CHAPTER 1

Accounting in Action

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives		
Questions		Brief
Exercises		
Do It!		
Exercises		A
Problems		B
Problems	
													
1.	Explain what
accounting is.		1, 2, 5				1, 2, 4		1					
													
2.	Identify the users and
uses of accounting.		3, 4				1		2					
													
3.	Understand why ethics
is a fundamental business concept.								3					
													
4.	Explain generally accepted accounting principles
and the cost principle.		6, 7				1		4					
													
5.	Explain the monetary
unit assumption and
the economic entity assumption.		8, 9, 10, 11						4					
													
6.	State the accounting equation, and define 
its components.		12, 13, 14		1, 2, 3, 4		2		5, 6, 
7, 11		1A, 2A,
4A		1B, 2B,
4B	
													
7.	Analyze the effects of business transactions on the accounting equation.		15, 16, 
17, 19		5, 6, 7, 8		3		6, 7, 8, 
10, 11		1A, 2A, 
4A, 5A		1B, 2B, 
4B, 5B	
													
8.	Understand the four financial statements 
and how they are prepared.		18, 20, 21
22, 23		9, 10		4		9, 12, 13, 14, 15, 16, 17		2A, 3A, 
4A, 5A		2B, 3B, 
4B, 5B	

ASSIGNMENT CHARACTERISTICS TABLE

Problem
Number		
Description		Difficulty
Level		Time Allotted (min.)	
							
1A		Analyze transactions and compute net income.		Moderate		40–50	
							
2A		Analyze transactions and prepare income statement, 
retained earnings statement, and balance sheet.		Moderate		50–60	
							
3A		Prepare income statement, retained earnings statement, 
and balance sheet.		Moderate		50–60	
							
4A		Analyze transactions and prepare financial statements.		Moderate		40–50	
							
5A		Determine financial statement amounts and prepare 
retained earnings statement.		Moderate		40–50	
							
1B		Analyze transactions and compute net income.		Moderate		40–50	
							
2B		Analyze transactions and prepare income statement, 
retained earnings statement, and balance sheet.		Moderate		50–60	
							
3B		Prepare income statement, retained earnings statement, 
and balance sheet.		Moderate		50–60	
							
4B		Analyze transactions and prepare financial statements.		Moderate		40–50	
							
5B		Determine financial statement amounts and prepare 
retained earnings statement.		Moderate		40–50	

WEYGANDT FINANCIAL ACCOUNTING 7E
CHAPTER 1
ACCOUNTING IN ACTION

Number		SO		BT		Difficulty		Time (min.)	
BE1		6		AP		Simple		2–4	
BE2		6		AP		Simple		3–5	
BE3		6		AP		Moderate		4–6	
BE4		6		AP		Moderate		4–6	
BE5		6		C		Simple		2–4	
BE6		7		C		Simple		2–4	
BE7		7		C		Simple		2–4	
BE8		7		C		Simple		2–4	
BE9		7		C		Simple		1–2	
BE10		8		AP		Simple		3–5	
BE11		8		C		Simple		2–4	
DI1		1, 2, 4		K		Simple		2–4	
DI2		6		K		Simple		2–4	
DI3		7		AP		Simple		6–8	
DI4		8		AP		Moderate		8–10	
EX1		1		C		Moderate		5–7	
EX2		2		C		Simple		6–8	
EX3		3		C		Moderate		6–8	
EX4		4, 5		C		Moderate		6–8	
EX5		6		C		Simple		4–6	
EX6		6, 7		C		Simple		6–8	
EX7		6, 7		C		Simple		4–6	
EX8		7		AP		Moderate		12–15	
EX9		8		AP		Simple		12–15	
EX10		7		AP		Moderate		8–10	
EX11		6, 7		AP		Moderate		6–8	
EX12		8		AP		Simple		8–10	
EX13		8		AN		Simple		8–10	
EX14		8		AP		Simple		10–12	
EX15		8		AP		Simple		6–8	
EX16		8		AP		Moderate		6–8	
EX17		8		AP		Moderate		8–10	

ACCOUNTING IN ACTION (Continued)

Number		SO		BT		Difficulty		Time (min.)	
P1A		6, 7		AP		Moderate		40–50	
P2A		6–8		AP		Moderate		50–60	
P3A		8		AP		Moderate		50–60	
P4A		6–8		AP		Moderate		40–50	
P5A		7, 8		AP		Moderate		40–50	
P1B		6, 7		AP		Moderate		40–50	
P2B		6–8		AP		Moderate		50–60	
P3B		8		AP		Moderate		50–60	
P4B		6–8		AP		Moderate		40–50	
P5B		7, 8		AP		Moderate		40–50	
BYP1		8		AN		Simple		10–15	
BYP2		8		AN, E		Simple		10–15	
BYP3		9		C, AN		Simple		15–20	
BYP4		8		E		Moderate		15–20	
BYP5		8		E		Simple		12–15	
BYP6		3		E		Simple		10–12	
BYP7		3		E		Moderate		15–20	

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

Study Objective	Knowledge	Comprehension	Application	Analysis	Synthesis	Evaluation	
1.	Explain what accounting is.	DI1-1	Q1-1
Q1-2	Q1-5
E1-1					
2.	Identify the users and uses of
accounting.	DI1-1	Q1-3
Q1-4	E1-2					
3.	Understand why ethics is a 
fundamental business concept.		E1-3					
4.	Explain generally accepted 
accounting principles and 
the cost principle.	Q1-7
DI1-1	Q1-6
E1-4					
5.	Explain the monetary unit 
assumption and the economic 
entity assumption.	Q1-8
Q1-9
Q1-10	Q1-11
E1-4					
6.	State the accounting equation,
and define its components.	Q1-11
Q1-12
Q1-13
DI1-2
BE1-5	Q1-14
BE1-4
E1-5
E1-6
E1-7	
	BE1-1
BE1-2
BE1-3
E1-11
P1-1A	P1-2A
P1-4A
P1-1B
P1-2B
P1-4B				
7.	Analyze the effects of business transactions on the accounting equation.		Q1-15
Q1-16
Q1-17
Q1-19
BE1-6
BE1-7	BE1-8
BE1-9
E1-6
E1-7	DI1-3
E1-8
E1-10
E1-11
P1-1A
P1-2A	P1-4A
P1-5A
P1-1B
P1-2B
P1-4B
P1-5B				
8.	Understand the four financial statements and how they are 
prepared.		Q1-18
Q1-20
BE1-11	Q1-21
Q1-22
Q1-23
BE1-10
DI1-4
E1-9
E1-12
E1-14
E1-15
E1-16	E1-17
P1-2A
P1-3A
P1-4A
P1-5A
P1-2B
P1-3B
P1-4B
P1-5B	E1-13			
Broadening Your Perspective		Exploring the Web	FASB Codification	Financial Reporting
Comparative Analysis
		All About You
Comparative Analysis
Decision Making Across
   the Organization
Communication Activity
Ethics Case	

	
Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)	             1-5

BLOOM’S TAXONOMY TABLE

ANSWERS TO QUESTIONS

 1.	Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.

 2.	Accounting is the process of identifying, recording, and communicating the economic events of an organization to interested users of the information. The first step of the accounting process is therefore to identify economic events that are relevant to a particular business. Once identified and measured, the events are recorded to provide a history of the financial activities of the organization. Recording consists of keeping a chronological diary of these measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common of which are called financial statements. 
A vital element in the communication process is the accountant’s ability and responsibility to analyze and interpret the reported information.

 3.	(a)	Internal users are those who plan, organize, and run the business and therefore are officers and other decision makers.
	(b)	To assist management, accounting provides internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.

 4.	(a)	Investors (owners) use accounting information to make decisions to buy, hold, or sell stock.
	(b)	Creditors use accounting information to evaluate the risks of granting credit or lending money.

 5.	Bookkeeping usually involves only the recording of economic events and therefore is just one part of the entire accounting process. Accounting, on the other hand, involves the entire process of identifying, recording, and communicating economic events.

