Extra Applications_Lecture Week 2

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 Answers

Exercise 1-14 (10 minutes)

REAL SOLUTIONS
Income Statement
For Month Ended October 31
Revenues:
Consulting fees earned................................. $15,000
Expenses:
Salaries expense........................................... $6,000
Rent expense................................................ 2,550
Miscellaneous expenses............................... 680
Telephone expense....................................... 660
Total expenses.............................................. 9,890
Net income................................................................ $ 5,110

Exercise 1-15 (10 Minutes)

REAL SOLUTIONS
Statement of Owner’s Equity
For Month Ended October 31
N. King, Capital, Oct. 1..................................................... $ 0
Add: Investments by owner………………..................... 74,000
Net income (from Exercise 1-14).......................... 5,110
79,110
Less: Withdrawals by owner............................................. 3,360
N. King , Capital, Oct. 31.................................................. $75,750

Exercise 1-16 (10 Minutes)

REAL SOLUTIONS
Balance Sheet
October 31
Assets Liabilities
Cash...................................... $ 2,000 Accounts payable............................. $ 7,500
Accounts receivable.............. 13,000
Office supplies....................... 4,250 Equity
Office equipment................... 28,000 N. King, Capital*............................ 75,750
Land....................................... 36,000
Total assets........................... $83,250 Total liabilities and equity................. $83,250

* Computation of amount from Exercise 1-15.

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Exercise 1-17 (10 Minutes)

REAL SOLUTIONS
Statement of Cash Flows
For Month Ended October 31
Cash flows from operating activities
Cash received from customers.................................................................. $ 2,000
Cash paid to employees............................................................................ (2,750)
Cash paid for rent...................................................................................... (2,550)
Cash paid for telephone expenses............................................................ (660)
Cash paid for miscellaneous expenses..................................................... (680)
Net cash used by operating activities........................................................ ( 4,640)

Cash flows from investing activities

Purchase of office equipment.................................................................... (28,000)
Net cash used by investing activities....................................................... (28,000)

Cash flows from financing activities

Owner’s cash investments........................................................................ 38,000
Owner’s cash withdrawals......................................................................... (3,360)
Net cash provided by financing activities.................................................. 34,640

Net increase in cash.................................................................................. $ 2,000

Cash balance, October 1........................................................................... 0
Cash balance, October 31......................................................................... $ 2,000

Exercise 1-20B (5 minutes)

1. F Financing*
2. I Investing
3. O Operating
4. F Financing
5. I Investing

*Would also be listed as “investing” if resources contributed by owner were in the form of non-financial
resources.

- Note that the three categories of cash flows are operating activities, investing activities, and financing
activities. Operating activities include cash activities related to net income. Investing activities
include cash activities related to noncurrent assets. Financing activities include cash activities
related to noncurrent liabilities and owners’ equity.

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Problem 1-3A (10 Minutes)
Affiliated Company
Balance Sheet
December 31, 2011
Assets....................................... $ 90,000 Liabilities............................................. $ 34,000
Equity.................................................. 56,000
Total assets.............................. $ 90,000 Total liabilities and equity.................... $ 90,000

Problem 1-4A (10 Minutes)

Sun Energy Company
Income Statement
For Year Ended December 31, 2011
Revenues .............................................................. $65,000
Expenses............................................................... 50,000
Net income............................................................. $15,000

Problem 1-5A (10 Minutes)

Boardwalk
Statement of Owner’s Equity
For Year Ended December 31, 2011
B. Walk, Capital, Dec. 31, 2010 ........................................ . $ 8,000
Add: Net income................................................................ 9,000
17,000
Less: Owner withdrawals.................................................. (2,000)
B. Walk, Capital, Dec. 31, 2011........................................ $15,000

Problem 1-6A (10 Minutes)

Trimark
Statement of Cash Flows
For Year Ended December 31, 2011
Cash from operating activities .......................................... $ 7,000
Cash used by investing activities...................................... (3,000)
Cash used by financing activities...................................... (3,800)
Net increase in cash.......................................................... 200
Cash, December 31, 2010................................................ 3,300
Cash, December 31, 2011................................................ $ 3,500

Problem 1-6B (10 Minutes)

BuyRight Co.
Statement of Cash Flows
For Year Ended December 31, 2011
Cash used by operating activities ......................................... $(4,000)
Cash from investing activities................................................. 2,600
Cash from financing activities................................................. 2,800
Net increase in cash............................................................... $ 1,400
Cash, December 31, 2010..................................................... 1,300
Cash, December 31, 2011..................................................... $ 2,700