Chapter 1- Problem 1 to 5

Problem 1-1 Problem 1-2

Charles Company Balance Sheet as on 31st Dec

Current Assets
Assets Liabilities and Owner's Equity Non-current assets
$ $ Total assets
Cash 12000 Bank loan 40000 Current liabiltities
Inventory 95000 Owner's Equity 80000 Non-current liabilties
Other Assets 13000 Paid-in capital
Total liabilities Reatined earnings
Total Assets 120000 and OE 120000 Total liabilties and OE
Assets = Liabilities + Owners’
Current assets + Noncurrent
Current liabilities + Noncurre
Paid-in capital + Retained ear

Problem 1-4
1-4a
The explanation of the 11 transactions given-
1 Owners invest $20,000 of equity capital in Acme Consulting.
2 $5,000 cash to buy equipment costing $7,000 and an account payable of $2,000.
3 Supplies inventory costing $1,000 is bought for cash.
4 $4,500 as salaries are paid in cash.
5 Revenues of $10,000 are earned, of which $5,000 has been recovered in cash. $5,000 is owed to the company by the custome
6 Accounts payable of $1,500 are paid in cash.
7 Customers pay $1,000 of the $5,000 they owe the company
8 Rent Expense of $750 is paid in cash.
9 Utilities of $500 are paid in cash.
10 $200 travel expense has been incurred but not yet paid.
11 Supplies inventory costing $200 are consumed

1-4c
Acme Consulting Income Statement 1-31st July
$
Revenues 10000
Expenses
Salaries 4500
Rent 750
Utilities 500
Travel 200
 Supplies 200
Total Expenses 6150
Net income 3850

Problem 1-5

1-5A
Accounts Supplies
Cash Equipment Accounts Owner's
Receivable Inventory Payable Equity
$ $ $ $ $ $ Investment
1 25000 25000 Rent
2 -500 -500
3 8000 8000
4 -500 500
5 -750 -750 Advertising
6 -3000 -3000 Salaries
7 2000 8000 10000 Commission
8 -5000 -5000
9 -100 -100
10 1000 -1000 Expenses

Cash+ Accounts receivable+Supplies Inventory+Equipment= Accounts payable+ Owner's Equity

 1-5E

Change in the cash account includes the owners’ investment, and is not an income
statement item.The income statement includes revenues and expenses which have
not yet been received in cash or paid incash. The cash paid to purchase the
equipments is not reflected in the income statement.

a Net income is not equivalent to the net change in the cash account during an accounting period
b Cash is influenced by both balance sheet and income statement events.
c Basic accounting equation ,Assets = Liabilities + Owners’ equity is used,that explain the
accounting consequences of most transactions and events

Ribbons and Bow

Ribbons and Bows Income Statement from 1st April to 30th June,2010
Beiginning merchandise inve
Sales 7720 Plus purchases
Cost of Sales 2100 Total Available merchandise
Gross Margin 5620 Ending merchandise inventor
Employee wages (-) 1600 Cost of sales
Rent (-) 1800
Office Supplies (-) 80
Depreciation - Comput (-) 250
Depreciation - Sewing (-) 60
Interest (-) 200
Advertising (-) 150
Profit before Taxes 1480

a
Reasons why the cash balance declined during the 3-month (profitable) operating period are:
1.Sewing machine purchase incurred cash by $1,800 while depreciation charge only reduced income by $90.
2. Inventory at the end was higher than beginning inventory and the increase was paid for with cash. More inventory was bou
for $2,900 than the cost of goods sold $2,100.

c
Carmen’s business had a good start, but it will have to perform better for the remianing year if Carmen plans to pay herself a g
compensations and repay her cousins’ loan after the promised duration.
 roblem 1-2 Problem 1-3
Year 1 Year 2 Year 3 Year 4 Year 1
$ $ $ $ $
urrent Assets 113624 90442 85124 69090 Sales 12011
Non-current assets 410976 198014 162011 151021 Cost of goods sold 3011
524600 288456 247135 220111 Gross Margin 9000
urrent liabiltities 56142 40220 15583 17539 Other expenses 6201
Non-current liabilties 240518 78585 60100 30222 Profit before taxes 2799
aid-in capital 214155 173295 170000 170000 Tax expense 1120
eatined earnings 13785 -3644 1452 2350 Net income 1679
otal liabilties and OE 524600 288456 247135 220111
Assets = Liabilities + Owners’ equity Gross margin = Sales - Cost of goods sold
urrent assets + Noncurrent assets = Total assets Profit before taxes = Gross margin - Other expenses
urrent liabilities + Noncurrent liabilities = Total liabilities Net income = Profit before taxes - Tax expense
aid-in capital + Retained earnings = Owners’ equity. Net income = Revenues – Expenses