 6.	Karen Sommers Travel Agency should report the land at $90,000 on its December 31, 2011 balance sheet. An important concept that accountants follow is the cost principle. The cost principle states that assets should be recorded at their cost. Cost has an important advantage over other valuations: it is reliable. Cost can be objectively measured and can be verified.

 7.	Fair value is defined as the price received to sell an asset or settle a liability.

 8.	The monetary unit assumption requires that only transaction data capable of being expressed in terms of money be included in the accounting records. This assumption enables accounting to quantify (measure) economic events.

 9.	The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities.

10.	The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and 
(3) corporation.

Questions Chapter 1 (Continued) 

11.	One of the advantages Maria Gonzalez would enjoy is that ownership of a corporation is represented by transferable shares of stock. This would allow Maria to raise money easily by selling 
a part of her ownership in the company. Another advantage is that because holders of the shares (stockholders) enjoy limited liability, they are not personally liable for the debts of the corporate entity. Also, because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life.

12.	The basic accounting equation is Assets = Liabilities + Stockholders’ (Owners’) Equity.

13.	(a)	Assets are resources owned by a business. Liabilities are claims against assets. Put more simply, liabilities are existing debts and obligations. Stockholders’ equity is the ownership claim on total assets.
	(b)	Stockholders’ equity is affected by stockholders’ investments, dividends, revenues, and expenses.

14.	The liabilities are: (b) Accounts payable and (g) Salaries payable.

15.	Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by 
a decrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash account is a specific example.

16.	Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic equation.
	(a)	No, the death of the president of the company is not a business transaction as it does not affect the basic equation.
	(b)	Yes, supplies purchased on account is a business transaction as it affects the basic equation.
	(c)	No, an employee being fired is not a business transaction as it does not affect the basic equation.

17.	(a)	Decrease assets and decrease stockholders’ equity.
	(b)	Increase assets and decrease assets.
	(c)	Increase assets and increase stockholders’ equity.
	(d)	Decrease assets and decrease liabilities.

18.	(a)	Income statement.	(d)	Balance sheet.
	(b)	Balance sheet.	(e)	Balance sheet and retained earnings statement.
	(c)	Income statement.	(f)	Balance sheet.

19.	No, this treatment is not proper. While the transaction does involve a receipt of cash, it does not represent revenues. Revenues are the gross increase in stockholders’ equity resulting from business activities entered into for the purpose of earning income. This transaction is simply an additional investment made by one of the owners of the business.

20.	Yes. Net income does appear on the income statement—it is the result of subtracting expenses from revenues. In addition, net income appears in the retained earnings statement—it is shown as an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company is also included in the balance sheet. It is included in the Retained Earnings account which appears in the stockholders’ equity section of the balance sheet.

Questions Chapter 1 (Continued) 

21.	(a)	Ending stockholders’ equity balance		$198,000
		Beginning stockholders’ equity balance		  168,000
		Net income		$ 30,000

	(b)	Ending stockholders’ equity balance		$198,000
		Beginning stockholders’ equity balance		  168,000
				  30,000
		Deduct:  Investment		    13,000
		Net income		$ 17,000

22.	(a)	Total revenues ($20,000 + $70,000)		$90,000

	(b)	Total expenses ($26,000 + $40,000)		$66,000

	(c)	Total revenues		$90,000
		Total expenses		  66,000
		Net income		$24,000

23.	Coca-Cola’s accounting equation at December 31, 2008 was $40,519,000,000 = $20,047,000,000 + $20,472,000,000.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-1

(a)	$90,000 – $50,000 = $40,000 (Stockholders’ Equity).
(b)	$40,000 + $70,000 = $110,000 (Assets).
(c)	$94,000 – $60,000 = $34,000 (Liabilities).

BRIEF EXERCISE 1-2

(a)	$120,000 + $232,000 = $352,000 (Total assets).
(b)	$190,000 – $80,000 = $110,000 (Total liabilities).
(c)	$800,000 – 0.5($800,000) = $400,000 (Stockholders’ equity).

BRIEF EXERCISE 1-3

(a)	($800,000 + $150,000) – ($500,000 – $80,000) = $530,000
	   (Stockholders’ equity).
(b)	($500,000 + $100,000) + ($800,000 – $500,000 – $70,000) = $830,000
	   (Assets).
(c)	($800,000 – $80,000) – ($800,000 – $500,000 + $120,000) = $300,000
	   (Liabilities).

BRIEF EXERCISE 1-4

					Stockholders’ Equity	
	
Assets	
=	
Liabilities	
+	Common  
Stock	
+	Retained Earnings	
							Revenues	–	Expenses	–	Dividends	
(a)	X	=	$90,000	+	$150,000	+	$450,000	–	$320,000	–	$40,000	
	X	=	$90,000	+	$240,000						
	X	=	$330,000									
(b)	$57,000	=	X	+	$25,000	+	 $50,000	–	  $35,000	–	$7,000	
	$57,000	=	X	+	$33,000							
	X	=	$24,000  ($57,000 – $33,000)		 					
												
(c)	$600,000	=	($600,000 x 2/3)	+	X (Stockholders’ equity)					
	$600,000	=	$400,000	+	X							
	X	=	$200,000									
BRIEF EXERCISE 1-5

	A		(a)	Accounts receivable		A		(d)	Office supplies
	L		(b)	Salaries payable		SE		(e)	Owner’s investment
	A		(c)	Equipment		L		(f)	Notes payable

BRIEF EXERCISE 1-6

		Assets		Liabilities		Stockholders’ Equity	
(a)		+		+		NE	
(b)		+		NE		+	
(c)		–		NE		–	

BRIEF EXERCISE 1-7

		Assets		Liabilities		Stockholders’ Equity	
(a)		+		NE		+	
(b)		–		NE		–	
(c)		NE		NE		NE	

BRIEF EXERCISE 1-8

	E		(a)	Advertising expense		D		(e)	Dividends
	R		(b)	Commission revenue		R		(f)	Rent revenue
	E		(c)	Insurance expense		E		(g)	Utilities expense
	E		(d)	Salaries expense

BRIEF EXERCISE 1-9

	R		(a)	Received cash for services performed
	NSE		(b)	Paid cash to purchase equipment
	E		(c)	Paid employee salaries

BRIEF EXERCISE 1-10

LOPEZ COMPANY
Balance Sheet
December 31, 2011

Assets
Cash		$  49,000
Accounts receivable		    72,500
	Total assets		$121,500

Liabilities and Stockholders’ Equity
Liabilities
	Accounts payable		$  90,000
Stockholders’ equity
	Common stock		    31,500
		Total liabilities and stockholders’ equity		$121,500

BRIEF EXERCISE 1-11

	BS		(a)	Notes payable
	IS		(b)	Advertising expense
	BS		(c)	Common stock
	BS		(d)	Cash
	IS		(e)	Service revenue
	RE		(f)	Dividends

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 1-1
			
1.	False. The three steps in the accounting process are identification, recording, and communication.
2.	True
3.	False. Congress passed the Sarbanes-Oxley Act of 2002 to reduce unethical behavior and decrease the likelihood of future corporate scandals.
4.	False. The primary accounting standard-setting body in the United States is the Financial Accounting Standards Board (FASB).
5.		True.

DO IT! 1-2

1.	Dividends is dividends (D); it decreases stockholders’ equity.
2.	Rent Revenue is a revenue (R); it increases stockholder’s equity.
3.	Advertising Expense is an expense (E); it decreases stockholders’ equity.
4.	When stockholders pay cash into the business, they receive shares of stock (I); it increases stockholders’ equity.

DO IT! 1-3

	Assets	=	Liabilities	+	Stockholders’ Equity	
	
Cash	
+	Accounts Receivable	
=	Accounts Payable	
+	Common
Stock	
+	Retained Earnings	
									Revenues	–	Expenses	–	Dividends	
(1)			+$20,000						+$20,000					
(2)	+$20,000		–$20,000											
(3)					+$2,000						–$2,000			
(4)	–$  5,000												–$5,000	

DO IT! 1-4

(a)	The total assets are $49,500, comprised of Cash $7,000, Accounts Receivable $13,500, and Equipment $29,000.

