Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 23 CHAPTER 3 3 Chapter Opener: Answers will vary, but students should recognize that a sale would have been Thinking Critically recorded as revenue from goods or services sold on a T account. The sale would be entered on the left (increase) side of an asset account. Fast Facts ❏ Approximately 70% of sales are derived from products/businesses that have a #1 or #2 global market share position ❏ As portions of the company grew they were characteristically divided and eventually spun off into separate subsidiaries. Ortho, which began with one birth control product in the 1930s, became the Ortho Pharmaceutical Corporation. ❏ Johnson & Johnson is consistently recognized for having the best corporate reputation in America. ❏ The company is consistently recognized as a top company to work for, and has received numerous awards from minority organizations. ❏ Johnson & Johnson’s medical device companies develop, market and, sell more medical devices than any other company in the world. Managerial Answers will vary but could include the following: Implications: Thinking Critically ❏ Cash is overstated and checks bounce. ❏ The credit rating of the business is affected. ❏ The business loses customers because payments on account are not recorded properly. Discussion These questions are designed to check students’ understanding of the Questions new terms, concepts, and procedures presented in the chapter. 1. Debit: entry on the left side of an account. Credit: entry on the right side of an account. 2. Each transaction produces at least two effects. 3. Payment of rent in advance affords the right to occupy the facility the number of months covered by the payment. 4. Permanent account balances are carried forward to start a new accounting period. Temporary account balances are transferred to a summary account at the end of the period and are zero at the start of a new accounting period. 5. Additional accounts can be added when needed. 6. Order in which they appear on financial statements. Balance sheet accounts listed first, followed by income statement accounts. 7. To provide a classified list of the names and numbers of a firm’s accounts. 8. Adding the figures on both sides of the account and subtracting the smaller total from the larger total. 9. Written records for all assets, liabilities, and owner’s equity of a business. 10. a. debit b. credit c. credit d. credit e. debit 11. a, b, h, i, k: temporary c, d, e, f, g, j, l: permanent Analyzing Business Transactions Using T Accounts pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 23
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 23
C H A P T E R 33Chapter Opener: Answers will vary, but students should recognize that a sale would have beenThinking Critically recorded as revenue from goods or services sold on a T account. The sale would
be entered on the left (increase) side of an asset account.
Fast Facts ❏ Approximately 70% of sales are derived from products/businesses thathave a #1 or #2 global market share position
❏ As portions of the company grew they were characteristically divided andeventually spun off into separate subsidiaries. Ortho, which began withone birth control product in the 1930s, became the Ortho PharmaceuticalCorporation.
❏ Johnson & Johnson is consistently recognized for having the bestcorporate reputation in America.
❏ The company is consistently recognized as a top company to work for,and has received numerous awards from minority organizations.
❏ Johnson & Johnson’s medical device companies develop, market and, sellmore medical devices than any other company in the world.
Managerial Answers will vary but could include the following:Implications: Thinking Critically ❏ Cash is overstated and checks bounce.
❏ The credit rating of the business is affected.❏ The business loses customers because payments on account are not
recorded properly.
Discussion These questions are designed to check students’ understanding of theQuestions new terms, concepts, and procedures presented in the chapter.
1. Debit: entry on the left side of an account. Credit: entry on the right side ofan account.
2. Each transaction produces at least two effects.3. Payment of rent in advance affords the right to occupy the facility the
number of months covered by the payment.4. Permanent account balances are carried forward to start a new accounting
period. Temporary account balances are transferred to a summary account atthe end of the period and are zero at the start of a new accounting period.
5. Additional accounts can be added when needed.6. Order in which they appear on financial statements. Balance sheet
accounts listed first, followed by income statement accounts.7. To provide a classified list of the names and numbers of a firm’s accounts.8. Adding the figures on both sides of the account and subtracting the smaller
total from the larger total.9. Written records for all assets, liabilities, and owner’s equity of a business.
