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Question;Multiple-choice;questionsEXERCISES;LO 1;Exercise 1-1The;role of accounting in society;Free;economies use open markets to allocate resources.;Required;Identify;the three participants in a free business market. Write a brief memo;explaining how these participants interact to ensure that goods and services;are distributed in a manner that satisfies consumers. Your memo should;include answers to the following questions: If you work as a public;accountant, what role would you play in the allocation of resources? Which;professional certification would be most appropriate to your career?;Lo 1;Exercise 1-2Distributions;in a business liquidation;Assume;that Kennedy Company acquires $1,600 cash from creditors and $1,800 cash from;investors.;Required;1. a.Explain the primary differences between investors and creditors.;2. b.If Kennedy has a net loss of $1,600 cash and then liquidates;what amount of cash will the creditors receive? What amount of cash will the;investors receive?;3. c.If Kennedy has net income of $1,600 and then liquidates, what;amount of cash will the creditors receive? What amount of cash will the;investors receive?;LO 1;Exercise 1-3Careers;in accounting;Accounting;is commonly divided into two sectors. One sector is called public accounting.;The other sector is called private accounting.;Required;1. a.Identify three areas of service provided by public accountants.;2. b.Describe the common duties performed by private accountants.;LO 1;Exercise 1-4Identifying;the reporting entities;Kenneth;Chang recently started a business. During the first few days of operation, Mr.;Chang transferred $30,000 from his personal account into a business account;for a company he named Chang Enterprises. Chang Enterprises borrowed $40,000;from First Bank. Mr. Chang?s father-in-law, Jim Harwood, invested $64,000 into;the business for which he received a 25 percent ownership interest. Chang Enterprises;purchased a building from Morton Realty Company. The building cost $120,000;cash. Chang Enterprises earned $28,000 in revenue from the company?s customers;and paid its employees $25,000 for salaries expense.;Required;Identify;the entities that were mentioned in the scenario and explain what happened to;the cash accounts of each entity that you identify.;LO 2;Exercise 1-5Titles;and accounts appearing on financial statements;Annual;reports normally include an income statement, a statement of changes in;stockholders? equity, a balance sheet, and a statement of cash flows.;Required;Identify;the financial statements on which each of the following titles or accounts;would appear. If a title or an account appears on more than one statement;list all statements that would includeit.;1. a.Common Stock;2. b.Land;3. c.Ending Cash Balance;4. d.Beginning Cash Balance;5. e.Notes Payable;6. f.Retained Earnings;7. g.Revenue;8. h.Cash Dividends;9. i.Financing Activities;10.;j.Salaries;Expense;LO 2;Exercise 1-6Components;of the accounting equation;Required;The;following three requirements are independent of each other.;1. a.Craig?s Cars has assets of $4,550 and stockholders? equity of;$3,200. What is the amount of liabilities? What is the amount of claims?;2. b.Heavenly Bakery has liabilities of $4,800 and stockholders?;equity of $5,400. What is the amount of assets?;3. c.Bell?s Candy Co. has assets of $49,200 and liabilities of;$28,200. What is the amount of stockholders? equity?;LO 2;Exercise 1-7Missing;information in the accounting equation;Required;Calculate;the missing amounts in the following table.;alt="Stockholders? Equity Common Retained Company Assets = Liabilities +;Stock + Earnings A $? $25,000 $48,000 $50,000 B 40,000? 7,000 30,000 C;75,000 15,000? 42,000 D 125,000 45,000 60,000?;LO 2;Exercise 1-8Missing;information in the accounting equation;As of;December 31, 2012, Eber Company had total assets of $156,000, total;liabilities of $85,600, and common stock of $52,400. During 2013 Eber earned;$36,000 of cash revenue, paid $20,000 for cash expenses, and paid a $2,000;cash dividend to the stockholders.;Required;1. a.Determine the amount of retained earnings as of December 31;2012, after closing.;2. b.Determine the amount of net income earned in 2013.;3. c.Determine the amount of retained earnings as of December 31;2013, after closing.;4. d.Determine the amount of cash that is in the retained earnings;account as of December 31,2013.;LO 2;Exercise 1-9Missing;information for determining net income;The;December 31, 2012, balance sheet for Classic Company showed total;stockholders? equity of $82,500. Total stockholders? equity increased by;$53,400 between December 31, 2012, and December 31, 2013. During 2013 Classic;Company acquired $13,000 cash from the issue of common stock. Classic Company;paid an $8,000 cash dividend to the stockholders during 2013.;Required;Determine;the amount of net income or loss Classic reported on its 2013 income;statement. (Hint:Remember that stock issues, net income, and dividends;all change total stockholders? equity.);LO 2,3;Exercise 1-10Effect;of events on the accounting equation;Olive;Enterprises experienced the following events during 2012.;1. 