(b)	Net income is $21,000, computed as follows:

	Revenues
		Service revenue			$54,000
	Expenses
		Salaries expense		$16,500
		Rent expense		10,500
		Advertising expense		   6,000
		Total expenses			  33,000
	Net income			$21,000

DO IT! 1-4 (Continued)

(c)	The ending stockholders’ equity balance of Broadway Company is $21,500. By rewriting the accounting equation, we can compute Stockholders’ Equity as Assets minus Liabilities, as follows:

	Total assets [as computed in (a)]			$49,500
	Less: Liabilities
		Notes payable		$25,000
		Accounts payable		    3,000	  28,000
	Stockholders’ equity			$21,500

Note that it is not possible to determine the company’s stockholders’ equity in any other way, because the beginning balance for stockholders’ equity is not provided.

SOLUTIONS TO EXERCISES

EXERCISE 1-1

	C		Analyzing and interpreting information.
	R		Classifying economic events.
	C		Explaining uses, meaning, and limitations of data.
	R		Keeping a systematic chronological diary of events.
	R		Measuring events in dollars and cents.
	C		Preparing accounting reports.
	C		Reporting information in a standard format.
	I		Selecting economic activities relevant to the company.
	R		Summarizing economic events.

EXERCISE 1-2

(a)	Internal users
Marketing manager
Production supervisor
Store manager
Vice-president of finance

External users
Customers
Internal Revenue Service
Labor unions
Securities and Exchange Commission
Suppliers

(b)		I			Can we afford to give our employees a pay raise?
		E		Did the company earn a satisfactory income?
		I			Do we need to borrow in the near future?
		E		How does the company’s profitability compare to other companies?
		I			What does it cost us to manufacture each unit produced?
		I			Which product should we emphasize?
		E		Will the company be able to pay its short-term debts?

EXERCISE 1-3

Larry Smith, president of Smith Company, instructed Ron Rivera, the head of the accounting department, to report the company’s land in their accounting reports at its market value of $170,000 instead of its cost of $100,000, in an effort to make the company appear to be a better investment. Although we have an accounting system that permits various measurement approaches cost should be used whenever there are questions regarding the reliability of a market value. In this case, valuation of land is too subjective and therefore the cost principle should be used.

The stakeholders include stockholders and creditors of Smith Company, potential stockholders and creditors, other users of Smith’s accounting reports, Larry Smith, and Ron Rivera. All users of Smith’s accounting reports could be harmed by relying on information which violates accounting principles. Larry Smith could benefit if the company is able to attract more investors, but would be harmed if the fraudulent reporting is discovered. Similarly, Ron Rivera could benefit by pleasing his boss, but would be harmed if the fraudulent reporting is discovered.

Ron’s alternatives are to report the land at $100,000 or to report it at $170,000. Reporting the land at $170,000 is not appropriate since it would mislead many people who rely on Smith’s accounting reports to make financial decisions. Ron should report the land at its cost of $100,000. He should try to convince Larry Smith that this is the appropriate course of action, but be prepared to resign his position if Smith insists.

EXERCISE 1-4

1.	Incorrect. The cost principle requires that most assets be recorded and reported at their cost due to reliability concerns about valuation. In this case, the cost principle should be applied.

2.	Correct. The monetary unit assumption requires that companies include in the accounting records only transaction data that can be expressed in terms of money.

3.	Incorrect. The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

EXERCISE 1-5

Asset		Liability		Stockholders’ Equity	
Cash		Accounts payable		Common stock	
Cleaning equipment		Notes payable			
Cleaning supplies		Salaries payable			
Accounts receivable					

EXERCISE 1-6

1.	Increase in assets and increase in stockholders’ equity.
2.	Decrease in assets and decrease in stockholders’ equity.
3.	Increase in assets and increase in liabilities.
4.	Increase in assets and increase in stockholders’ equity.
5.	Decrease in assets and decrease in stockholders’ equity.
6.	Increase in assets and decrease in assets.
7.	Increase in liabilities and decrease in stockholders’ equity.
8.	Increase in assets and decrease in assets.
9.	Increase in assets and increase in stockholders’ equity.

EXERCISE 1-7

1.	(c)	5.	(d)
2.	(d)	6.	(b)
3.	(a)	7.	(e)
4.	(b)	8.	(f)

EXERCISE 1-8

(a)	1.	Stockholders invested $15,000 cash in the business.
	2.	Purchased office equipment for $5,000, paying $2,000 in cash and the balance of $3,000 on account.
	3.	Paid $750 cash for supplies.
	4.	Earned $8,300 in revenue, receiving $4,600 cash and $3,700 on account.
	5.	Paid $1,500 cash on accounts payable.

EXERCISE 1-8 (Continued)

		6.	Paid $2,000 cash dividends to stockholders.
		7.	Paid $650 cash for rent.
		8.	Collected $450 cash from customers on account.
		9.	Paid salaries of $4,900.
	10.	Incurred $500 of utilities expense on account.

(b)	Investment		$15,000	
	Service revenue		8,300	
	Dividends		(2,000	)
	Rent expense		(650	)
	Salaries expense		(4,900	)
	Utilities expense		      (500	)
	Increase in stockholders’ equity		$15,250

(c)	Service revenue		$8,300
	Rent expense		(650	)
	Salaries expense		(4,900	)
	Utilities expense		    (500	)
	Net income		$2,250

EXERCISE 1-9

S. MOSES & CO.
Income Statement
For the Month Ended August 31, 2011

Revenues
	Service revenue			$8,300
Expenses
	Salaries expense		$4,900
	Rent expense		650
	Utilities expense		     500
		Total expenses			  6,050
Net income			$2,250

EXERCISE 1-9 (Continued)

S. MOSES & CO.
Retained Earnings Statement
For the Month Ended August 31, 2011

Retained earnings, August 1		$       0
Add:	Net income		  2,250
			2,250
Less:	Dividends		  2,000
	Retained earnings, August 31		$   250

S. MOSES & CO.
Balance Sheet
August 31, 2011

Assets
Cash		$  8,250
Accounts receivable		 3,250
Supplies		  750
Office equipment		    5,000
	Total assets		$17,250

Liabilities and Stockholders’ Equity
Liabilities
	Accounts payable		$  2,000
Stockholders’ equity
	Common stock		$15,000
	Retained earnings 		       250	  15,250
		Total liabilities and stockholders’ equity		$17,250

EXERCISE 1-10

(a)	Stockholders’ equity—12/31/10 ($400,000 – $250,000)		$150,000
	Stockholders’ equity—1/1/10		  100,000
	Increase in stockholders’ equity		 50,000
	Add:   Dividends 		    15,000
	Net income for 2010		$  65,000

EXERCISE 1-10 (Continued)

(b)	Stockholders’ equity—12/31/11 ($460,000 – $300,000)		$160,000	
	Stockholders’ equity—1/1/11—see (a)		  150,000	
	Increase in stockholders’ equity		 10,000	
	Less:  Additional investment		    50,000	
	Net loss for 2011		$  40,000	

(c)	Stockholders’ equity—12/31/12 ($590,000 – $400,000)		$190,000	
	Stockholders’ equity—1/1/12—see (b)		  160,000	
	Increase in stockholders’ equity		 30,000	
	Less:  Additional investment		    15,000	
			 15,000	
	Add:   Dividends		    30,000	
	Net income for 2012		$  45,000	

EXERCISE 1-11

(a)	Total assets (beginning of year)		 $  95,000	
	Total liabilities (beginning of year)		    85,000	
	Total stockholders’ equity (beginning of year)		$  10,000	

(b)	Total stockholders’ equity (end of year)		$  40,000	
	Total stockholders’ equity (beginning of year)		    10,000	
	Increase in stockholders’ equity		$  30,000	

	Total revenues		$215,000	
	Total expenses		  175,000	
	Net income		$  40,000	

	Increase in stockholders’ equity			$  30,000	
	Less:  Net income		$(40,000)
	Add:   Dividends		   24,000)	    (16,000	)
	Additional investment			$  14,000	