10. a. debit b. credit c. credit d. credit e. debit11. a, b, h, i, k: temporary
c, d, e, f, g, j, l: permanent
Analyzing BusinessTransactions Using T Accounts
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 23
24 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 3.1
EXERCISE 3.2
EXERCISE 3.3
Cash
(1) 40,000 (2) 10,000
(3) 4,000 (4) 1,400
(5) 1,000
Fees Income
(3) 4,000
Supplies
(5) 1,000
Cash
16,000
Accounts Payable
12,000
Equipment
(2) 10,000
Advertising Expense
(4) 1,400
Lisa Morgan, Capital
(1) 40,000
Equipment
32,000
Fred Thompson, Capital
36,000
1. Credit
2. Debit
3. Credit
4. Credit
5. Debit
6. Debit
7. Debit
8. Debit
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 24
EXERCISE 3.4
1. Credit, Credit, Debit
2. Credit, Credit, Debit
3. Debit, Debit, Credit
4. Debit, Debit, Credit
5. Credit, Credit, Debit
EXERCISE 3.5
EXERCISE 3.6
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 25
Cash, $127,400 Dr.
Accounts Receivable, $6,000 Dr.
Supplies, $40,000, Dr.
Equipment, $60,000, Dr.
Accounts Payable, $60,000, Cr.
Susan Willis, Capital $160,000 Cr.
Fees Income, $28,000 Cr.
Telephone Expense, $600, Dr.
Salaries Expense, $10,000, Dr.
Susan Willis, Drawing, $4,000, Dr.
TIMELESS RESTORATIONS
Trial Balance
December 31, 2010
Cash 127 4 0 0 00
Accounts Receivable 6 0 0 0 00
Supplies 40 0 0 0 00
Equipment 60 0 0 0 00
Accounts Payable 60 0 0 0 00
Susan Willis, Capital 160 0 0 0 00
Susan Willis, Drawing 4 0 0 0 00
Fees Income 28 0 0 0 00
Salaries Expense 10 0 0 0 00
Telephone Expense 6 0 0 00
Totals 248 0 0 0 00 248 0 0 0 00
ACCOUNT NAME DEBIT CREDIT
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 25
26 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 3.6 (continued)
EXERCISE 3.7
TIMELESS RESTORATIONS
Income Statement
Month Ended December 31, 2010
Revenue
Fees Income 28 0 0 0 00
Expenses
Salaries Expense 10 0 0 0 00
Telephone Expense 6 0 0 00
Total Expenses 10 6 0 0 00
Net Income 17 4 0 0 00
TIMELESS RESTORATIONS
Statement of Owner’s Equity
Month Ended December 31, 2010
Susan Willis, Capital, December 1, 2010 160 0 0 0 00
Net Income for December 17 4 0 0 00
Less Withdrawals for December 4 0 0 0 00
Increase in Capital 13 4 0 0 00
Susan Willis, Capital, December 31, 2010 173 4 0 0 00
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 26
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 27
EXERCISE 3.7 (continued)
EXERCISE 3.8
Zant Moving Company
Chart of Accounts
Account Number Account Name Account Number Account Name
100–199 ASSETS 300–399 OWNER’S EQUITY
101 Cash 301 Sue Zant, Capital
111 Accounts Receivable 302 Sue Zant, Drawing
121 Office Supplies 400–499 REVENUE
131 Prepaid Rent 401 Fees Income
141 Office Equipment 500–599 EXPENSES
200–299 LIABILITIES 511 Salaries Expense
202 Accounts Payable 514 Utilities Expense
517 Telephone Expense
TIMELESS RESTORATIONS
Balance Sheet
December 31, 2010
Assets Liabilities
Cash 127 4 0 0 00 Accounts Payable 60 0 0 0 00
Accounts Receivable 6 0 0 0 00
Supplies 40 0 0 0 00 Owner’s Equity
Equipment 60 0 0 0 00 Susan Willis, Capital 173 4 0 0 00
Total Assets 233 4 0 0 00 Total Liabilities & Owner’s Equity 233 4 0 0 00
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 27
28 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 3.1A
1.
2.
3.
4.
5.
6.
7.
8.
Analyze: All transactions affected asset accounts.
PROBLEM 3.2A
1.
