chapter 1 solution
Chapter 1
The Financial Statements
Short Exercises
(5 min.) S 1-1
Computed amounts in boxes
Total Assets
=
Total Liabilities
+
Stockholders’ Equity
a.
$300,000
=
$150,000
+
$150,000
b. 280,000
=
110,000
+
170,000
c.
210,000
= 50,000
+
160,000
(5 min.) S 1-2
Ethics is a factor that should be included in every business and accounting decision, beyond the potential economic and legal consequences. Ideally, for each decision, honesty and truthfulness should prevail, considering the rights of others. The decision guidelines at the end of the chapter spell out the considerations we should take when making decisions. Simply, we might ask ourselves three questions: (1) Is the action legal? (2) Who will be affected by the decision? (3) How will the decision make me feel afterward?
(10 min.) S 1-3
a. Corporation, Limited-liability partnership (LLP) and Limited-liability company (LLC). If any of these businesses fails and cannot pay its liabilities, creditors cannot force the owners to pay the business’s debts from the owners’ personal assets.
b. Proprietorship. There is a single owner of the business, so the owner is answerable to no other owner.
c. Partnership. If the partnership fails and cannot pay its liabilities, creditors can force the partners to pay the business’s debts from their personal assets. A partnership affords more protection for creditors than a proprietorship because there are two or more owners to share this liability.
(5 min.) S 1-4
1. The entity assumption applies.
2. Application of the entity assumption will separate Newberry’s personal assets from the assets of Healthy Food Brands. This will help Newberry, investors, and lenders know how much assets, liabilities, and equity the business has, and this knowledge will help all parties evaluate the business realistically. (5-10 min.) S 1-5
a. Historical cost principle
b.
The Financial Statements
Short Exercises
(5 min.) S 1-1
Computed amounts in boxes
Total Assets
=
Total Liabilities
+
Stockholders’ Equity
a.
$300,000
=
$150,000
+
$150,000
b. 280,000
=
110,000
+
170,000
c.
210,000
= 50,000
+
160,000
(5 min.) S 1-2
Ethics is a factor that should be included in every business and accounting decision, beyond the potential economic and legal consequences. Ideally, for each decision, honesty and truthfulness should prevail, considering the rights of others. The decision guidelines at the end of the chapter spell out the considerations we should take when making decisions. Simply, we might ask ourselves three questions: (1) Is the action legal? (2) Who will be affected by the decision? (3) How will the decision make me feel afterward?
(10 min.) S 1-3
a. Corporation, Limited-liability partnership (LLP) and Limited-liability company (LLC). If any of these businesses fails and cannot pay its liabilities, creditors cannot force the owners to pay the business’s debts from the owners’ personal assets.
b. Proprietorship. There is a single owner of the business, so the owner is answerable to no other owner.
c. Partnership. If the partnership fails and cannot pay its liabilities, creditors can force the partners to pay the business’s debts from their personal assets. A partnership affords more protection for creditors than a proprietorship because there are two or more owners to share this liability.
(5 min.) S 1-4
1. The entity assumption applies.
2. Application of the entity assumption will separate Newberry’s personal assets from the assets of Healthy Food Brands. This will help Newberry, investors, and lenders know how much assets, liabilities, and equity the business has, and this knowledge will help all parties evaluate the business realistically. (5-10 min.) S 1-5
a. Historical cost principle
b.