Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Eighth Canadian Edition

CHAPTER 1
BE1.4 (LO 3) For each of the following items, indicate (a) the type of business
activity—operating (O), investing (I), or financing (F)—and (b) whether it
increased (+), decreased (−), or had no effect (NE) on cash. The first one has
been done for you as an example.
(a) Type of Activity (b) Cash Effect
1. Sold goods on account. O      NE      
2. Borrowed money from a bank.    
3. Purchased inventory for cash.    
4. Provided a service for cash.    
5. Purchased supplies on account.    
6. Paid salaries in cash.    
7. Paid dividends.    
8. Purchased a delivery truck for cash.    

BRIEF EXERCISE 1.4

a. b.

1. O NE
2. F +
3. O -
4. O +
5. O NE
6. O -
7. F -
8. I -

LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Eighth Canadian Edition

BE1.6 (LO 4) At the beginning of the year, Xul Ltd. had total assets of $720,000
and total liabilities of $420,000. Use this information to answer each of the
following independent questions.
1. If Xul’s total assets increased by $250,000 during the year and total
liabilities decreased by $80,000, what is the amount of shareholders’
equity at the end of the year?
2. During the year, Xul’s total liabilities decreased by $100,000. The
company reported net income of $90,000, sold additional shares for
$125,000, and did not declare any dividends during the year. What is the
amount of total assets at the end of the year?
3. If Xul’s total assets decreased by $90,000 during the year and
shareholders’ equity increased by $120,000, what is the amount of total
liabilities at the end of the year?

BRIEF EXERCISE 1.6

Beginning of Year: Assets = Liabilities + Shareholders’ equity

Beginning of Year: $720,000 = $420,000 + Shareholders’ equity
Beginning of Year: Shareholders’ equity = $300,000

a. ($720,000 + $250,000) = ($420,000 – $80,000) + Shareholders’ equity

Shareholders’ equity = $630,000
[(Assets ± Change in assets) – (Liabilities ± Change in liabilities) = Shareholders’ equity]

b. Assets = ($420,000 – $100,000) + ($300,000 + $90,000 + $125,000)

Assets = $835,000
[(Liabilities ± Change in liabilities) + (Shareholders’ equity ± Change in shareholders’ equity) =
Assets]

c. ($720,000 – $90,000) = Liabilities + ($300,000 + $120,000)

Liabilities = $210,000
[(Assets ± Change in assets) – (Shareholders’ equity ± Change in shareholders’ .........equity) =
Liabilities]

LO 4 BT: AP Difficulty: C TIME: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting

BE1.8 (LO 4) Indicate whether each of these items is an asset (A), a liability (L),
or shareholders’ equity (SE):
Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Eighth Canadian Edition

1. ____ Bank indebtedness

2. ____ Accounts receivable
3. ____ Salaries payable
4. ____ Accounts payable
5. ____ Inventory
6. ____ Equipment
7. ____ Goodwill
8. ____ Common shares
9. ____ Bank loan payable
10. ____ Retained earnings
11. ____ Cash

BRIEF EXERCISE 1.8

a. L
b. A
c. L
d. L
e. A
f. A
g. A
h. SE
i. L
j. SE
k. A

LO 4 BT: K Difficulty: S TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BE1.9 (LO 4) Determine whether each transaction would increase (+), decrease

(−), or have no effect (NE) on each of the following components found in the
Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Eighth Canadian Edition

statement of changes in equity: share capital, retained earnings, and total

shareholders’ equity. The first one has been done for you as an example.
Share Retained Total Shareholders’
Capital Earnings Equity
a. Net income     NE         +         +    
b. Repayment of bank loan
c. Declared dividends
d. Issue of common shares
e. Cash purchase of
supplies
f. Repurchase of common
shares
g. Net loss
h. Issue of long-term debt

BRIEF EXERCISE 1.9

Total
Share Retained Shareholders'
Capital Earnings Equity

a. Net income NE + +
b. Repayment of bank loan NE NE NE
c. Declared dividends NE - -
d. Issue of common shares + NE +
e. Cash purchase of inventory NE NE NE
f. Repurchase of common shares - NE -
g. Net loss NE - -
h. Issue of long-term debt NE NE NE

LO 4 BT: C Difficulty: C TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Eighth Canadian Edition

E1.7 (LO 4) Summaries of selected data from the financial statements of two

corporations follow. Both companies have just completed their first year of
operations.
Lumber Inc. Trucking Inc.
Statement of income
Total revenues $1,000,000 $ [7]
Total expenses [1] 250,000
Net income 150,000 50,000
Statement of changes in equity
Total shareholders’ equity, beginning of 0 0
year
Common shares, beginning of year 0 0
Issue of shares 100,000 [8]
Common shares, end of year [2] 20,000
Retained earnings, beginning of year 0 0
Net income [3] [9]
Dividends declared [4] 10,000
Retained earnings, end of year 100,000 40,000
Total shareholders’ equity, end of year [5] [10]
Statement of financial position
Total assets 1,050,000 [11]
Total liabilities 850,000 150,000
Total shareholders’ equity [6] [12]
Instructions
Determine the missing amounts for [1] to [12]. Note that you may not be able to
solve the items in numerical order.

EXERCISE 1.7

[1] Total revenues – Net income = Total expenses

$1,000,000 – $150,000 = $850,000

[2] Common shares, end of year $100,000 = Beginning balance of common shares +
Issue of shares of $100,000

[3] $150,000 equal to Net income given above

[4] Beginning balance of retained earnings plus net income less dividends declared =
Ending balance of retained earnings.
Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Eighth Canadian Edition

$0 + $150,000 – Dividends declared = $100,000

Dividends declared = $50,000

[5] Beginning balance in shareholders' equity + Issue of shares + Net income –

Dividends declared = Ending balance in shareholders’ equity
$0 + $100,000 + $150,000 – $50,000 = $200,000

[6] Total assets – Total liabilities = total Shareholders’ equity

$1,050,000 – $850,000 = $200,000 or [5] above

[7] Total revenues – Total expenses = Net income

Total revenues – $250,000 = $50,000
Total revenues = $300,000

[8] Beginning balance of common shares + Issue of shares = Common shares, end of
year
$0 + Issue of shares = $20,000
Issue of shares = $20,000

[9] $50,000 equal to Net income given above

[10] Common shares, end of year + Retained Earnings, end of year

$20,000 + $40,000 = $60,000 Total shareholders’ equity, end of year

[11] Total liabilities + Total shareholders’ equity = Total assets

$150,000 + $60,000 (from [10]) = $210,000

[12] $60,000 (from [10]) or $210,000 (from [11]) − $150,000 total liabilities =
$60,000 total shareholders’ equity
LO 4 BT: AN Difficulty: C TIME: 25 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting