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Problems: Set C 5
Ass.ts, December 31,2008
Liabilities, December 31, 2008

Prepare the 2008 owner's equ.ity statement for Kevin Carr's Jegal practice.
P1..1C On April 1. Vinnie Venuchi Vinnie's "fravel Agency. The feJlowing
tions were completed during the month,
L Invested $15,000 cash. to start the agency.
2.. Paid $600 cash for April office rent.
3. Purchased office equipment for $3,000 cash.
4. Incurred $100 of advertising costs in the Chicago Tribune, on account
5. Paid $600 cash for office
6. Earned $11,000 for services rendered: $3,000 cash is received from and the
ance of S8,OOO 15 bH1ed to customers on account.
7. Withdrew $500 cash for personal use,
S. Paid Chicago Tribune amount due in transaction (4).
9. Paid employees' saJaries $2,200,
lfr, Received $4,000 in cash from customers who have previously been billed in transaction (6).
(a) Prepare a tabular analysis of the transactions using the foUowing column headings: Cash,
Accounts Receivable, Supplies. Office Equipment, Accou,nts Payable.. and Vinnie Venuchi.
(b) From an analysis of the column Vinnie Venuclri, Capital, compute the net income or net Joss
for April.
P12C Jermy Brown opened a law office, on July 1,2008. On July 31, the balance sheet showed
Cash, Accounts Receivable S1,500, Supplies $500, Office Equipment $6,000, Accounts
Payable $4;200, and Jenny Brown, Q.\pital $8,800. DuringAugust the following transactions occurred.
L Collected $1,200 of accounts receivable.
2. Paid $2.800 cash on accounts payable,
3. Earned revenue of $8,000 of which $3,000 is collected in cash and the balance is due in
4. Purchased additional office equipment for $2.000. paying $400 in cash and the balance on
S. Paid salaries $2,500, rent for August $900. and advertising expenses $400.
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 .
(8) Prepare a tabular analysis of the August transactions 'beginning with July 31 balances. The
column headings should be as foHows: Cash +Accounts Receivable + Supplies + Office
Equipment = Notes PayabJe 1- Accounts Payable +Jenny Brown, Capital.
(b) Prepare an income statement for August, an owner's equity statement for and a bal
ance sheet at August 31.
P1-3C On June 1. Michelle Sasse started Divine Creations Co., a company that provides craft
opportunities, by investing $15.200 cash in the business. are the as..Clets and liabHities of
the cofilpany at June 30 and the revenues and expenses for the month of June.
Cash $13,750 Notes Payable $9,000
Accounts Receivable 3,000 Accounts Payable 1,200
Service Revenue 7,000 SuppJies Expense 1,600
Craft Supplies 2,000 Gas and Oil Expense 200
Advertising Expense 400 Utilities Expense 150
Equipment 10/)00
Analy.u trtlrl.factio"f ami
compWf/ nel income.
(SO 6.1)
(a) Ending capital $22,000
Net income $7,500
AM/Yl&' frafUacliOM anO pre
pare inOOJIU! slaUment, owntfs
equily.rIBlfmeni. and baJQI1Ct:
(SO 6.1.6)
(a) Ending capital $12,080
(b) Net incom1J $3,980
Tota! lw;ets 516.600
Prepare income
sUllement, and
bolam::e sheet,
(SO 81
6 Chapter 1 Accounting in Action
(51 Net income $4.&50
OWf\er'$ ectuity $18.550
Iota! assets $28,750
(b) Net income $5,400
Owner's eqvit)' $19,300
transactions and
prepare ji1l(!Jicwl s/attl11rt1$,
(50 6, 7, 81
tal Ending capital $12.700
Michelle made no additional jnvestment in June, but withdrew $1,300 in cash for personal use
during the month.
(a) Prepare an income statement and owner's equity statement for the month of June and a
ance sheet at June 30,2008.
(b) Prepare an income statement and owner's equity statement fOT June assuming the following
data are not included above: (1) $900 of revenue was earned and billed but not collected at
June 30, and (2) 5150 of gas and oU expense was incurred but not paid.
P14C MicheUe Rodriguez started her own consulting firm, Rodriguez Consulting, on May I,
2008. The foHowing transactions occurred during the month of May.
May 1 Michelle invested $7.000 cash in the busineS&
2 Paid $900 for office rent for the month,
3 Purchased $600 of supplies on account.
SPaid $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 Oll 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.