1.Acquired cash from the issue of common stock.;2. 2.Paid cash to reduce the principal on a bank note.;3. 3.Sold land for cash at an amount equal to its cost.;4. 4.Provided services to clients for cash.;5. 5.Paid utilities expenses with cash.;6. 6.Paid a cash dividend to the stockholders.;Required;Explain;how each of the events would affect the accounting equation by writing the;letter I for increase, the letter D for decrease, and NA for does not affect;under each of the components of the accounting equation. The first event is;shown as an example.;alt="Stockholders? Equity Event Common Retained Number Assets = Liabilities + Stock + Earnings 1 I NA I NA;LO 2,3;Exercise 1-11Effects;of issuing stock;Shiloh;Company was started in 2012 when it acquired $15,000 cash by issuing common;stock. The cash acquisition was the only event that affected the business in;2012.;Required;Write;an accounting equation, and record the effects of the stock issue under the;appropriate general ledger account headings.;LO 2,3;Exercise 1-12Effects;of borrowing;Marcum;Company was started in 2012 when it issued a note to borrow $6,200 cash.;Required;Write;an accounting equation, and record the effects of the borrowing transaction;under the appropriate general ledger account headings.;LO 2,3;Exercise 1-13Effects;of revenue, expense, dividend, and the closing process;Rhodes;Company was started on January 1, 2011. During 2012, the company experienced;the following three accounting events: (1) earned cash revenues of $13,500;(2) paid cash expenses of $9,200, and (3) paid a $500 cash dividend to its;stockholders. These were the only events that affected the company during;2012.;Required;1. a.Write an accounting equation, and record the effects of each;accounting event under the appropriate general ledger account headings.;2. b.Prepare an income statement for the 2012 accounting period and a;balance sheet at the end of 2012 for Rhodes Company.;3. c.What is the balance in the Retained Earnings account immediately;after the cash revenue is recognized?;4. d.What is the balance in the Retained Earnings account after the;closing process is complete?;LO 2,3;Exercise 1-14Effect;of transactions on general ledger accounts;At the;beginning of 2012, J & J Corp.?s accounting records had the following;general ledger accounts and balances.;alt=" J & J CORP. Accounting Equation Acct. Titles Event Assets =;Liabilities + Stockholders? Equity for RE Notes Common Retained Cash;Land Payable Stock Earnings Balance 1/1/2012 10,000 20,000 12,000 7,000;11,000";J;J Corp. completed the following transactions during 2012.;1. 1.Purchased land for $5,000 cash.;2. 2.Acquired $25,000 cash from the issue of common stock.;3. 3.Received $75,000 cash for providing services to customers.;4. 4.Paid cash operating expenses of $42,000.;5. 5.Borrowed $10,000 cash from the bank.;6. 6.Paid a $5,000 cash dividend to the stockholders.;7. 7.Determined that the market value of the land is $35,000.;Required;1. a.Record the transactions in the appropriate general ledger;accounts. Record the amounts of revenue, expense, and dividends in the;Retained Earnings column. Provide the appropriate titles for these accounts;in the last column of the table.;2. b.Determine the net cash flow from financing activities.;3. c.What is the balance in the Retained Earnings account as of;January 1, 2013?;LO 4;Exercise 1-15Classifying;events as asset source, use, or exchange;BJ?s;Business Services experienced the following events during its first year of;operations.;1. 1.Acquired $10,000 cash from the issue of common stock.;2. 2.Borrowed $8,000 cash from First Bank.;3. 3.Paid $4,000 cash to purchase land.;4. 4.Received $5,000 cash for providing boarding services.;5. 5.Acquired an additional $2,000 cash from the issue of common;stock.;6. 6.Purchased additional land for $3,500 cash.;7. 7.Paid $2,500 cash for salary expense.;8. 8.Signed a contract to provide additional services in the future.;9. 