2.
3.
4.
5.
6.
7.
8.
Analyze: Transactions 1 and 6 directly affect the owner’s equity account.
Cash
� 60,000
Greta Davis, Capital
� 60,000
Office Furniture
� 16,000
Cash
� 16,000
Office Equipment
� 950
Accounts Payable
� 950
Automobile
� 16,000
Cash
� 16,000
Cash
� 10,000
Greta Davis, Capital
� 10,000
Office Equipment
� 3,000
Accounts Payable
� 3,000
Accounts Payable
� 950
Cash
� 950
Greta Davis, Drawing
� 4,000
Cash
� 4,000
Cash
� 8,000
James Mitchell, Capital
� 8,000
Equipment
� 7,000
Cash
� 7,000
Cash
� 600
Equipment
� 600
Office Equipment
� 1,350
Accounts Payable
� 1,350
Office Equipment
� 5,100
Accounts Payable
� 5,100
Mesia Davis, Drawing
� 2,000
Cash
� 2,000
Delivery Truck
� 18,000
Accounts Payable
� 18,000
Accounts Payable
� 1,100
Cash
� 1,100
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 28
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 29
PROBLEM 3.3A
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Office Supplies
� 2,000
Cash
� 2,000
Cash
� 21,000
Fees Income
� 21,000
Rent Expense
� 4,000
Cash
� 4,000
Accounts Receivable
� 3,000
Fees Income
� 3,000
Cash
� 1,000
Accounts Receivable
� 1,000
Salary Expense
� 3,600
Cash
� 3,600
Telephone Expense
� 480
Cash
� 480
Accounts Receivable
� 2,000
Fees Income
� 2,000
Office Supplies
� 1,000
Accounts Payable
� 1,000
Salary Expense
� 3,600
Cash
� 3,600
Cash
� 2,000
Accounts Receivable
� 2,000
Cash
� 8,100
Fees Income
� 8,100
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 29
30 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 3.4A
Cash
(a) � 150,000 (b) � 5,000
(d) � 7,200 (c) � 15,720
(h) � 6,500 (e) � 1,150
(m) � 13,500 (g) � 12,000
(o) � 7,000 (i) � 3,000
(k) � 15,000
(l) � 8,400
(p) � 2,400
(q) � 600
(r) � 1,120
Bal. 111,810 (s) � 8,000
Accounts Receivable
(f) � 13,000 (h) � 6,500
(n) � 15,000 (o) � 7,000
Bal. 14,500
Office Equipment
(g) � 36,000
(k) � 30,000
Bal. 66,000
Accounts Payable
(p) � 2,400 (g) � 24,000
(j) � 4,800
(k) � 15,000
Bal. 41,400
Office Furniture
(c) � 15,720
(j) � 4,800
Bal. 20,520
John Wilson, Capital
(a) � 150,000
Fees Income
(d) � 7,200
(f) � 13,000
(m) � 13,500
(n) � 15,000
Bal. 48,700
John Wilson, Drawing
(s) � 8,000
Utilities Expense
(r) � 1,120
Telephone Expense
(e) � 1,150
Salaries Expense
(I) � 8,400
Office Cleaning Expense
(i) � 3,000
Copy Expense
(q) � 600
Rent Expense
(b) � 5,000
Analyze: The company owes $41,400 (accounts payable).