3<.1 Paid $175 for utilities.
(a) Show the effects of the previous transactions on the accounting: equation USing the fonowing
Date Cash +
(b) Net Income 56,700
(t:) eft." $14.700
amoW'US atUi ownu;r
t!qw'ey SUltmftnl.
(SO 7, 8)

Accounts Notes AC(;Ounts M. Rodriguez
+ Supplies + +

Include explanations for any changes in the M. Rodriguez, Capital account in your analysis.
. (b) Prepare 8n income statement for the month of May,
(c) Prepare a baJan"ce sheet at Ma.y 31,2008.
P1,SC Financial statement Jnformation .bout four different companiea is as {ollowa.
Donatello Raphael MIchelangelo Leonardo
Company . Company Company Company
January 1,2008
Assets $ 80,000 $90,000 (g) $150.000
Liabilities 48,000 (d) 80,000
Owner's equity (0) 40,000 49,000 90,000
December 31,2008
Assets (b) 112.000 180,000 (k)
LlabiHtles 60.000 72,000 (11) 100,000
Owner's equity 40.000 (e) 70,000 145.000
Owner's equity changes in year
Additional investment (e) 8,000 10,000 15,000
Drawings 15,000 (f) 12.000 10.000
Tota) revenues 350,000 410,000 (I) sao,ooo
Total expenses 333,000 385,000 350,000 (I)
(0) Detennine the missing amounts. (Hint: For example, to solve for (a). Assets - Liabilities =
Owner', equity =$32,000.)
Exercises! Set 8 3
Accounts Office Accounts Owner'S Equity
Cash + + + = +
Supelies Equiement Payable
M. Nile"Caeital
+$20,000 Investment
2. -2,000
+$5,000 +$3,000
3. -750
+5,600 +$3,700
+9,300 Service Revenue
5. -1,.500
6. -2,000
-2,000 Drawings
7. -820
-820 Rent Expense
8. +450 -450
9. -4,900
-4,900 Salarie& Expense
10. +500 -500 Utilities Expense
(a) Oesbe each ,transaction that occurred for the month,
(b) Detennine how much owner's equity increased for the month.
(c) Compute the amount of net income for the monlh.
E1..9B An analysis of transactions for Nile &. Co, was presented in El-SB. Prepare financial s/o/erne",:r.
Instructions (508)
Prepare an income statement and an owner's equity statement for August and a balance sheet at
August 31, 2008.
E1-10B Rose Company had the following assets and liabilities on the dates indicated. Determine net jncome (or loss),
Decemher31 Total Assets Total Uablllties
2001 $400,000 $240,000
2008 $460,000 $280,000
2009 $590,000 $360,000
Rose began business on January 1,2007. with an investment of $l00
From an analysis of the change in owner's eqUity during the year, compute the net income (or
loss) for:
(Il) 2007, assuming Rose's drawings were $20,000 for the year.
(b) 2008, assuming Rose made an additional investment of $55,000 and had no drawings in
(c) 2009, assuming Rose made an additional investment of $10,000 and had drawings of
$30,000 in 2009.
E1..11B Tho items are omitted from each of the following summaries oibalance sheet and in Al1alyte financial sta/emenu
come statement data for two proprietorships for the year 2008, Pat Montgomery and Syed
Enterprises, (SO 6. 7)
Pat Syed
Montgomery Enterprises
Beginning ofycer:
Total assets $1lS,ooo $129,000
TotalliabiJities 85,000 (c)
Total owner's equity (aJ 78,000
End a! year:
Total assets 160,000 180,000
Total liabilities 100,000 50,000
Total owner's equity 60,000 130,000
Changes during year in owner's equity;
Additional investment (b) 25,000
Drawings 19,000 (d)
Total revenues 215,000 100,000
Total expenses 175,000 61,000
4 Chapter 1 Accounting in Action
Pl'epal'f! income Jtatemenl and
awner's equity slatement,
Correct an incorrt1y prepared
balance theel,
Compute l'JeJ income and
prepare., balll/'Jce shut..
Prepare on iIlcotm! statement.
Prepare an owner) equily
Determine the missing amounts.
E1-12B The foUowing infonnation relates to Mildred Co. for the year 2008.