(c)	Total assets (beginning of year)		$129,000	
	Total stockholders’ equity (beginning of year)		    80,000	
	Total liabilities (beginning of year)		$  49,000	

EXERCISE 1-11 (Continued)

(d)	Total stockholders’ equity (end of year)		$130,000	
	Total stockholders’ equity (beginning of year)		    80,000	
	Increase in stockholders’ equity		$  50,000	

	Total revenues		$100,000	
	Total expenses		    55,000	
	Net income		$  45,000	

	Increase in stockholders’ equity			 $  50,000	
	Less:  Net income		$(45,000)
		Additional investment		  (25,000)	    (70,000)
	Dividends			 $  20,000	

EXERCISE 1-12

LINDA STANLEY CO.
Income Statement
For the Year Ended December 31, 2011

Revenues
	Service revenue			$62,500
Expenses
	Salaries expense		$30,000
	Rent expense		10,400
	Utilities expense		3,100
	Advertising expense		    1,800
		Total expenses			  45,300
Net income			$17,200

LINDA STANLEY CO.
Retained Earnings Statement
For the Year Ended December 31, 2011

Retained earnings, January 1		$48,000
Add:   Net income		  17,200
		 65,200
Less:  Dividends		    6,000
Retained earnings, December 31		$59,200

EXERCISE 1-13

MENDEZ COMPANY
Balance Sheet
December 31, 2011

Assets
Cash		$15,000
Accounts receivable		 8,500
Supplies		  8,000
Equipment		  46,000
	Total assets		$77,500

Liabilities and Stockholders’ Equity
Liabilities
	Accounts payable			$20,000
Stockholders’ equity
	Common stock		$50,000	
	Retained earnings ($17,500 – $10,000)		    7,500	  57,500
		Total liabilities and stockholders’ equity			$77,500

EXERCISE 1-14

(a)	Camping fee revenues		$140,000
	General store revenues		    50,000
		Total revenue		 190,000
	Expenses		  150,000
	Net income		$  40,000

(b)	DEER PARK 
	Balance Sheet
	December 31, 2011

	Assets
	Cash		$  23,000
	Supplies		 2,500
	Equipment		  105,500
		Total assets		$131,000

EXERCISE 1-14 (Continued)

	DEER PARK 
	Balance Sheet (Continued)
	December 31, 2011

	Liabilities and Stockholders’ Equity
	Liabilities
		Notes payable		$  60,000
		Accounts payable		    11,000
			Total liabilities		 71,000
	Stockholders’ equity
		Common stock		$20,000
		Retained earnings		  40,000	    60,000
			Total liabilities and stockholders’ equity			$131,000

EXERCISE 1-15

SUMMERS CRUISE COMPANY
Income Statement
For the Year Ended December 31, 2011

Revenues
	Ticket revenue			$325,000
Expenses
	Salaries expense		$142,000
	Maintenance expense		 95,000
	Property tax expense		 10,000
	Advertising expense		      3,500
		Total expenses			  250,500
Net income			$  74,500

EXERCISE 1-16

KEVIN AND JOHNSON, ATTORNEYS AT LAW
Retained Earnings Statement
For the Year Ended December 31, 2011

Retained earnings, January 1		$  23,000
Add:   Net income		  139,000*
		 162,000
Less:  Dividends		    79,000
Retained earnings, December 31		$  83,000

*Legal service revenue		$350,000
Total expenses		  211,000
Net income		$139,000

EXERCISE 1-17

HEARTLAND COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2011

Cash flows from operating activities
	Cash receipts from revenues			$600,000
	Cash payments for expenses			(410,000)
	Net cash provided by operating activities		190,000
Cash flows from investing activities
	Purchase of equipment			 (100,000)
Cash flows from financing activities		
	Sale of common stock		$350,000
	Payment of cash dividends		   (20,000)	  330,000
Net increase in cash			420,000
Cash at the beginning of the period			    30,000
Cash at the end of the period			$450,000

	
1-24 	    Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)

(a)	BARONE’S REPAIR INC.	
												Stockholders’ Equity		
		
Cash	
+	Accounts
Receivable	
+	
Supplies	
+	
Equipment	
=	Accounts
Payable	
+	Common
Stock	
+	Retained Earnings		
														Revenues	–	Expenses	–	Dividends		
																				
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.		+$10,000
+ 10,000
+ –5,000
+  5,000
+   –400
+  4,600
+   –500
+  4,100
+000,000
+  4,100
– +5,100
+  9,200
    –1,000
+  8,200
+ –2,000
+  6,200
+   –140
+  6,060
+000,000
+  6,060
–   +120
+$ 6,180	

+

+	

+$750
+ 750
+–120
+$630	

+

+

+

+

+

+

+

+	

+$500
+ 500
+0000
+ 500
+0000
+ 500
+0000
+ 500
+0000
+ 500
+0000
+ 500
+0000
+ 500
        
+$500	

+

+

+

+

+

+

+

+

+

+	

+$5,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
+00,000
+ 5,000
           
+$5,000	
=

=

=

=

=

=

=

=

=

=

=	

+$250
+ 250
+0000
+ 250
+0000
+ 250
+0000
+ 250
+0000
+0250
+0000
+0250
        
+$250	

+

+

+

+

+

+

+

+

+

+	+$10,000
0010,000
+000,
0010,000

10,000
+
10,000000

00010,000000

00010,000
0
10,000

10,000

10,000

10,000
             
$10,000	+

+

+

+

+

+

+

+

+

+

+	

+$5,100
5,100

5,100

5,100

5,100
   +750
5,850
           
$5,850	

–	

 –$400
   –400

  –400
  –250
 –650

 –650

 –650
–2,000
–2,650
    –140
–2,790

–2,790
           
$2,790	

–	

–$1,000
–1,000

–1,000

–1,000

–1,000
           
$1,000	(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

		
$12,310		
$12,310	

PROBLEM 1-1A

SOLUTIONS TO PROBLEMS

PROBLEM 1-1A (Continued)

Key to Retained Earnings Column
(a)	Issued stock
(b)	Rent expense
(c)	Advertising expense
(d)	Service revenue
(e)	Dividends
(f)	Salaries expense
(g)	Utilities expense
(h)	Service revenue

(b)	Service revenue($5,100 + $750)			 $5,850
	Expenses
		Salaries		$2,000	
		Rent		  400	
		Advertising		 250	
		Utilities		     140	   2,790
			Net income			 $3,060

	
1-26	    Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)

(a)	NASHVILLE VETERINARY CLINIC	

		
Cash	
+	Accounts
Receivable	
+	
Supplies	
+	Office
Equipment	
=	Notes
Payable	
+	Accounts
Payable	
+	Common
Stock	
+	Retained Earnings	
+	
Revenues	
–	
Expenses	
–	
Dividends	

(a)

(b)

(c)
(d)
(e)

(f)	
Bal.
1.

2.

3.

4.

5.

6.

7.

