Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Chapter 1
A Framework for Financial Accounting

EXERCISES
Exercise 1-1

1. a.
2. b.
3. a.
4. c.
5. b.
6. a.
7. c.

Exercise 1-2
Transaction Account Activity
1. Falcon provides services to customers. Revenue Operating
2. Falcon pays salaries for the current month. Expense Operating
3. Falcon purchases equipment. Asset Investing
4. Falcon pays dividends to stockholders. Equity Financing
5. Falcon borrows money by issuing a note. Liability Financing

Exercise 1-3
Transaction Account Activity
1. Wildcat pays rent for the current month. Expense Operating
2. Wildcat provides services to customers. Revenue Operating
3. Wildcat issues common stock. Equity Financing
4. Wildcat repays previously borrowed amount. Liability Financing
5. Wildcat purchases land. Asset Investing
Solutions For Exercises Set B, Chapter 1 1-1

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Exercise 1-4
Requirement 1
Revenues − Expenses = Net Income
$21,000 − $9,000 = $12,000

Requirement 2
Stockholders’
Assets = Liabilities + equity
$70,000 = $25,000 + $X
$70,000 − $25,000 = $45,000

Exercise 1-5
Requirement 1
Revenues − Expenses = Net Loss
$27,000 − $45,000 = −$18,000

Requirement 2
Stockholders’
Assets = Liabilities + equity
$50,000 = $30,000 + $X
$50,000 − $30,000 = $20,000

Solutions For Exercises Set B, Chapter 1 1-2

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-6
Cowboy Law Firm
Income Statement
Service revenue $12,700
Expenses:
Salaries $2,500
Utilities 1,600
Total expenses 4,100
Net income $ 8,600

Exercise 1-7
Buffalo Drilling
Statement of Stockholders’ Equity
Total
Common Retained Stockholders’
Stock Earnings Equity

Beginning balance $ 8,700 $ 7,900 $16,600

Issuance of common stock 9,400 9,400
Add: Net income 8,600 8,600
Less: Dividends (1,900) (1,900)
Ending balance $18,100 $14,600 $32,700

Solutions For Exercises Set B, Chapter 1 1-3

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-8
Wolfpack Construction
Balance Sheet
Assets Liabilities
Cash $ 7,500 Accounts payable $ 4,200
Land 16,800 Notes payable 12,200
Equipment 18,200 Total liabilities 16,400

Stockholders’ Equity
Common stock 12,700
Retained earnings 13,400 *
Total stockholders’ equity 26,100
Total liabilities and
Total assets $42,500 stockholders’ equity $42,500

* Assets = Liabilities + Stockholders’ equity

$42,500 = $16,400 + ($12,700 + Retained earnings)
$42,500 − $16,400 − $12,700 = Retained earnings
$13,400 = Retained earnings

Solutions For Exercises Set B, Chapter 1 1-4

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-9
Requirement 1
Beginning balance $ 5,100
Cash received from sale of products to customers 27,300
Cash received from the bank for long-term loan 36,900
Cash paid to purchase factory equipment (40,200)
Cash paid to merchandise suppliers (12,500)
Cash received from the sale of an unused warehouse 15,700
Cash paid to workers (25,400)
Cash paid for advertisement (2,200)
Cash received for sale of services to customers 21,900
Cash paid for dividends to stockholders (4,800)
Ending balance $21,800

Requirement 2
Tiger Trade
Statement of Cash Flows
Cash Flows from Operating Activities
Cash inflows:
From sale of products to customers $27,300
From sale of services to customers 21,900
Cash outflows:
For merchandise suppliers (12,500)
For workers (25,400)
For advertisement (2,200)
Net cash flows from operating activities $ 9,100
Cash Flows from Investing Activities
Purchase factory equipment (40,200)
Sale of warehouse 15,700
Net cash flows from investing activities (24,500)
Cash Flows from Financing Activities
Borrow from bank 36,900
Pay dividends (4,800)
Net cash flows from financing activities 32,100
Net increase in cash 16,700
Cash at the beginning of the year 5,100
Cash at the end of the year $21,800

Solutions For Exercises Set B, Chapter 1 1-5

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-10 (LO 1-3)

Requirement 1
Fighting Okra Cooking Services
Income Statement
Service revenue $76,000
Expenses:
Salaries $22,000
Supplies 15,500
Rent 11,600
Legal fees 2,700
Postage 1,800
Total expenses 53,600
Net income $22,400

Requirement 2
Fighting Okra Cooking Services
Statement of Stockholders’ Equity
Total
Common Retained Stockholders’
Stock Earnings Equity

Beginning balance $300,000 $28,000 $328,000

Issuance of common stock 30,000 30,000
Add: Net income 22,400 22,400
Less: Dividends (15,000) (15,000)
Ending balance $330,000 $35,400 $365,400

Solutions For Exercises Set B, Chapter 1 1-6

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-11 (LO 1-3)

Requirement 1
Artichoke Academy
Statement of Stockholders’ Equity
For the period ended December 31, 2018
Total
Common Retained Stockholders’
Stock Earnings Equity

Beginning balance $160,000 $40,000 $200,000

Issuance of common stock 30,000 30,000
Add: Net income 25,000 25,000
Less: Dividends (12,000) (12,000)
Ending balance $190,000 $53,000 $243,000

Requirement 2
Artichoke Academy
Balance Sheet
December 31, 2018
Assets Liabilities
Cash $23,600 Accounts payable $ 8,100
Supplies 13,000 Utilities payable 2,600
Prepaid rent 25,000 Salaries payable 3,900
Land 210,000 Notes payable 14,000
Total liabilities 28,600