Mildred Wegrzyn, Capital, January Ii 2008
Mildred Wegrzyn. Drawing during 2008
Service revenue
Salaries expense
$ 48,000
Advertising expense
Rent expense
Utilities expense
$ 1,800
After analyring the data, prepare an income statement and an owner's equity statement fOT the
year ending December 31,2008,
i1.138 Mary Valente is the bookkeeper for Haif Company. Mary has been trying to get the
balance sheet of Hair Company to balance. Hair's balance sheet is shown below.
Balance Sheet
December 31,2008
Cash $11,000 Accounts payable $18,000
, Supplies 7,000 Accounts receivable (1O.soo)
Equipment 48,000 Paul Hair, Capital 64,500
PaUl Hair, Drawing 6,(J()Q '!1:>lalliabilitie, and
Total assets $72,000
owner's equity $72,000
Prepare a correct baJance sheet.
E1-148 Michelle Potts IS the sole ,owner of Wild Park. a public camping grQund neaf the Lake
Mead National Recreation Area. MiclleUe has compiled the following financial information as of
December 31.2008.
Revenues during 2008-camping fees S150,OOO Market value of equipment $140,000
Revenues during 2008-general store 60,000 Notes payable 50,000
Accounts payable 12,000 Expenses during 2008 145,000
Cash on hand 21,000 Supplies on hand 3,500
Original cost of equipment 99,OQO
Ca) Determine MiChelle Potts's net income from Wild Park for 2008.
(b) Prep.,.e a balance sheet for Wild Park as of December 31, 200B.
Presented below is financial information related to the 2008 operations of Breezy
Cruise Compan),.
Maintenance expense $ 89,000
.Property tax expense (on dock facilities) 11,000
Salaries expense ISO,OOO
Advertising expense 5,500
Ticket revenue 370,000
Prepare the 2008 income statement for Breezy Cruise Company,
E1-16B Presented is information related to the sole propr.i.etonhip of Kevin Carr.
Legal service revenue-200S $340,000
Assets, January 1,2008 100,000
1 Exercises! Set B
E1-1B Briggs Company perfonns the foHowing accounting tasks during the year.
eoonomic events.
__ economic activities relevant to the company.
__ information in a standard format.
___Preparing accounting reports.
___Measuring events in dollars and cents.
--.Keeping a systematic chronological chart of events.
__ uses, meaning, and limitations of data.
___Qassifying economic events.
and interpreting information.
Accounting is "an infonnation system that JdentJfJes, records, and eommunlc,Ucs the economic
events of an organitatioll to interested users."
Categorize the accounting tasks perfonned by Briggs as relating to either the identification (1),
recording (R), or communication (C) aspects of accounting.
E1-2B (a) The foHowlng are users of financial statements.
__ _o__Securities and Exchange Commission
___Interna1 Revenue Service
___Labor unions

__.....Factory manager ___Human resource worker
__ Vice-president of Finant:e
Identify the users as being either e:.:tunal users or Internal: users.
(b) The foHowing questions could be Asked by an internal user or an external wet.
What price should we set for our product?
the company earn a satisfactory income?
we hire more employees?
does the company)s profitability compare to other compa.nies?
____What does it cost us to manufacture each unit produced?
Which product should we emphasize?
Will the"company be able to provide a return to its stockholders?
Identify each of the questions as being more likely asked by an inte.rnalll8er or an external user.
Ron Thrner. president of Bears Company, has instructed Rex the head of the
accounting department for Bears Company, to report the company's land in the company's
counting reports at its market value of $225,000 instead of hi cost oi $125,000. Thmer says,
"Showing the land at $225.000 wiU make our company look Jike a better investment when we try
to attract new investors next month."
Explain the ethical situation involved for Rex Grossman. identifying the stakeholders and the
E14B The foHowing situations: involve accounting principles and assumptions.
L Donkey Company owns land that is worth substantially more than it originally oost, In an
effort to provide more relevant infonnation, Donkey reports the land at market value in its
accounting reports.
2. Benjamin Company includes in its accounting records only transaction data that can be
expressed in terms of money.
3. Josh Borke, owner of Josh's MovieHouse, records his personal living costs as expenses of the
Classify the Ihne oCfi!lit{a of
(SO 1)
Idlmtlfy use,s ofaccoIUllil1g
Discuss anti the. ws!