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 30
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 31
PROBLEM 3.5A
John Wilson, Landscape Consultant
Income Statement
Month Ended June 30, 2010
Revenue
Fees Income 48 7 0 0 00
Expenses
Copy Expense 6 0 0 00
Office Cleaning Expense 3 0 0 0 00
Rent Expense 5 0 0 0 00
Salaries Expense 8 4 0 0 00
Telephone Expense 1 1 5 0 00
Utilities Expense 1 1 2 0 00
Total Expenses 19 2 7 0 00
Net Income 29 4 3 0 00
John Wilson, Landscape Consultant
Trial Balance
June 30, 2010
Cash 111 8 1 0 00
Accounts Receivable 14 5 0 0 00
Office Equipment 66 0 0 0 00
Office Furniture 20 5 2 0 00
Accounts Payable 41 4 0 0 00
John Wilson, Capital 150 0 0 0 00
John Wilson, Drawing 8 0 0 0 00
Fees Income 48 7 0 0 00
Copy Expense 6 0 0 00
Office Cleaning Expense 3 0 0 0 00
Rent Expense 5 0 0 0 00
Salaries Expense 8 4 0 0 00
Telephone Expense 1 1 5 0 00
Utilities Expense 1 1 2 0 00
Total 240 1 0 0 00 240 1 0 0 00
ACCOUNT NAME DEBIT CREDIT
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 31
32 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 3.5A (continued)
John Wilson, Landscape Consultant
Statement of Owner’s Equity
Month Ended June 30, 2010
John Wilson, Capital, June 1, 2010 150 0 0 0 00
Net Income for June 29 4 3 0 00
Less Withdrawals for June 8 0 0 0 00
Increase in Capital 21 4 3 0 00
John Wilson, Capital, June 30, 2010 171 4 3 0 00
John Wilson, Landscape Consultant
Balance Sheet
June 30, 2010
Assets Liabilities
Cash 111 8 1 0 00 Accounts Payable 41 4 0 0 00
Accounts Receivable 14 5 0 0 00
Office Equipment 66 0 0 0 00 Owner’s Equity
Office Furniture 20 5 2 0 00 John Wilson, Capital 171 4 3 0 00
Total Assets 212 8 3 0 00 Total Liabilities and Owner’s Equity 212 8 3 0 00
Analyze: The net increase in owner’s equity during the month of June was $21,430.
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 32
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 33
PROBLEM 3.1B
1.
2.
3.
4.
5.
6.
7.
8.
Analyze: The transactions that affect the cash account are transactions 1, 2, 4, 7, and 8.
PROBLEM 3.2B
1.
2.
3.
4.
5.
6.
7.
8.
Analyze: The transactions that affect the liability accounts are transactions 5, 6, and 8.
Cash
� 20,000
Joseph Tejan, Capital
� 20,000
Shop Equipment
� 1,800
Cash
� 1,800
Store Equipment
� 1,200
Accounts Payable
� 1,200
Truck
� 10,000
Cash
� 10,000
Shop Equipment
� 3,000
Joseph Tejan, Capital
� 3,000
Store Equipment
� 2,500
Accounts Payable
� 2,500
Accounts Payable
� 400
Cash
� 400
Joseph Tejan, Drawing
� 1,600
Cash
� 1,600
Equipment
� 16,000
Cash
� 16,000
Angie Carvajal, Drawing
� 4,000
Cash
� 4,000
Cash
� 3,000
Equipment
� 3,000
Delivery Truck
� 12,000
Cash
� 12,000
Accounts Payable
� 3,600
Cash
� 3,600
Office Equipment
� 5,000
Accounts Payable
� 5,000
Cash
� 20,000
Chuck Vinson, Capital
� 20,000
Accounts Payable
� 1,500
Cash
� 1,500
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 33
34 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 3.3B
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Analyze: The total cash collected on accounts receivable during the month was $5,600.