8.		$ 9,000
 –2,900
  6,100
 +1,300
  7,400
   –800
  6,600
 +2,500
  9,100
 –1,000
  8,100

 –2,900
  5,200
000,000
    5,200
+10,000
$15,200	+

+

+

+

+

+

+

+

+	$1,700
00,000
 1,700
–1,300
   400
00,000
   400
+5,500
 5,900
00,000
 5,900

00,000
 5,900
00,000
 5,900
           
$5,900	+

+

+

+

+

+

+

+

+	$600
0000
 600
0000
 600
0000
 600
0000
 600
0000
 600

0000
 600
0000
 600
        
$600	+

+

+

+

+

+

+

+

+	$ 6,000
000,000
  6,000
000,000
  6,000
 +2,100
  8,100
000,000
  8,100
000,000
  8,100

000,000
  8,100
000,000
  8,100
             
$ 8,100 	=

=

=

=

=

=

=

=

=	

+$10,000
+$10,000	

+	$3,600
–2,900
   700
00,000
   700
+1,300
 2,000
00,000
 2,000
00,000
 2,000

00,000
 2,000
  +170
 2,170
           
$2,170	+

+

+

+

+

+

+

+

+	$13,000

13,000

13,000

13,000

13,000

13,000

13,000

13,000
             
  $13,000	+
0
+

+

+

+

+

+

+

+	$700

  700

  700

  700

  700

  700

  700

  700
        
$700	

+	

+$8,000
  8,000

  8,000

   8,000

    8,000
           
$8,000	

–	

–$1,700
    –900
   –300
  –2,900
   –170
 –3,070
               
$  3,070	

–	

–$1,000
–1,000

–1,000

–1,000
           
$1,000		
		
$29,800		
$29,800	

PROBLEM 1-2A

PROBLEM 1-2A (Continued)

(b)	NASHVILLE VETERINARY CLINIC
	Income Statement
	For the Month Ended September 30, 2011

	Revenues
		Service revenue			 $8,000
	Expenses
		Salaries expense		$1,700
		Rent expense		900
		Advertising expense		300
		Utilities expense		     170
			Total expenses			   3,070
	Net income			 $4,930

	NASHVILLE VETERINARY CLINIC
	Retained Earnings Statement
	For the Month Ended September 30, 2011

	Retained earnings, September 1		$   700
	Add:   Net income		  4,930
			5,630
	Less:  Dividends		  1,000
	Retained earnings, September 30		$4,630

PROBLEM 1-2A (Continued)

	NASHVILLE VETERINARY CLINIC
	Balance Sheet
	September 30, 2011

	Assets
	Cash		$15,200
	Accounts receivable		 5,900
	Supplies		 600
	Office equipment		    8,100
		Total assets		$29,800

	Liabilities and Stockholders’ Equity
	Liabilities
		Notes payable		$10,000
		Accounts payable		    2,170
			Total liabilities		 12,170
	Stockholders’ equity
		Common stock		$13,000
		Retained earnings		    4,630	  17,630
			Total liabilities and stockholders’ equity			$29,800

PROBLEM 1-3A	

(a)	SKYLINE FLYING SCHOOL
	Income Statement
	For the Month Ended May 31, 2011

	Revenues
		Lesson revenue			 $7,500
	Expenses
		Fuel expense		$2,500
		Rent expense		 1,200
		Advertising expense		 500
		Insurance expense		400
		Repair expense		     400
			Total expenses			   5,000
	Net income			 $2,500

	SKYLINE FLYING SCHOOL
	Retained Earnings Statement
	For the Month Ended May 31, 2011

	Retained Earnings, May 1			$       0
	Add:	Net income			  2,500
					  2,500
	Less:  Dividends			  1,500
	Retained earnings, May 31			$1,000
	SKYLINE FLYING SCHOOL	Balance Sheet	May 31, 2011
				
	Assets
	Cash		$  5,600
	Accounts receivable		 7,200
	Equipment		  64,000
		Total assets		$76,800

PROBLEM 1-3A (Continued)
	SKYLINE FLYING SCHOOL	Balance Sheet (Continued)	May 31, 2011
					
Liabilities and Stockholders’ Equity
	Liabilities		Notes payable			$30,000		Accounts payable			       800			Total liabilities			 30,800	Stockholders’ equity		Common stock		$45,000
		Retained earnings		    1,000	  46,000
			Total liabilities and stockholders’ equity			$76,800

(b)	SKYLINE FLYING SCHOOL
	Income Statement
For the Month Ended May 31, 2011

	Revenues
		Lesson revenue ($7,500 + $900)			 $8,400
	Expenses
		Fuel expense ($2,500 + $1,500)		$4,000
		Rent expense		 1,200
		Advertising expense		  500
		Insurance expense		  400
		Repair expense		     400
			Total expenses			   6,500
	Net income			 $1,900

	SKYLINE FLYING SCHOOL
	Retained Earnings Statement	For the Month Ended May 31, 2011
					
	Retained Earnings, May 1		$       0
	Add:   Net income		  1,900
			 1,900
	Less:  Dividends			  1,500
	Retained Earnings, May 31			$   400

Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)             1-31

(a)	MILLER DELIVERIES					
				Assets				Liabilities		Stockholders’ Equity		

Date		
Cash	
+	Accounts
Receivable	
+	
Supplies	
+	Delivery Van	
=	Notes
Payable 	
+	Accounts
Payable	
+	Common
Stock	
+	Retained Earnings		
																Revenues	–	Expenses	–	Dividends		
																						
June   1
June   2

June   3

June   5

June   9

June 12

June 15

June 17

June 20

June 23

June 26

June 29

June 30		  $10,000
+ –2,000
      8,000
+   –500
+   7,500

+  7,500
+   –200
        7,3000
 
–   7,300
+ +1,250
      8,550

+   8,550
+ +1,500
    10,050
       –500
+    9,550
+       –250
     9,300
      –100
     9,200
    –1,000
$  8,200	

+

+

+

+

+

+

+

+

+

+

+

+	

+$4,400
4,400

4,400

4,400
–1,250
3,150

3,150
 
3,150

3,150
            
3,150
            
3,150
           
$3,150	

+

+

+

+

+

+

+

+

+

+	

+050
+$150
150
          
150
        
150
          
150
          
150
          
150
          
150
        
$150	

+

+

+

+

+

+

+

+	
+$12,000
12,000
             
+12,000
             
+0012,000
             
+  12,000
             
12,000
             
12,000
             
12,000
             
+12,000
             
12,000
             
12,000
             
12,000
             
$12,000	

=

=

=

=

=

=

=

=

=

=

=

=	
+$10,000
10,000
              
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
     –500
9,500
             
9,500
             
9,500
             
$  9,500	

+

+

+

+

+

+

+

+

+

+

+

+	

+$150
+ 150
+00        
+ 150
+100
+ 250
        
+ 250
        
+0250
+0        
+0250
–100
150
        
$150	

+

+

+

+

+

+

+

+	+$10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
$10,000	

+
+

+

+

+

+
+
+

+

+

+

+	

$4,400
4,400

4,400

4,400

4,400

4,400
  1,500
5,900

  5,900

5,900

5,900
           
$5,900	

–

–

–

–

–

–

–

–
–
–	

   –$  500
–500

–500

–500
           
–500

–500
   –100
–600

–600

–600
   –250
–850
           
–850
–1,000
$1,850	

–

–

–

–

–

–

–

–

–	

–$200
–200
           
–200
           
–200

–200

–200

–200

–200
           
–200
        
$200	

(a)

(b)

(c)

(d)

(e)

(f)

(g)

$23,500	
$23,500		

PROBLEM 1-4A

PROBLEM 1-4A (Continued)
Key to Retained Earnings Column
(a)	Rent expense	(e)	Service revenue
(b)	Service revenue	(f)	Utilities expense
(c)	Dividends	(g)	Salaries expense
(d)	Gasoline expense

(b)		MILLER DELIVERIES		Income Statement		For the Month Ended June 30, 2011
			
	Revenues		Service revenue ($4,400 + $1,500)			$5,900	Expenses		Salaries expense		$1,000		Rent expense		500		Utilities expense		 250		Gasoline expense		     100
			Total expenses			  1,850
	Net income			$4,050

(c)	MILLER DELIVERIES
	Balance Sheet
	June 30, 2011

	Assets
	Cash		$  8,200
	Accounts receivable		 3,150
	Supplies		 150
	Delivery Van		  12,000
		Total assets		$23,500

	Liabilities and Stockholders’ Equity
	Liabilities
		Notes payable		$  9,500
		Accounts payable		       150
			Total liabilities		 9,650
	Stockholders’ equity
		Common stock		$10,000	
		Retained earnings		    3,850	  13,850
			Total liabilities and stockholders’ equity			$23,500

PROBLEM 1-5A	

(a)	Karma 
Company		Yates
Company		McCain 
Company		Dench 
Company	
	(a)	$  45,000		(d)	$50,000		(g)	$120,000		(j)	$  80,000	
	(b)	 115,000		(e)	 62,000		(h)	  70,000		(k)	 250,000	
	(c)	10,000		(f)	 48,000		(i)	 431,000		(l)	 435,000	

(b)	YATES COMPANY
	Retained Earnings Statement
	For the Year Ended December 31, 2011

	Retained earnings, January 1			$20,000
	Add:   Net income			  35,000
				 55,000
	Less:  Dividends			  48,000
	Retained earnings, December 31			$  7,000

(c)	The sequence of preparing financial statements is income statement, retained earnings statement, and balance sheet. The interrelationship of the retained earnings statement to the other financial statements results from the fact that net income from the income statement 
is reported in the retained earnings statement and ending retained earnings reported in the retained earnings statement is the amount reported for retained earnings on the balance sheet.