9.Paid $1,000 cash for rent expense.;10.;10.Paid a;$1,000 cash dividend to the stockholders.;11.;11.Determined;the market value of the land to be $8,000 at the end of the accounting;period.;Required;Classify;each event as an asset source, use, or exchange transaction or as not;applicable (NA).;LO 5;Exercise 1-16Classifying;items for the statement of cash flows;Required;Indicate;how each of the following would be classified on the statement of cash flows;as operating activities (OA), investing activities (IA), financing;activities (FA), or not applicable (NA).;1. a.Paid $4,000 cash for salary expense.;2. b.Borrowed $8,000 cash from State Bank.;3. c.Received $30,000 cash from the issue of common stock.;4. d.Purchased land for $8,000 cash.;5. e.Performed services for $14,000 cash.;6. f.Paid $4,200 cash for utilities expense.;7. g.Sold land for $7,000 cash.;8. h.Paid a cash dividend of $1,000 to the stockholders.;9. i.Hired an accountant to keep the books.;10.;j.Paid;$3,000 cash on the loan from State Bank.;LO;2,3,5 Exercise 1-17Preparing;financial statements;Montana;Company experienced the following events during 2012.;1. 1.Acquired $30,000 cash from the issue of common stock.;2. 2.Paid $12,000 cash to purchase land.;3. 3.Borrowed $10,000 cash.;4. 4.Provided services for $20,000 cash.;5. 5.Paid $1,000 cash for rent expense.;6. 6.Paid $15,000 cash for other operating expenses.;7. 7.Paid a $2,000 cash dividend to the stockholders.;8. 8.Determined that the market value of the land purchased in Event;2 is now $12,700.;Required;1. a.The January 1, 2012, general ledger account balances are shown;in the following accounting equation. Record the eight events in the;appropriate general ledger accounts. Record the amounts of revenue, expense;and dividends in the Retained Earnings column. Provide the appropriate;titles for these accounts in the last column of the table. The first event;is shown as an example.;alt=" MONTANA COMPANY Accounting Equation Acct. Titles Event Assets =;Liabilities + Stockholders? Equity for RE Notes Common Retained Cash;Land Payable Stock Earnings Balance 1/1/2012 2,000 12,000 0 6,000 8,000;1. 30,000 30,000 LO 5 LO 5 LO 5";2. b.Prepare an income statement, statement of changes in equity;year-end balance sheet, and statement of cash flows for the 2012 accounting;period.;3. c.Determine the percentage of assets that were provided by;retained earnings. How much cash is in the retained earnings account?;LO 5;Exercise 1-18Retained;earnings and the closing process;Davis;Company was started on January 1, 2012. During the month of January, Davis;earned $4,600 of revenue and incurred $3,000 of expense. Davis closes its;books on December 31 of each year.;Required;1. a.Determine the balance in the Retained Earnings account as of;January 31, 2012.;2. b.Comment on whether retained earnings is an element of;financial statements or an account.;3. c.What happens to the Retained Earnings account at the time;expenses are recognized?;LO 5;Exercise 1-19Relationship;between assets and retained earnings;Washington;Company was organized when it acquired $2,000 cash from the issue of common;stock. During its first accounting period the company earned $800 of cash;revenue and incurred $500 of cash expenses. Also, during the accounting;period the company paid its owners a $200 cash dividend.;Required;1. a.Determine the balance in the Retained Earnings account before;and after the temporary accounts are closed.;2. b.As of the end of the accounting period, determine what;percentage of total assets were provided by retained earnings.;LO 5;Exercise 1-20Historical;cost versus market value;Hilltop;Inc., purchased land in January 2009 at a cost of $270,000. The estimated;market value of the land is $350,000 as of December 31, 2012.;Required;1. a.Name the December 31, 2012, financial statement(s) on which;the land will be shown.;2. b.At what dollar amount will the land be shown in the financial;statement(s)?;3. c.Name the key concept that will be used in determining the;dollar amount that will be reported for land that is shown in the financial;statement(s).;LO;1,4,5 Exercise 1-21Relating;accounting events to entities;Wright;Company was started in 2012 when it acquired $25,000 cash by issuing common;stock to Cal Wright.;Required;1. a.Was this event an asset source, use, or exchange transaction;for Wright Company?;2. b.Was this event an asset source, use, or exchange transaction;for Cal Wright?;3. c.Was the cash flow an operating, investing, or a financing;activity on Wright Company?s 2012 statement of cash flows?;4. d.Was the cash flow an operating, investing, or a financing;activity on Cal Wright?s 2012 statement of cash flows?;LO 6;Exercise 1-22Effect;of events on a horizontal financial statements model;City;Consulting Services experienced the following events during 2012.;1. 1.Acquired cash by issuing common stock.;2. 2.Collected cash for providing tutoring services to clients.;3. 3.Borrowed cash from a local government small business;foundation.;4. 4.Purchased land for cash.;5. 5.Paid cash for operating expenses.;6. 6.Paid a cash dividend to the stockholders.;7. 