(SO J)
aCCi.Jltn'ing concepti.
2 Chapter 1 Accounting in Action
Classify occ;ounf,f tU
liabililio, llnd owner's
(SO 6)
Analyze lhe effect of
(SO 6. 7)
Analyze the effect
/fom 04 assets, liabiJilies, anti
owner:t equity.
(SO 6. 7)
Al1tflyze frmuoclimu and com
pule riel income.
(SO 7)
For each of the three situations, say jf the accounting method used is correct or incorrect. If
reet, identify which principle or assumption supports the method used. If incorrect. identify
which principle or assumption has been violated.
E1..SB Muhammed Cleaners has the foUowing balance sheet items.
Accounts payable Accounts receivable
Cash .
Notes payable
Cleaning equipment Rent payable
Cleaning supplies Muhsln Muhammed. Capital
Classify each item as an asset,liability. or owner's equity.
Selected transactions for Natural Lawn Care Company are listed below.
L Made cash investment to start business.
2. Purchased equipment on account.
3. Paid salaries.
4. BHled customers fer services performed.
5. Received cash from customers billed in (4).
6. Withdrew cash for 'owner's personal use,
7. Incurred advertising expense on acceunt.
8. Purchased addirional equipment for cash,
9. Received cash from custOmers when service was performed.
List the numbers of the above transactiens and describe the effect of each transaction on assets,
liabilities, and owner's equity. For example, the first answer is: (1) rncrease in assets and increase
in ewner's equity.
E17B Alexis Computer Timeshare Company entered into the ioUowing transactions during
May 2008.
1. PurchaSed computer terminals for $15,000 from Digital Daze on aCCOUnt.
2. Paid $3.000 cash fer May rent on storage space.
3. Received $12,000 cash from customers for contracts billed in April.
4. Provided computer services to' Jehnson Construction Company ior $2,500 cash.
5. Paid Northern Illinois Power Co. $7,000 cash for energy usage in May.
6. Alexis invested an additional $25,000 in the business.
7. Paid Digital Daze for the terminals purchased in (1) above.
8. Incurred advertising expense for May of $900 on account.
Indicate with the appropriate letter whether each of tbe 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.
CO an increase in liabilities and a decrease in owner's equity,
(g) an increase in owner's equity and a decrease in Jiabilities.
An analysis of the trans,actions made by Nile & Co., a certiiied public accounting
nrm,for {he month of August is shown on the next page. Eacb increase and decrease in owner's
equity is explained,
Continuing Cookie Chronicle 7
(b) Prepare the owner's equity statement for DonateUo Company.
(c) Write a memorandum explaining the sequence for preparing finam:ial state
ments and the interrelationship of the owner's equity statement to the income statement
and balance sheet.
CCCI Natalie Koebel spent much of her, childbood learning the art of cookie-making from
her grandmother. They passed many happy bours mastering every type of cookie imaginable
and later creating new recipes that Were both healthy and delicious. Now at the start of ber sec
ond year in college, Natalie is investigating various possibilities for starting her own business
as part of the requirements of the entrepreneurship program in which she is enrolled.
A long-time friend insists that Natalie has to somehow include cookies in her business
plan. After aseries of brainstorming sessions., Natalie settles on the idea of operating a cookie
making school. She will start on a pert-time basis and offer her services in people's homes. Now
that she has started thinking about it, the possibiJities seem endless. During the fall, she will
concentrate on holiday cookies. She will offer individual lessons and group sessions (which will
probably be more entertainment than education for the participants). Natalie also decides to
include children in her target market.
The first difficult decision is coming up with the perfect name for her business. In the end,
she settles on "Cookie Creations" and then moves on to more important issues.
(;1) What form of business organization-proprietorship. partnership, or corporation-do you
recommend that Natalie use for her business? Discuss the benefits and weaknesses 0[ each
form and give the reasons for your choice.
(b) Will Natalie need accounting information? If yes. what information will she need and why?
How often wilJ she need this information?
(c) ldentify specific asset,liability. and equity accounts that Cookie Cre.ations wilt likely use to
record its business tran$aetion&.
(d) Should Natalie open a separate bank accoWlt for the busineu? Why or why not?
The C,mkie
ebron/ell! Sltm.f ;n r.:IUf{Jk'r
and (iontvlIIl's in t'1Jj' dWPft!J'.