	
1-34	     Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)

(a)	MATRIX TRAVEL AGENCY				
												Stockholders’ Equity		
		
Cash	
+	Accounts
Receivable	
+	
Supplies	
+	Office
Equipment	
=	Accounts
Payable	
+	Common 
Stock	
+	Retained Earnings		
														Revenues	–	Expenses	–	Dividends		
																				
1.

2.

3.

4.

5.

6.

7.

8.

9.

10.		+$10,000
+ 10,000
+   –400
+  9,600
+ –2,500
+  7,100
+000,000
+  7,100
+   –600
+  6,500
– +3,000
+  9,500
+   –200
+  9,300
+   –300
+  9,000
+ –2,200
+  6,800
– +4,000
+$10,800	

+

+

+

+

+	

+$6,500
+ 6,500
+ 0,000
+ 6,500
+ 0,000
+ 6,500
+ 0,000
+ 6,500
+–4,000
+$2,500	

+

+

+

+

+

+	

+$600
+ 600
+0000
+ 600
+0000
+ 600
+0000
+ 600
+0000
+ 600
+        
+$600	

+

+

+

+

+

+

+

+	

+$2,500
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
           
+$2,500	
=

=

=

=

=

=

=

=

=

=	

+$300
+ 300
+0000
+ 300
+0000
+ 300
+0000
+ 300
+–300
+   0
+0000

+        
+$  0	

+

+

+

+

+

+	+$10,000
  10,000
             
10,000
             
10,000

             
10,000
             
10,000
             
10,000
             
10,000
             
10,000
             
$10,000	

+
+

+

+

+

+	

+

+000,000

–$9,500
+ 9,500

+ 9,500
+000,000
+ 9,500

+ 9,500
+           
+$9,500	

–
–

–
–
–

–

–

–

–
–
–

–	

$  400
400
           
400
     300
700
           
700

700

700

700
   2,200
2,900
           
$2,900	

–
–

–

–

–	

$200
200

200

200
        
$200	

(a)

(b)

(c)
(d)

(e)	
		
$16,400		
$16,400		

PROBLEM 1-1B

PROBLEM 1-1B (Continued)

Key to Retained Earnings Column

(a)	Rent Expense	(d)	Dividends
(b)	Advertising Expense	(e)	Salaries Expense
(c)	Service Revenue

(b)	Service revenue		$9,500
	Expenses
		Salaries		$2,200	
		Rent		  400	
		Advertising		     300	  2,900
			Net income			$6,600

	
1-36	    Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)

(a)	CINDY BELTON, ATTORNEY AT LAW						

Cash	
+	Accounts
Receivable	
+	
Supplies	
+	Office
Equipment	
=	Notes
Payable	
+	Accounts
Payable	
+	Common Stock	
+	Retained
Earnings	
+	
Revenues	
–	
Expenses	
–	
Dividends		
																							
Bal.
1.

2.

3.

4.

5.

6.

7.

8.		$4,000
+1,400
 5,400
–2,700
 2,700
+3,000
 5,700
  –400
 5,300
–4,250

 1,050
  –750
    300
+2,000
 2,300
           
$2,300	+

+

+

+

+

+

+

+

+	$1,500
–1,400
   100
00,000
   100
+6,000
 6,100
00,000
 6,100

00,000
 6,100
00,000
 6,100
00,000
 6,100
            
$6,100	+

+

+

+

+

+

+

+

+	$500
0000
 500
0000
 500
0000
 500
0000
 500

0000
 500
0000
 500
0000
 500
         
$500	+

+

+

+

+

+

+

+

+	$5,000
00,000
 5,000
00,000
 5,000
00,000
 5,000
+1,000
 6,000

00,000
 6,000
00,000
 6,000
00,000
 6,000
           
$6,000	=

=

=

=

=

=

=

=

=	

+$2,000
+ 2,000
           
+$2,000	

+

+	$4,200
00,000
 4,200
–2,700
 1,500
00,000
 1,500
  +600
 2,100

00,000
 2,100
00,000
 2,100
00,000
 2,100
  +250
$2,350	+

+

+

+

+

+

+

+
+	$6,000

6,000

6,000

6,000

6,000

6,000
        
6,000
   
6,000
           
$6,000	+

+

+

+

+

+

+

+

+	$  800
000,000
800
000,000
  800
 
 800
000,000
 800

 800

800
000,000
800
          
$  800	

+

+

+

+

+

+	

+$9,000
9,000

9,000

9,000

9,000

9,000
            
$9,000	

–

–

–

–	

–$3,000
–900
  –350
4,250

4,250

4,250
   –250
$4.500	

–

–

–	

–$750
750

750
        
$750	

(a)

(b)
(c)
(d)

(e)

(f)	
		
$14,900		
$14,900		

PROBLEM 1-2B

PROBLEM 1-2B (Continued)

(b)	CINDY BELTON, ATTORNEY AT LAW
	Income Statement
	For the Month Ended August 31, 2011

	Revenues
		Service revenue			 $9,000
	Expenses
		Salaries expense		$3,000
		Rent expense		  900
		Advertising expense		 350
		Utilities expense		     250
			Total expenses			  4,500
	Net income			$4,500

	CINDY BELTON, ATTORNEY AT LAW
	Retained Earnings Statement
	For the Month Ended August 31, 2011

	Retained earnings, August 1		$   800
	Add:   Net income			  4,500
			5,300
	Less:  Dividends		     750
	Retained earnings, August 31		$4,550

PROBLEM 1-2B (Continued)

	CINDY BELTON, ATTORNEY AT LAW
	Balance Sheet
	August 31, 2011

	Assets
	Cash		$  2,300
	Accounts receivable		 6,100
	Supplies		  500
	Office equipment		    6,000
		Total assets		$14,900

	Liabilities and Stockholders’ Equity
	Liabilities
		Notes payable		$  2,000
		Accounts payable		    2,350
			Total liabilities		 4,350
	Stockholders’ equity
		Common stock		$6,000
		Retained earnings		  4,550	  10,550
			Total liabilities and stockholders’ equity			$14,900

PROBLEM 1-3B	

(a)	DIVINE COSMETICS CO.
	Income Statement
	For the Month Ended June 30, 2011

	Revenues
		Service revenue			 $6,000
	Expenses
		Supplies expense		$1,600
		Gas and oil expense		  800
		Advertising expense		 500
		Utilities expense		     300
			Total expenses			   3,200
	Net income			 $2,800

	DIVINE COSMETICS CO.
	Retained Earnings Statement
	For the Month Ended June 30, 2011

	Retained Earnings, June 1			$       0
	Add:	Net income			  2,800
				 2,800
	Less:  Dividends			  1,200
	Retained Earnings, June 30			$1,600

	DIVINE COSMETICS CO.
	Balance Sheet
	June 30, 2011

	Assets
	Cash		$11,000
	Accounts receivable		 4,000
	Cosmetic supplies		 2,000
	Equipment		  25,000
		Total assets		$42,000

PROBLEM 1-3B (Continued)

	DIVINE COSMETICS CO.
	Balance Sheet (Continued)
	June 30, 2011

	Liabilities and Stockholders’ Equity
	Liabilities
		Notes payable		$13,000
		Accounts payable		    1,200
			Total liabilities		 14,200
	Stockholders’ equity
		Common stock		$26,200
		Retained earnings		    1,600	  27,800
			Total liabilities and stockholders’ equity			$42,000

