Chapter 2 Exercises & Problems Solutions
CHAPTER 2 EXERCISES & PROBLEMS SOLUTIONS
E2.1. Category Financial Statement(s) Cash…………………………………………… A BS Accounts payable…………….……………….. L BS Common stock………………………………… OE BS Depreciation expense………………………….. E IS Net sales……………………………………….. R IS Income tax expense……………………………. E IS Short term investments………………………... A BS Gain on sale of land……………………………. G IS Retained earnings……………………………… OE BS Dividends payable…………………………….. L BS Accounts receivable…………………………… A BS Short term debt………………………………… L BS
E2.2. Category Financial Statement(s) Accumulated depreciation……………………... A BS Long term debt………………………………… L BS Equipment……………………………………… A BS Loss on sale of short term investments………... LS IS Net income……………………………………… OE IS Merchandise inventory………………………… A BS Other accrued liabilities………………………… L BS Dividends paid…………………………………. OE Neither* Cost of goods sold……………………………… E IS Additional paid in capital………………………. OE BS Interest income…………………………………. R IS Selling expenses……………………………….. E IS
* Trick question! “Dividends paid” appears only on the Statement of Changes in Owners’ Equity. Dividends paid are distributions of earnings that reduce retained earnings on the balance sheet. Dividends paid are not expenses, and do not appear on the income statement.
E2.3. Use the accounting equation to solve for the missing information Firm A: A = L + PIC + ( Beg. RE + NI - DIV = End. RE) $420,000 = $215,000 + $75,000 + ( $78,000 + ? - $50,000 = ? ) In this case, the ending balance of retained earnings must be determined first:
$420,000 = $215,000 + $75,000 + End. RE.
Retained earnings, 12/31/10 = $130,000 Once the ending balance of retained earnings is known, net income can be determined:
$78,000 +
E2.1. Category Financial Statement(s) Cash…………………………………………… A BS Accounts payable…………….……………….. L BS Common stock………………………………… OE BS Depreciation expense………………………….. E IS Net sales……………………………………….. R IS Income tax expense……………………………. E IS Short term investments………………………... A BS Gain on sale of land……………………………. G IS Retained earnings……………………………… OE BS Dividends payable…………………………….. L BS Accounts receivable…………………………… A BS Short term debt………………………………… L BS
E2.2. Category Financial Statement(s) Accumulated depreciation……………………... A BS Long term debt………………………………… L BS Equipment……………………………………… A BS Loss on sale of short term investments………... LS IS Net income……………………………………… OE IS Merchandise inventory………………………… A BS Other accrued liabilities………………………… L BS Dividends paid…………………………………. OE Neither* Cost of goods sold……………………………… E IS Additional paid in capital………………………. OE BS Interest income…………………………………. R IS Selling expenses……………………………….. E IS
* Trick question! “Dividends paid” appears only on the Statement of Changes in Owners’ Equity. Dividends paid are distributions of earnings that reduce retained earnings on the balance sheet. Dividends paid are not expenses, and do not appear on the income statement.
E2.3. Use the accounting equation to solve for the missing information Firm A: A = L + PIC + ( Beg. RE + NI - DIV = End. RE) $420,000 = $215,000 + $75,000 + ( $78,000 + ? - $50,000 = ? ) In this case, the ending balance of retained earnings must be determined first:
$420,000 = $215,000 + $75,000 + End. RE.
Retained earnings, 12/31/10 = $130,000 Once the ending balance of retained earnings is known, net income can be determined:
$78,000 +