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Engineering E2261: Introduction to Accounting and Finance

COLUMBIA UNIVERSITY, School of Engineering and Applied Science

Homework 1 – Solutions
2. Events’ impact on assets, liabilities and equity:
a) Paying dividends is such an example as it decreases both cash (assets) and retained earnings (equity).
b)

Taking out a bank loan increases cash (assets) and increases loans payable (liabilities).

c)

Paying accrued expense decreases cash (assets) and also decreased liabilities.

d)

Collecting cash on credit sales increases cash and decreases accounts receivable.

e)

Issuance of common stock increases cash (assets) and also increases common stock and paid in capital
(equity).

3. Valuing Drilling Unlimited (DU)
a) The Balance-Sheet Valuation method suggests that:
Equity(true) = Assets(mv) − Liabilities
To get the value of DU, we need to replace the costs of its assets with market values first.
Assets

Accrual Accounting Value
(\$000)

Market Value
(\$000)

Current Assets
Cash And Cash Equivalents
Net Receivables
Other Current Assets

1,159
3,968
876

1,159
3,968
400

Total Current Assets

6,003

5,527

Oil Development Rights
Other Long-term Assets

387,584
8,624

800,000
9,000

Total Assets

402,211

814,527

Equity(true) = Assets(mv) − Liabilities
= \$814,527,000 – \$341,214,000 = \$473,313,000
b) In the case that PA and NY forbid development of the fields for which DU has sole rights, the market value of
DU’s equity would be zero.

The revenue is invoiced but not yet collected.\$47.5 × \$5. Select the correct answer from the given choices. Since Geek Squad has performed services.000 = \$165.000 = \$10.′ ′ Equity(true) = Assets(mv) − Liabilities = 0 Expected Value of DU’s Worth = 90% × \$473. Yearly depreciation = \$20.000 / 4 = \$5.000 − 2 × \$5.000 EOY 20X2 book value = \$20. revenues increase by \$500 In accrual accounting. There is no effect on equity. not when cash is collected. \$250K Assets are usually measured at cost. iii.000) Account PPE iv (7.700 4. D) p.000 − 3.000) Account Depr. Accounts receivable increase by \$500. BOY 20X3 book value is the same as EOY 20X2. Expense 5. it’s the price you paid. so accounts receivable (instead of cash) increase by \$500.500) PPE ∆𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 Amount Account ∆𝐎𝐰𝐧𝐞𝐫 ′ 𝐬 𝐄𝐪𝐮𝐢𝐭𝐲 = ∆(𝐏𝐈𝐂 + 𝐍𝐈 − 𝐃𝐢𝐯) = ∆(𝐏𝐈𝐂 + 𝐑𝐞𝐯 − 𝐄𝐱𝐩 − 𝐃𝐢𝐯) Amount (10.981. Equity = Assets – Liabilities ∆Equity = ∆Assets − ∆Liabilities = \$200.313. The journal entry for this transaction is: debit Cash (assets) by \$75. Book value = 0 iv.500 b) ∆𝐀𝐬𝐬𝐞𝐭𝐬 Transaction i Amount (10.000 and credit Loans Payable (liabilities) by \$75.000 − \$35. Various Questions.000.000 . Assets increase by \$75K.000 = \$76.000 + 10% × 0 = \$425. liabilities increase by \$75K. 6. Expense (7. revenue is recognized when earned.000 .000 ii.000 C) k. no effect on equity. A) c. B) i. An increase of \$165.500) Depr.000 = \$2. Cost Concept and Transaction Table Entries a) i. Book value = \$20. For land.000. it should increase revenues by \$500. Applications of the Fundamental Accounting Equation a) Equity = Assets – Liabilities = \$123.

130 b c d e f g ∆𝐎𝐰𝐧𝐞𝐫 ′ 𝐬 𝐄𝐪𝐮𝐢𝐭𝐲 = ∆(𝐏𝐈𝐂 + 𝐍𝐈 − 𝐃𝐢𝐯) = ∆(𝐏𝐈𝐂 + 𝐑𝐞𝐯 − 𝐄𝐱𝐩 − 𝐃𝐢𝐯) ∆𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 Account Cash Amount Account Amount 18. Furniture Cash Cash Store Equip. Rec.000 − \$70.200 \$19.000 600 (600) (500) 1.000 = \$130.000 EquityEOP = AssetsEOP − LiabilitiesEOP = \$190. Furniture Store Equipment Total Assets Liabilities \$2.000 = \$125.000 − \$5.200 825 100 100 (100) (125) 930 (400) (900) Total 19.000 15. Cash Acc.000 330 Liabilities + Equity \$19. Cash Acc.000 = \$60.000 − \$60.000 = \$130.000 LiabilitiesEOP = LiabilitiesBOP + ∆Liabilities = \$70.200 (400) Expenses 825 100 Revenues Revenues (125) 930 Expenses Revenues (900) Dividends Note Payable Note Payable 800 Assets (500) 18.130 .000 c) AssetsBOP = AssetsEOP − ∆Assets = \$190.000 = \$65.000 − \$65.000 EquityBOP = AssetsBOP − LiabilitiesBOP = \$130.000 + \$30. Cash Cash Cash Cash 1.330 Liabilities Equity b) Balance Sheet Assets Cash Accounts Rec.000 7.330 600 16. BreakToMeasure Testing Lab a) Transaction Table ∆𝐀𝐬𝐬𝐞𝐭𝐬 Transaction a h i j k Amount 3. Rec.000 Account Paid in Capital Store Equip.000 = \$30.130 Note Payable \$800 Equity Paid in Capital Retained Earnings \$18.000 EquityEOP = EquityBOP + ∆Equity = \$100.000 − \$50.b) ∆Equity = ∆Assets − ∆Liabilities = \$80.