1-4b
Acme Consulting Balance Sheet as of 31st July

Assets Liabilities and Owner's Equity

$ $
Cash 12750 Accounts payable
Accounts receivable 4000
o the company by the customers Supplies Inventory 800
Current Assets 17550 Current liabilities
Equipment 7000 Owner's Equity
Total Assets 24550 Total liabilities and OE

1-4d
Acme Consulting Cash Receipts and disbursement 1-31st July
Cash Receipts $
Owner's investment 20000
Cash Sales 5000
Collection of accounts receivable 1000
Total Cash Receipts 26000
Disbursements
Equipment purchase 5000
Supplies purchase 1000
Salaries paid 4500
Payment to vendors 1500
 Rent paid 750
Utilities Paid 500
Total Disbursements 13250
Increase in Cash 12750

1-4e Change in the cash account includes the owners’ investment, which is not an incom
statement item.The income statement includes revenues and expenses that have n
yet been received in cash or paid incash. The cash paid to purchase the equipment
not reflected in the income statement.

a Net income is not equivalent to the net change in the cash account during an accou
b Cash is influenced by both balance sheet and income statement events.
c Basic accounting equation ,Assets = Liabilities + Owners’ equity is used,that explain
the accounting consequences of most transactions and events

1-5B
Bon Voyage Travel Balance Sheet as of 30th June

Assets Liabilities and Owner's Equity

$ $
Cash 17250 Accounts payable 4000
Accounts receivable 8000
Supplies Inventory 400
Current Assets 25650 Current liabilities 4000
Equipment 8000 Owner's Equity 29650
Total Assets 33650 Total liabilities and OE 33650

1-5C
Bon Voyage Travel Balance Sheet as of 30th June
$
Revenues 10000
Expenses
Rent 500
Advertising 750
Salaries 3000
Supplies 100
Misc. Expenses 1000
Total Expenses 5350
Net income 4650

1-5D
 Bon Voyage Travel Cash Receipts and disbursement 1-30th June
Cash Receipts $
Owner's investment 25000
Cash Sales 2000
Total Cash Receipts 27000
Disbursements
Paid Rent 500
g an accounting period Bought supplies 500
Bought advertising 750
at explain the Paid salaries 3000
Paid vendors 5000
Total Disbursements 9750
Increase in Cash 17250

Ribbons and Bows Cash Flows from 1st April to 30th June,2010
eiginning merchandise inventory 3300
lus purchases 2900
otal Available merchandise 6200 Beginning cash 4000
nding merchandise inventory 4100 Sales 7400
ost of sales 2100 Wages (-) 1510
Rent (-) 1800
Merchanise Inventory (-) 2900
Sewing Machine (-) 1800
Endish Cash 3390

b
Ribbons and Bows Balance Sheet as of 30th June,2010

d income by $90. Assets Liabilities

ash. More inventory was bought Wages owed
Cash 3390 Interest owed
Accounts Receivable 320 Cousin's loan
Merchandise inventory 4100 TL
rmen plans to pay herself a good Supplies 20
Prepaid Rent 1200 Owner's Equity
Computer 1750 Carmen's equity
Sewing machine 1740 Earnings
Cash register deposit 250
Total 12770 Total
 Year 2 Year 3 Year 4
$ $ $
11968 11545 10000
2992 2886 2500
8976 8659 7500
6429 6296 5332
2547 2363 2168
1019 945 867
1528 1418 1301

goods sold
argin - Other expenses
xes - Tax expense

wner's Equity

700

700
23850
24550

nt 1-31st July
estment, which is not an income
nues and expenses that have not
aid to purchase the equipment is
atement.

e cash account during an accounting period

statement events.
ers’ equity is used,that explain
nd events
April to 30th June,2010

of 30th June,2010

90
200
10000
10290

1000
1480
2480
12770