(b)	DIVINE COSMETICS CO.
	Income Statement
	For the Month Ended June 30, 2011

	Revenues
		Service revenue ($6,000 + $800)			 $6,800
	Expenses
		Supplies expense		$1,600
		Gas and oil expense ($800 + $100)		  900
		Advertising expense		  500
		Utilities expense		     300
			Total expenses			   3,300
	Net income			 $3,500

	DIVINE COSMETICS CO.
	Retained Earnings Statement
	For the Month Ended June 30, 2011

	Retained earnings, June 1			$       0
	Add:	Net income			  3,500
				 3,500
	Less:  Dividends			  1,200
	Retained earnings, June 30			$2,300

	
Copyright © 2010 John Wiley & Sons, Inc.   Weygandt, Financial Accounting, 7/e, Solutions Manual   (For Instructor Use Only)	           1-41

(a)	GELLER CONSULTING					
				Assets				Liabilities		Stockholders’ Equity		

Date		
Cash	
+	Accounts
Receivable	
+	
Supplies	
+	Office
Equipment	
=	Notes
Payable 	
+	Accounts
Payable	
+	Common
Stock	
+	Retained Earnings		
																Revenues	–	Expenses	–	Dividends		
																						
May   1

May   2

May   3

May   5

May   9

May 12

May 15

May 17

May 20

May 23

May 26

May 29

May 30		+$ 8,000
8,000
    –800
7,200

7,200
       –50
+  7,150
  +3,000
10,150
     –700
9,450

9,450
  –3,000
6,450
    –500
    5,950
  +3,000
+    8,950
  +5,000
    13,950

13,950
     –150
  $13,800	

+

+

+

+

+

+

+

+

+

+

+	

+$5,300
5,300

5,300
             
5,300
  –3,000
2,300

2,300

2,300
             
$  2,300	

+

+

+

+

+

+

+	

+$500
500

500
+050
500

500

500

500

500

500

500

500
        
$500	

+

+	

+

+

+

+$2,800
2,800
            
$2,800	
=

=

=

=

=

=

=

=

=

=

=

=

=	

+$5,000
5,000

5,000
           
$5,000	

+	

 +$  500
    500

   500

500

500

500

500
   –500
    –0–  
+
+    –0–  

    –0–  
+2,800
2,800
           
$2,800	

+

+

+

+

+

+

+

+

+

+

+	+$8,000
8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000
            
$8,000	

+

+

+

+

+

+

+

+

+

+

+	

+$3,000
3,000

3,000
+5,300
8,300

8,300

8,300

8,300

8,300

8,300
           
$8,300	

–

–

–

–

–
–
–

–

–

–

–

–	

–$  800
800

800
–50
850

850

850

850
–3,000
3,850

3,850

3,850

3,850

3,850
   –150
$4,000	

–

–

–

–

–

–

–

–	

–$700
700

700

700

700

700

700

700
        
$700	

(a)

(b)

(c)

(d)

(e)

(f)

(g)	
		
$19,400	

       $19,400		

PROBLEM 1-4B

PROBLEM 1-4B (Continued)

Key to Retained Earnings Column

(a)	Rent Expense 	(e)	Service Revenue
(b)	Advertising Expense 	(f)	Salaries Expense
(c)	Service Revenue	(g)	Utilities Expense
(d)	Dividends

(b)	GELLER CONSULTING
	Income Statement
	For the Month Ended May 31, 2011

	Revenues
		Service revenue ($3,000 + $5,300)			$8,300
	Expenses
		Salaries expense		$3,000
		Rent expense		  800
		Utilities expense		  150
		Advertising expense		       50
			Total expenses			  4,000
	Net income			$4,300

(c)	GELLER CONSULTING
	Balance Sheet
	May 31, 2011

	Assets
	Cash		$13,800
	Accounts receivable		 2,300
	Supplies		  500
	Office equipment		    2,800
		Total assets		$19,400

	Liabilities and Stockholders’ Equity
	Liabilities
		Notes payable		$  5,000
		Accounts payable		    2,800
			Total liabilities		  7,800
	Stockholders’ equity
		Common stock		$8,000
		Retained earnings		  3,600	  11,600
			Total liabilities and stockholders’ equity		$19,400

PROBLEM 1-5B	

(a)	McKane
Company		Selara
Company		Gordon 
Company		Hindi 
Company	
	(a)	$30,000		(d)	$40,000		(g)	$124,000		(j)	$  50,000	
	(b)	 95,000		(e)	 45,000		(h)	  80,000		(k)	 225,000	
	(c)	5,000		(f)	 28,000		(i)	 413,000		(l)	 460,000	

(b)	McKANE COMPANY
	Retained Earnings Statement
	For the Year Ended December 31, 2011

	Retained earnings, January 1			$         0
	Add:   Net income			  15,000
				15,000
	Less:  Dividends			  10,000
	Retained earnings December 31			$  5,000

(c)	The sequence of preparing financial statements is income statement, retained earnings statement, and balance sheet. The interrelationship of the retained earnings statement to the other financial statements results from the fact that net income from the income statement 
is reported in the retained earnings statement and ending retained earnings reported in the retained earnings statement is the amount reported for retained earnings on the balance sheet.

BYP 1-1	FINANCIAL REPORTING PROBLEM	

(a)	PepsiCo’s total assets at December 27, 2008 were $35,994 million and at December 29, 2007 were $34,628 million.

(b)	PepsiCo had $2,064 million of cash and cash equivalents at December 27, 2008.

(c)	PepsiCo had accounts payable (and other current liabilities) totaling $8,273 million on December 27, 2008 and $7,602 million on December 29, 2007.

(d)	PepsiCo reports net sales for three consecutive years as follows:

	2006	$35,137 million
	2007	$39,474 million
	2008	$43,251 million

(e)	From 2007 to 2008, PepsiCo’s net income decreased $516 million from $5,658 million to $5,142 million.

BYP 1-2	COMPARATIVE ANALYSIS PROBLEM	

(a)		(in millions)		PepsiCo		Coca-Cola	
	1.	Total assets		$35,994		$40,519	
	2.	Accounts receivable (net)		$  4,683		$  3,090	
	3.	Net sales		$43,251		$31,944	
	4.	Net income		$  5,142		$  5,807	

(b)	Coca-Cola’s total assets were approximately 13% greater than PepsiCo’s total assets, but PepsiCo’s net sales were 35% greater than Coca-Cola’s net sales. In addition, PepsiCo’s accounts receivable were 52% greater than Coca-Cola’s and represent 11% of its net sales. Coca-Cola’s accounts receivable amount to 10% of its net sales. Both PepsiCo’s and Coca-Cola’s accounts receivable are at satisfactory levels, being comparable to a 30-day collection period.

	PepsiCo’s net income was 89% of Coca-Cola’s. It appears that these two companies’ operations are comparable in some ways, with Coca-Cola’s operations slightly more profitable.

BYP 1-3	EXPLORING THE WEB	

(a)	The field is normally divided into three broad areas: auditing, financial/ tax, and management accounting.

(b)	The skills required in these areas:

	People skills, sales skills, communication skills, analytical skills, ability to synthesize, creative ability, initiative, computer skills.

(c)	The skills required in these areas differ as follows:

Auditing		Financial and Tax		Management 
Accounting	
People skills		Medium		Medium		Medium	
Sales skills		Medium		Medium		Low	
Communication skills		Medium		Medium		High	
Analytical skills		High		Very High		High	
Ability to synthesize		Medium		Low		High	
Creative ability		Low		Medium		Medium	
Initiative		Medium		Medium		Medium	
Computer skills			High		High		Very High	

(d)	Some key job functions in accounting:

	Auditing: Work in audit involves checking accounting ledgers and financial statements within corporations and government. This work is becoming increasingly computerized and can rely on sophisticated random sampling methods. Audit is the bread-and-butter work of accounting. This work can involve significant travel and allows you to really understand how money is being made in the company that you are analyzing. It’s great background!

