Exercise on Ch1

Exercise
Indicate the section where each of the following would appear on
the statement of cash flows.

A) Cash flows from operating activity

B) Cash flows from investing activity.
C) Cash flows from financing activity.

1. Cash paid for wages. ( …….. )

2. Cash withdrawal by owner. ( …….. )
3. Cash purchase of equipment. ( …….. )
4. Cash paid for advertising. ( …….. )
5. Cash paid on an A/P. ( …….. )
6. Cash invested by owner. ( …….. )
7. Cash received from clients. ( …….. )
8. Cash paid for rent. ( …….. )

Sol:

1- A 5- A
2- C 6- C
3- B 7- A
4- A 8- A

Ex:

Compute the missing amounts in each of the following separate

companies.

A B C
Equity Dec. 31,2004 10000 10000 10000
Owner investment during the year 120000 ? 87000
Owner withdrawals during the year ? 54000 20000
Net income (loss) for the year 32000 81000 (4000)
Equity Dec. 31, 2005 102000 99000 ?
Solve:

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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 Exercise on Ch1
A- $ 62000
B- $ 62000
C- $ 73000

Ex:

Provide an example of the transaction that created the described

effect

1. Increase an asset and increase an equity.

2. Decrease an assets and decrease an equity
3. Decrease an asset and decrease a liability.
4. Increase an asset and decrease an assets.

Ex:

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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 Exercise on Ch1
1. Assume that total increase in cash = 50000 and total decrease in
cash = $ 20000, so the balance of cash = …………
2. Income statement in linked to statement of owner's equity by
………….

Solve:

1. 30000
2. Net income or (loss)

Ex:

The following financial statement information in form five

separate proprietorship.

Company Company Company Company Company

A B C D E
Dec. 31,2004
Assets $ 66000 $ 28500 $ 89000 $ 70000 ?
Liabilities 32000 22500 40000 35000 $ 20000
Dec. 31,2005
Assets ? 30000 91000 66000 60000
Liabilities 28000 23000 ? 41000 15000
During year 2005:
Owner investment 2000 3000 -0- 3000 5000
Net income (loss) 15000 ? (7000) ? 20000
Owner withdrawals 8000 5500 3000 2000 10000

1) Answer the following questions about company A :

a. what is the equity amount on December31, 2004?

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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 Exercise on Ch1
b. what is the equity amount on December31, 2005?

c. what is the amount of assets on December31, 2005?

2) Answer the following questions about Company B:

a. What is the equity amount on December 31, 2004?

b. What is the equity, amount on December 31, 2005?

c. What is net income (loss) for year 2005?

3) Calculate the amount of liabilities for company C on December 31,

2005.

4) Calculate the amount of income (loss) for company D during year

2005.

5) Calculate the amount of assets for company E on December 31, 2004.

Solve:

1) .
a. Equity = assets – liabilities
= 66000 – 32000 = 34000
b.

Equity – Dec. 31,2004 34000

+ owner investment 2000
+ net income 15000
- Owner withdrawals (8000)
Equity – Dec. 31,2005 43000

c. .
Assets = 28000 + 43000 = 71000
2) .
Mr: Kareem Abo Zeed
Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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: 0106774350
 Exercise on Ch1
A. Equity = 285000 – 22000 = 6000
B. Equity = 30000 – 23000 = 7000
C. .

Equity – Dec. 31,2004 6000

+ investment 3000
+ net income X
- Owner withdrawals (5500)
Equity – Dec. 31,2005 7000

Net income (X) = 7000 – 6000 - 3000 + 5500 = 35000

3) .
A. .

Equity – Dec. 31,2004 49000

+ owner investment -0-
+ net income (7000)
- Owner withdrawals (3000)
Equity – Dec. 31,2005 39000

Liabilities = 91000 – 39000 = 52000

4) Equity Dec. 31,2004 = 70000 – 35000 = $ 35000

Equity Dec. 31, 2005 = 66000 – 41000 = $ 25000

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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: 0106774350
 Exercise on Ch1
Equity – Dec. 31,2004 $ 35000
+ owner investment 3000
+ net income X
- Owner withdrawals (2000)
Equity – Dec. 31,2005 $ 25000

Net loss = 35000 + 3000 – 2000 – 25000 = $ 11000

5) Equity Dec. 31,2005 = 60000 – 15000 = $ 45000

Equity Dec. 31, 2004 = 45000 + 10000 - 5000 – 20000 = $ 30000
Assets Dec. 31, 2004 = 20000 + 30000 = $ 50000

Multiple choice :-

1) The accounting guideline that requires financial statement

information to be supported by independent, unbiased evidence
other than someone's beliefs or opinion
a. Business entity principle
b. Cost principle
c. Objectivity principle
d. Monetary unit principle
2) Revenue is properly recognized
a. When the customer order is received
b. Only if the transaction creates an accounts receivable
c. When cash from sale is received

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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 Exercise on Ch1
d. Upon completion of the sale or when services have been
performed and the business obtain the right to collect the
sale price.
3) Assets created by selling goods and services on credit are
a. Account payable
b. Account receivable
c. Liabilities
d. Expenses

Ex:

Rollins computer Timeshare Company entered into the

following transactions during May 2005

 Analyze the effect of transactions on assets, liabilities, and owner's equity

.
1. Purchased computer terminals for $21,500 from Digital Equipment
on account.
2. Paid $4,000 cash for May rent on storage space.
3. Received $15,000 cash from customers for contracts billed in April.
4. Provided computer services to Fisher Construction Company for
$3,000 cash.
5. Paid Northern States Power Co. $11,000 cash for energy usage in
May.
6. Rollins invested an additional $32,000 in the business.
7. Paid Digital Equipment for the terminals purchased in (1) above.
8. Incurred advertising expense for May of $ 1200 on account.

Sol:

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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 Exercise on Ch1
 Statement of cash flow
 Cash flow from Operating activities :-
Cash in flow: 15000 + 3000 = $18000

Cash out flow: 4000+ 11000 + 21500 = $(36500)

Net cash flow = $(18500)

 Cash flow from Investing activities :-

Cash in flow:

Cash out flow:

Net cash flow = -0-

 Cash flow from Financial activities :-
Cash in flow: $32000

Cash out flow:

= net cash flow: $ 32000

 Total net cash flow $ 13500

+ Begging cash balance -0-

= ending cash balance $ 13500

 Return on assets (ROA)

ROA is viewed as an indicator of operating efficiency.
net income
Return on assets (ROA) = average total assets

Mr: Kareem Abo Zeed

Mob: 0128385030
Email: KareemAboZeed@yahoo.com
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: 0106774350