................
Office equipment ..............

Total assets........................

$61,140
1,680

$62,820

3,960
3,960
1,200
$ 2,760

THE SIMPSON CO.

Balance Sheet
May 31
Liabilities
Accounts payable ......................
Equity
Common stock...........................
Retained earnings .....................
Total equity ...............................
Total liabilities and equity .......

60

60,000
2,760
62,760
$62,820

THE SIMPSON CO.

Statement of Cash Flows
For Month Ended May 31
Cash flows from operating activities
Cash received from customers...........................................
Cash paid for rent ...............................................................
Cash paid for cleaning ........................................................
Cash paid for telephone .....................................................
Cash paid for utilities .........................................................
Cash paid to employees ......................................................
Net cash provided by operating activities.........................

$10,400
(3,200)
(800)
(200)
(480)
(1,700)

Cash flows from investing activities

Purchase of equipment .......................................................
Net cash used by investing activities .................................

(1,680)

Cash flows from financing activities

Investments by stockholder ...............................................
Dividends to stockholder ....................................................
Net cash provided by financing activities .........................

60,000
(1,200)

Net increase in cash ............................................................

Cash balance, May 1 ...........................................................
Cash balance, May 31 .........................................................

$ 4,020

(1,680)

58,800
$61,140
0
$61,140

Problem 2-3A)
Part 1
FABIANO DISTRIBUTION
Balance Sheet
December 31, 2010
Assets
Liabilities
Cash ................................... $ 52,500
Accounts payable ...................... $ 7,500
Accounts receivable..........
28,500
Office supplies ..................
4,500
Trucks ...............................
54,000
Equity
Office equipment ..............
138,000
Total equity ............................... 270,000
Total assets ........................ $277,500
Total liabilities and equity ....... $277,500

FABIANO DISTRIBUTION
Balance Sheet
December 31, 2011
Assets
Liabilities
Cash ................................... $ 18,750 Accounts payable ....................... $ 37,500
Accounts receivable..........
22,350 Note payable ............................... 105,000
Office supplies ..................
3,300 Total liabilities............................ 142,500
Trucks ...............................
54,000
Office equipment ..............
147,000
Building .............................
180,000
Equity
Land...................................
45,000 Total equity ................................ 327,900
Total assets ........................ $470,400 Total liabilities and equity ........ $470,400
Part 2
Computation of 2011 net income:
Equity, December 31, 2011 ....................................................................... $327,900
Equity, December 31, 2010 ....................................................................... (270,000)
Increase in equity in 2011 .........................................................................
57,900
Deduct additional investment ...................................................................
Net increase in equity in 2011, apart from new investment ..................

(35,000)
22,900

Add dividends ($3,000 x 12) ......................................................................

36,000
Net income earned in 2011 ........................................................................ $ 58,900

Part 3
Debt Ratio = $142,500 / $470,400 = 30.29%