	Budget Analysis: Budget analysts are responsible for developing and managing an organization’s financial plans. There are plentiful jobs in this area in government and private industry. Besides quantitative skills many budget analyst jobs require good people skills because of negotiations involved in the work.

BYP 1-3 (Continued)

	Financial: Financial accountants prepare financial statements based on general ledgers and participate in important financial decisions involving mergers and acquisitions, benefits/ERISA planning, and long-term financial projections. This work can be varied over time. One day you may be running spreadsheets. The next day you may be visiting a customer or supplier to set up a new account and discuss business. This work requires a good understanding of both accounting and finance.

	Management Accounting: Management accountants work in companies and participate in decisions about capital budgeting and line of business analysis. Major functions include cost analysis, analysis of new contracts, and participation in efforts to control expenses efficiently. This work often involves the analysis of the structure of organizations. Is responsibility to spend money in a company at the right level of our organization? Are goals and objectives to control costs being communicated effectively? Historically, many management accountants have been derided as “bean counters.” This mentality has undergone major change as management accountants now often work side by side with marketing and finance to develop new business.

	Tax: Tax accountants prepare corporate and personal income tax statements and formulate tax strategies involving issues such as financial choice, how to best treat a merger or acquisition, deferral of taxes, when to expense items and the like. This work requires a thorough understanding of economics and the tax code. Increasingly, large corporations are looking for persons with both an accounting and a legal background in tax. A person, for example, with a JD and a CPA would be especially desirable to many firms.

(e)	Junior Staff Accountant							$46,000 – $63,000

BYP 1-4	DECISION MAKING ACROSS THE ORGANIZATION	

(a)	The estimate of the $6,100 loss was based on the difference between the $25,000 invested in the driving range and the bank balance of $18,900 at March 31. This is not a valid basis for determining income because it only shows the change in cash between two points in time.

(b)	The balance sheet at March 31 is as follows:

	CHIP-SHOT DRIVING RANGE COMPANY
	Balance Sheet
	March 31, 2011

	Assets
	Cash		$18,900
	Caddy shack		8,000
	Equipment		       800
		Total assets		$27,700

	Liabilities and Stockholders’ Equity
	Liabilities
		Accounts payable ($150 + $100)		$     250
	Stockholders’ equity
		Common stock		$25,000
		Retained earnings		    2,450	  27,450
			Total liabilities and stockholders’ equity		$27,700

	As shown in the balance sheet, the stockholders’ equity at March 31 is $27,450. The estimate of $2,450 of net income is the difference between the initial investment of $25,000 and $27,450. This was not a valid basis for determining net income because changes in stockholders’ equity between two points in time may have been caused by factors unrelated to net income. For example, there may be dividends and/or additional capital investments by the stockholders.

BYP 1-4 (Continued)

(c)	Actual net income for March can be determined by adding dividends to the change in stockholders’ equity during the month as shown below:

	Stockholders’ equity, March 31, per balance sheet		$27,450
	Stockholders’ equity, March 1		  25,000
	Increase in stockholders’ equity		2,450
	Add:   Dividends		    1,000
	Net income		$  3,450

	Alternatively, net income can be found by determining the revenues earned [described in (d) below] and subtracting expenses.

(d)	Revenues earned can be determined by adding expenses incurred during the month to net income. March expenses were Rent, $1,000; Wages, $400; Advertising, $750; and Utilities, $100 for a total of $2,250. Revenues earned, therefore, were $5,700 ($2,250 + $3,450). Alternatively, since all revenues are received in cash, revenues earned can be computed from an analysis of the changes in cash as follows:

	Beginning cash balance			$25,000
	Less:  Cash payments
			Caddy shack		$8,000	
			Golf balls and clubs		800	
			Rent		1,000	
			Advertising		600	
			Wages		400	
			Dividends		  1,000	  11,800
	Cash balance before revenues			13,200
	Cash balance, March 31			  18,900
	Revenues earned			$  5,700

BYP 1-5	COMMUNICATION ACTIVITY	

To:		Lynn Benedict 
From:	Student

I have received the balance sheet of New York Company as of December 31, 2011. A number of items in this balance sheet are not properly reported. They are:

1.	The balance sheet should be dated as of a specific date, not for a period of time. Therefore, it should be dated “December 31, 2011.”

2.	Equipment should be shown as an asset and reported below Supplies on the balance sheet.

3.	Accounts receivable should be shown as an asset, not a liability, and reported between Cash and Supplies on the balance sheet.

4.	Accounts payable should be shown as a liability, not an asset. The note payable is also a liability and should be reported in the liability section.

5.	Liabilities and stockholders’ equity should be shown on the balance sheet. Common stock is not a liability.

6.	Common stock and retained earnings are part of stockholders’ equity. 

BYP 1-5 (Continued)

A correct balance sheet is as follows:

NEW YORK COMPANY
Balance Sheet
December 31, 2011

Assets
Cash		$  9,000
Accounts receivable		6,000
Supplies		2,000
Equipment		  25,500
		$42,500

Liabilities and Stockholders’ Equity
Liabilities
	Notes payable		$10,500
	Accounts payable		    8,000
		Total liabilities		18,500
Stockholders’ equity
	Common stock		$26,000
	Retained earnings		  (2,000)	  24,000
		Total liabilities and stockholders’ equity		$42,500

BYP 1-6	ETHICS CASE	

(a)	The students should identify all of the stakeholders in the case; that is, all the parties that are affected, either beneficially or negatively, by the action or decision described in the case. The list of stakeholders in this case are:

•	Steve Baden, interviewee.
•	Both Baltimore firms.
•	Great Northern College.

(b)	The students should identify the ethical issues, dilemmas, or other considerations pertinent to the situation described in the case. In this case the ethical issues are:

•	Is it proper that Steve charged both firms for the total travel costs rather than split the actual amount of $296 between the two firms?

•	Is collecting $592 as reimbursement for total costs of $296 ethical behavior?

•	Did Steve deceive both firms or neither firm?

(c)	Each student must answer the question for himself/herself. Would you want to start your first job having deceived your employer before your first day of work? Would you be embarrassed if either firm found out that you double-charged? Would your school be embarrassed if your act was uncovered? Would you be proud to tell your professor that you collected your expenses twice?

BYP 1-7	ALL ABOUT YOU: THE ETHICS OF FINANCIAL AID	

(a)	Answers to the following will vary depending on students’ opinions.

(i)	This does not represent the hiding of assets, but rather a choice as to the order of use of assets. This would seem to be ethical.
(ii)	This does not represent the hiding of assets, but rather is a change in the nature of assets. Since the expenditure was necessary, although perhaps accelerated, it would seem to be ethical.
(iii)	This represents an intentional attempt to deceive the financial aid office. It would therefore appear to be both unethical and potentially illegal.
(iv)	This is a difficult issue. By taking the leave, actual net income would be reduced. The form asks the applicant to report actual net income. However, it is potentially deceptive since you do not intend on taking unpaid absences in the future, thus future income would be higher than reported income.

(b)	Companies might want to overstate net income in order to potentially increase the stock price by improving investors’ perceptions of the company. Also, a higher net income would make it easier to receive debt financing. Finally, managers would want a higher net income to increase the size of their bonuses.

(c)	Sometimes companies want to report a lower income if they are negotiating with employees. For example, professional sports teams frequently argue that they can not increase salaries because they aren’t making enough money. This also occurs in negotiations with unions. For tax accounting (as opposed to the financial accounting in this course) companies frequently try to minimize the amount of reported taxable income.

(d)	Unfortunately many times people who are otherwise very ethical will make unethical decisions regarding financial reporting. They might be driven to do this because of greed. Frequently it is because their superiors have put pressure on them to take an unethical action, and they are afraid to not follow directions because they might lose their job. Also, in some instances top managers will tell subordinates that they should be a team player, and do the action because it would help the company, and therefore would help fellow employees.

BYP 1-8	FASB CODIFICATION ACTIVITY	

No solution necessary