Chapter 1

Environment and Theoretical Structure of Financial Accounting

EXERCISES
Exercise 1-1Requirement 1
Haskins and Price Operating Cash Flow Cash collected Cash disbursements: Payment of rent Salaries Travel Utilities Net operating cash flow Requirement 2 Haskins and Price Income Statements Revenues Expenses: Salaries Utilities Travel Rent Net Income Year 1 $380,000 (200,000) (40,000) (50,000) (30,000) $ 60,000 Year 2 $440,000 (210,000) (40,000) (60,000) (30,000) $100,000 Year 1 $330,000 (60,000) (200,000) (50,000) (30,000) $(10,000) Year 2 $450,000 -0(210,000) (60,000) (50,000 $130,000

Requirement 3 Year 1: Amounts billed to customers Less: Cash collected Ending accounts receivable

$380,000 (330,000) $ 50,000

Alternate Exercise and Problem Solutions

© The McGraw-Hill Companies, Inc., 2011 1-1

000) $ 40.000 $490. e j c 3. Faithful representation 4. along with relevance. comprehensive income 5. realization principle © The McGraw-Hill Companies. concerns the relative size of an item and its effect on decisions d. concerns the recognition of revenue e. applying the same accounting practices h _ relevance 2. 2011 1-2 Intermediate Accounting. historical cost principle d 10.000 440.000 (450. matching principle 9. the change in equity from nonowner transactions a _6. a primary decisionspecific quality f. List B predictive value a.Year 2: Beginning accounts receivable Plus: Amounts billed to customers Less: Cash collected Ending accounts receivable $ 50. Inc. information is useful in predicting the future h. the original transaction value upon acquisition g. record expenses in the period the related revenue is recognized c. consistency i b f 7. 6/e .000 Exercise 1-2 List A g 1. materiality over time b. implies consensus among different measurers j. pertinent to the decision at hand i. verifiability 8..

The realization (revenue recognition) principle Alternate Exercise and Problem Solutions © The McGraw-Hill Companies. The historical cost (original transaction value) principle 4. The matching principle 3. The periodicity assumption Exercise 1-4 2. Inc. The matching principle 4. The periodicity assumption Exercise 1-3 2. The historical cost (original transaction value) principle 3. The economic entity assumption 1. The full disclosure principle 5.1.. The economic entity assumption 6. The full disclosure principle 5. The realization (revenue recognition) principle 6. 2011 1-3 .