Stockholders’ Equity
Common stock 190,000
Retained earnings 53,000
Total stockholders’ equity 243,000
Total liabilities and
Total assets $271,600 stockholders’ equity $271,600

Solutions For Exercises Set B, Chapter 1 1-7

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-12 (LO 1-3)

Requirement 1
Squirrel Tree Services
Balance Sheet
Assets Liabilities
Cash $ 8,700 Accounts payable $ 9,600
Supplies 1,700 Salaries payable 4,500
Prepaid insurance 3,200 Notes payable 22,700
Building 75,000 Total liabilities 36,800

Stockholders’ Equity
Common stock 41,000
Retained earnings 10,800
Total stockholders’ equity 51,800
Total liabilities and
Total assets $88,600 stockholders’ equity $88,600

Requirement 2
Squirrel Tree Services
Statement of Cash Flows
Cash Flows from Operating Activities
Cash inflows from customers $ 58,000
Cash outflows for salaries (20,000)
Cash outflows for supplies (6,000)
Net cash flows from operating activities $32,000
Cash Flows from Investing Activities
Sale investments 11,000
Purchase building (63,000)
Net cash flows from investing activities (52,000)
Cash Flows from Financing Activities
Borrow from bank 22,000
Pay dividends (7,500)
Net cash flows from financing activities 14,500
Net increase in cash (5,500)
Cash at the beginning of the year* 14,200
Cash at the end of the year $ 8,700
* Plug number in order to calculate correct ending balance
Solutions For Exercises Set B, Chapter 1 1-8

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-13
1. Revenues − Expenses = Net Income
$31,500 − $19,600 = $11,900

Change in
Issue common Net
2. stockholders’ = + − Dividends
stock Income
equity
$20,400 = $12,000 + $14,300 − $X
$20,400 − $12,000 − $14,300 = $5,900

Stockholders’
3. Assets = Liabilities +
equity
$27,200 = $X + $15,200
$27,200 = $12,000 + $15,200

Total change Operating Investing Financing

4. = + +
in cash cash flows cash flows cash flows
$11,000 = $25,000 + ($22,000) + $X
$11,000 − $25,000 − ($22,000) = $8,000

Exercise 1-14
Net Retained
Year Income Dividends Earnings*
1 $2,100 $ 700 $ 1,400
2 2,800 1,000 3,200
3 3,200 1,200 5,200
4 3,900 1,400 7,700
5 4,800 1,600 10,900

* Retained earnings = beginning retained earnings + net income − dividends

Solutions For Exercises Set B, Chapter 1 1-9

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-15
($ in billions)
Change in
retained = Net Income − Dividends
earnings

Change in
1. retained = Net Income − Dividends
earnings
$2.7 = $5.1 − $X
$2.7 = $5.1 − $2.4

Change in
2. retained = Net Income − Dividends
earnings
$2.1 = $X − $1.6
$2.1 = $3.7 − $1.6

Change in
3. retained = Net Income − Dividends
earnings
$1.2 = $1.9 − $X
$1.2 = $1.9 − $0.7

Change in = Net − Dividends

4. retained Income
earnings
[$X − (−$2.1)] = −$1.0 − $0
$X = −$3.1

Change in = Net − Dividends

5. retained Income
earnings
[$1.6 − $X] = $0.5 − $0.1
$X = $1.2
Solutions For Exercises Set B, Chapter 1 1-10

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-16
($ in billions)
Stockholders
Assets = Liabilities +
’ equity

Stockholders’
1. Assets = Liabilities +
equity
$197 = $68 + $X
$197 = $68 + $129

Stockholders’
2. Assets = Liabilities +
equity
$X = $1,200 + $1,500
$2,700 = $1,200 + $1,500

Stockholders’
3. Assets = Liabilities +
equity
$9.9 = $X + $5.4
$9.9 = $4.5 + $5.4

Change in
Change in Change in
4. = + stockholders’
Assets liabilities
equity
$12.3 = $4.8 + $X
$12.3 = $4.8 + $7.5

Change in
Change in Change in
5. = + stockholders’
Assets liabilities
equity
$X = ($0.95) + $0.32
($0.63) = ($0.95) + $0.32

Solutions For Exercises Set B, Chapter 1 1-11

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-17
($ in billions)
Total change Operating Investing Financing
= + +
in cash cash flows cash flows cash flows

Total change Operating Investing Financing

1. = + +
in cash cash flows cash flows cash flows
$0 = $2.2 + $1.1 + ($3.3)

Total change Operating Investing Financing

2. = + +
in cash cash flows cash flows cash flows
($X − $0.6) = $5.6 + ($2.3) + ($1.7)
$X = $2.2

Total change Operating Investing Financing

3. = + +
in cash cash flows cash flows cash flows
$0.45 = $0.32 + $0.18 + ($0.05)

Total change Operating Investing Financing

4. = + +
in cash cash flows cash flows cash flows
$0.20 = $0.44 + ($0.91) + $0.67

Total change Operating Investing Financing

5. = + +
in cash cash flows cash flows cash flows
$0.54 = $0.30 + ($0.32) + $0.56

Solutions For Exercises Set B, Chapter 1 1-12

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Alaa Aliasrei ‫فيس‬ @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Exercise 1-18 (LO 1-5)

1. d.
2. a.
3. e.
4. g.
5. f.
6. b.
7. c.

Exercise 1-19
1. h. Verifiability
2. d. Completeness
3. j. Understandability
4. c. Materiality
5. e. Neutrality
6. a. Confirmatory value
7. f. Free from material error
8. g. Comparability
9. b. Predictive value
10. i. Timeliness

Exercise 1-20
1. b.
2. a.
3. d.
4. c.

Solutions For Exercises Set B, Chapter 1 1-13

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.