7.Determined that the market value of the land is higher than;its historical cost.;Required;Use a;horizontal statements model to show how each event affects the balance;sheet, income statement, and statement of cash flows. Indicate whether the;event increases (I), decreases (D), or does not affect (NA) each element of;the financial statements. Also, in the Cash Flows column, classify the cash;flows as operating activities (OA), investing activities (IA), or financing;activities (FA). The first transaction is shown as an example.;alt="Balance Sheet Income Statement Event Statement of No. Cash;Exercise + Land Exercise = N. Pay Exercise + C. Stock. Exercise + Ret.;Ear. Rev. Exercise? Exp. Exercise = Net Inc. Cash Flows Exercise 1. I +;NA = NA + I + NA NA? NA = NA I FA;LO 6;Exercise 1-23Record;events in the horizontal statements model;Expo;Co. was started in 2012. During 2012, the company (1) acquired $11,000 cash;from the issue of common stock, (2) earned cash revenue of $18,000, (3) paid;cash expenses of $10,500, and (4) paid a $1,000 cash dividend to the;stockholders.;Required;1. a.Record these four events in a horizontal statements model.;Also, in the Cash Flows column, classify the cash flows as operating;activities (OA), investing activities (IA), or financing activities (FA).;The first event is shown as an example.;2. b.What does the income statement tell you about the assets of;this business?;LO 6;Exercise 1-24Effect;of events on a horizontal statements model;Solito;Inc., was started on January 1, 2012. The company experienced the following;events during its first year of operation.;1. 1.Acquired $50,000 cash from the issue of common stock.;2. 2.Paid $12,000 cash to purchase land.;3. 3.Received $50,000 cash for providing tax services to customers.;4. 4.Paid $9,500 cash for salary expense.;5. 5.Acquired $5,000 cash from the issue of additional common stock.;6. 6.Borrowed $10,000 cash from the bank.;7. 7.Purchased additional land for $10,000 cash.;8. 8.Paid $8,000 cash for other operating expenses.;9. 9.Paid a $2,800 cash dividend to the stockholders.;10.;10.Determined;that the market value of the land is $25,000.;Required;1. a.Record these events in a horizontal statements model. Also, in;the Cash Flows column, classify the cash flows as operating activities (OA);investing activities (IA), or financing activities (FA). The first event is;shown as an example.;2. b.What is the net income earned in 2012?;3. c.What is the amount of total assets at the end of 2012?;4. d.What is the net cash flow from operating activities for 2012?;5. e.What is the net cash flow from investing activities for 2012?;6. f.What is the net cash flow from financing activities for 2012?;7. g.What is the cash balance at the end of 2012?;8. h.As of the end of the year 2012, what percentage of total assets;were provided by creditors, investors, and retained earnings?;9. i.What is the balance in the Retained Earnings account;immediately after Event 4 is recorded?;LO 4,6;Exercise 1-25Types;of transactions and the horizontal statements model;Partner?s;Pet Store experienced the following events during its first year of;operations, 2012.;1. 1.Acquired cash by issuing common stock.;2. 2.Purchased land with cash.;3. 3.Borrowed cash from a bank.;4. 4.Signed a contract to provide services in the future.;5. 5.Paid a cash dividend to the stockholders.;6. 6.Paid cash for operating expenses.;7. 7.Determined that the market value of the land is higher than the;historical cost.;Required;1. a.Indicate whether each event is an asset source, use, or;exchange transaction.;2. b.Use a horizontal statements model to show how each event;affects the balance sheet, income statement, and statement of cash flows.;Indicate whether the event increases (I), decreases (D), or does not affect;(NA) each element of the financial statements. Also, in the Cash Flows;column, classify the cash flows as operating activities (OA), investing;activities (IA), or financing activities (FA). The first transaction is;shown as an example.;IFRS;Exercise 1-26International;Financial Reporting Standards;Seacrest;Company is a U.S.?based company that develops its financial statements under;GAAP. The total amount of the company?s assets shown on its December 31;2012, balance sheet was approximately $225 million. The president of;Seacrest is considering the possibility of relocating the company to a;country that practices accounting under IFRS. The president has hired an;international accounting firm to determine what the company?s statements;would look like if they were prepared under IFRS. One striking difference is;that under IFRS the assets shown on the balance sheet would be valued at;approximately $275 million.;Required;1. a.Would Seacrest?s assets really be worth $50 million more if it;moves its headquarters?;2. b.Discuss the underlying conceptual differences between U.S. GAAP;and IFRS that cause the difference in the reported asset values.

 

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