Self Study Homework Question Solutions

Week 1, Chp 1: The role of accounting in decision making

S1-2 (5 min.)
Profit is the excess of total revenues over total expenses.

Revenues arises from ordinary operating activities of the entity. Revenue increases profit
(and therefore increase owner’s equity)

Expenses arise from operating activities of the entity. Expenses decrease profit (and
therefore owner’s equity) by using up assets or increasing liabilities to deliver goods &
services to customers.

Equity is the residual interest in the assets of the entity after deducting all of its liabilities
It is increased by investment from owners/shareholders and by Profit (revenue >
expenses). It is decreased by drawings/dividends to owners/shareholders and by Losses
(expenses > revenue).

S1-3 (5 min.)

Type of
Assets = Liabilities + Owners’ equity
transaction
Cash Capital
(a) = (not affected) + Revenues
$320 $320
Cash Capital
(b) = (not affected) + Expense
$(125) $(125)
Accts receivable Capital
(c) = (not affected) + Revenues
$440 $440
(not affected) Accts payable Capital
(d) = + Expense
$65 $(65)

S1-7 (10 min.)

Req. 1

SMART TOUCH LEARNING

Balance sheet
as at 21 May 2016
Assets Liabilities
Cash $11 900 Accounts payable $200
Accounts receivable 3 000
Office supplies 500 Owners' Equity
Sheena Bright,
Land 20 000 35 200
capital
Total liabilities and
Total assets $35 400 owners' equity $35 400

1
S1-8 (10 min.)
Req. 1

ELEGANT ARRANGEMENTS
Income statement
for the year ended 31 December 2016
Revenue
Service revenue $74 000
Expenses:
Salary expense $42 000
Rent expense 13 000
Insurance expense 4 000
Supplies expense 1 100
Total expenses 60 100
Profit $13 900

S1-11

Req. 1

a. The accounting entity concept

b. The accounting period concept

c. Historical cost principle and the going concern assumption

d. The accrual concept

Req. 2

Michael McNamee has $11,000 equity in the business.

Assets = Liabilities + Owner’s equity

Cash + furniture = Accounts + Owners’ equity

payable

$8,000 + 9,000 = 6,000 11,000

2
E1-1 (10–15 min.)
1 E
2 A
3 I
4 F
5 J
6 B
7 D
8 C
9 G
10 H
11 K

E1-6 (10–20 min.)

a. Increase asset (Cash)
Increase capital (Owners’ equity, capital)

b. Increase asset (Accounts receivable)

Increase capital (Owners’ equity, capital))

c. Increase asset (Office furniture)

Increase liability (Accounts payable)

d. Increase asset (Cash)

Decrease asset (Accounts receivable)

e. Decrease asset (Cash)

Decrease liability (Accounts payable)

f. Increase asset (Cash)

Decrease asset (Land)

g. Increase asset (Cash)

Increase capital (Owners’ equity, capital)

h. Decrease asset (Cash)

Decrease capital (Owners’ equity, capital)

i. Increase asset (Supplies)

Decrease asset (Cash)

3
E1-13 (10–20 min.)
Req. 1

BLAKE INVESTIGATIVE SERVICE

Balance sheet
as at 30 June 2016
Assets Liabilities
Cash $ 2 900 Accounts payable $ 3 000
Accounts receivable 6 200 Loan payable 6 900
Supplies 900 Total liabilities 9 900
Equipment 13 600 Owners' Equity
Blake, capital 13 700*
Total liabilities and
Total assets $23 600 $23 600
owners' equity

* Total assets – Total liabilities = Owners’ equity

$23 600 – $9 900 = $13 700

Req. 2

The balance sheet reports financial position.

Req. 3

The income statement reports the other accounts listed for the business.

Income statement for the year to 30 June 2016 (reconciliation)

Service revenue 11 400

Rent expense 650
Salary expense 2 000 2 650
Profit 8 750

Statement of changes in equity

for year ended 30 June 2016
Blake, capital (beginning bal - 1 July 2015) 4 950
+Profit 8 750
Blake, capital (ending bal – 30 June 2016) 13 700

4
E1-14 (10–15 min.)
Req. 1

DAVIS DESIGN STUDIOS

Income statement
for the year ended 30 June 2016
Revenue:
Service revenue $158 300
Expenses:
Salary expense $65 000
Rent expense 23 000
Electricity and gas expense 6 900
Supplies expense 4 200
Rates expense 1 500
Total expenses 100 600
Profit $ 57 700

The result of operations is a profit of $57 700.

Req. 2

The amount of owner drawings during the year was $39 400 (15 000 + 57 700 – 33 300).

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Horngren's Accounting 8e Solutions Manual

P1-3 (20–30 min.)

Req. 1 Analysis of transactions Alex Shore Accounting
ASSETS = LIABILITIES + OWNERS' EQUITY
ACCOUNTS OFFICE
CASH SUPPLIES = ACCOUNTS ALEX SHORE, TYPE OF OWNERS’
DATE RECEIVABLE FURNITURE
+ + PAYABLE CAPITAL EQUITY TRANSACTION
+ +
Feb 4*
5 50 000 50 000 Owners’ investment
Bal. 50 000 0 0 0 0 50 000
6 (100) 100 ______
Bal. 49 900 0 100 0 0 50 000
7 9 700 9 700 ______
Bal. 49 900 0 100 9 700 9 700 50 000
10*
11*
12*
Bal. 49 900 0 100 9 700 9 700 50 000
18 17 000 17 000 Service revenue
Bal. 49 900 17 000 100 9 700 9 700 67 000
25 (1 500) (1 500) Rent expense
Bal. 48 400 17 000 100 9 700 9 700 65 500
28 (1 000) ___ (1 000) Owners’ drawings
Bal. 47 400 17 000 100 9 700 9 700 64 500

$74 200 $74 200

*Not a transaction of the business.

Req. 2
a. Total assets = $74 200 b. Total liabilities = $ 9 700
c. Total owners’ equity = $64 500 d. Profit for February = $15 500 (17 000 – 1 500)

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Horngren's Accounting 8e Solutions Manual

Continuing exercise

E1-15 (10–15 min.)

Analysis of transactions - Lawlor Lawn Service

ASSETS = LIABILITIES + OWNERS' EQUITY

ACCOUNTS LAWN
CASH EQUIPMENT = ACCOUNTS LAWLOR, TYPE OF OWNERS’
DATE RECEIVABLE SUPPLIES
+ + PAYABLE CAPITAL EQUITY TRANSACTION
+ +
May 1 1 700 1 700 Owners’ investment
Bal. 1 700 0 0 0 0 1 700
3 ____ ___ 240 1200 1 440 _____
Bal. 1 700 0 240 1 200 1 440 1 700
5 (30) ___ ___ _____ _____ (30) Fuel expense
Bal. 1 670 0 240 1 200 1 440 1 670
6 ____ 150 ___ _____ _____ 150 Service revenue
Bal. 1 670 150 240 1 200 1 440 1 820
8 (150) ___ 150 _____ _____ _____
Bal. 1 520 150 390 1 200 1 440 1 820
17 800 ___ ___ _____ _____ 800 Service revenue
Bal. 2 320 150 390 1 200 1 440 2 620
31 100 (100) ___ _____ _____ _____
Bal. 2 420 50 390 1 200 1 440 2 620

$4 060 $4 060