Rent Expense
� 3,200
Cash
� 3,200
Cash
� 4,000
Fees Income
� 4,000
Salary Expense
� 4,800
Cash
� 4,800
Accounts Receivable
� 7,200
Fees Income
� 7,200
Telephone Expense
� 600
Cash
� 600
Cash
� 2,000
Accounts Receivable
� 2,000
Cash
� 120
Telephone Expense
� 120
Accounts Receivable
� 4,800
Fees Income
� 4,800
Utilities Expense
� 400
Cash
� 400
Gasoline Expense
� 880
Cash
� 880
Cash
� 3,600
Accounts Receivable
� 3,600
Cash
� 7,200
Fees Income
� 7,200
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 34
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 35
PROBLEM 3.4B
Cash
(a) � 120,000 (b) � 6,400
(d) � 8,000 (c) � 36,000
(h) � 4,500 (e) � 1,600
(m) � 4,750 (i) � 3,600
(p) � 3,800 (j) � 1,300
(k) � 9,800
(l) � 13,700
(o) � 796
(r) � 800
Bal. 61,054 (s) � 6,000
Accounts Receivable
(f) � 9,150 (h) � 4,500
(n) � 5,500 (p) � 3,800
Bal. 6,350
Office Furniture
(g) � 5,600
Office Equipment
(k) � 19,600
(q) � 5,440
Bal. 25,040
Accounts Payable
(i) � 3,600 (g) � 5,600
(k) � 9,800
(q) � 5,440
Bal. 17,240
Automobile
(c) � 36,000
Kathryn Price, Capital
(a) � 120,000
Fees Income
(d) � 8,000
(f) � 9,150
(m) � 4,750
(n) � 5,500
Bal. 27,400
Kathryn Price, Drawing
(s) � 6,000
Auto Expense
(e) � 1,600
(r) � 800
Bal. 2,400
Salaries Expense
(l) � 13,700
Utilities Expense
(j) � 1,300
Telephone Expense
(o) � 796
Rent Expense
(b) � 6,400
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 35
36 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 3.5B
Kathryn Price, Counselor and Attorney-At-Law
Income Statement
Month Ended April 30, 2010
Revenue
Fees Income 27 4 0 0 00
Expenses
Auto Expense 2 4 0 0 00
Rent Expense 6 4 0 0 00
Salaries Expense 13 7 0 0 00
Utilities Expense 1 3 0 0 00
Telephone Expense 7 9 6 00
Total Expenses 24 5 9 6 00
Net Income 2 8 0 4 00
Kathryn Price, Counselor and Attorney-At-Law
Trial Balance
April 30, 2010
Cash 61 0 5 4 00
Accounts Receivable 6 3 5 0 00
Automobile 36 0 0 0 00
Office Equipment 25 0 4 0 00
Office Furniture 5 6 0 0 00
Accounts Payable 17 2 4 0 00
Kathryn Price, Capital 120 0 0 0 00
Kathryn Price, Drawing 6 0 0 0 00
Fees Income 27 4 0 0 00
Auto Expense 2 4 0 0 00
Rent Expense 6 4 0 0 00
Salaries Expense 13 7 0 0 00
Utilities Expense 1 3 0 0 00
Telephone Expense 7 9 6 00
Total 164 6 4 0 00 164 6 4 0 00
ACCOUNT NAME DEBIT CREDIT
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 36
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 37
PROBLEM 3.5B (continued)
Kathryn Price, Counselor and Attorney-At-Law
Statement of Owner’s Equity
Month Ended April 30, 2010
Kathryn Price, Capital, April 1, 2010 120 0 0 0 00
Net Income for April 2 8 0 4 00
Less Withdrawals for April 6 0 0 0 00
Decrease in Capital (3 1 9 6 00)
Kathryn Price, Capital, April 30, 2010 116 8 0 4 00
Kathryn Price, Counselor and Attorney-At-Law
Balance Sheet
April 30, 2010
Assets Liabilities
Cash 61 0 5 4 00 Accounts Payable 17 2 4 0 00
Accounts Receivable 6 3 5 0 00
Automobile 36 0 0 0 00
Office Equipment 25 0 4 0 00 Owner’s Equity
Office Furniture 5 6 0 0 00 Kathryn Price, Capital 116 8 0 4 00
Total Assets 134 0 4 4 00 Total Liabilities and Owner’s Equity 134 0 4 4 00
Analyze: $3,196 decrease.
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 37
38 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 3.1
Accounts Receivable
(f) � 1,305 (i) � 1,080
(o) � 2,100 (p) � 600
Bal. 1,725
Cash
(a) � 15,000 (b) � 1,000
(d) � 2,100 (c) � 2,000
(i) � 1,080 (e) � 187.50
(m) � 1,400 (g) � 87.50
(p) � 600 (h) � 325
(k) � 2,000
(l) � 270
(n) � 280
(q) � 1,750
Bal. 11,980 (r) � 300
Office Furniture
(c) � 2,000
(j) � 540
Bal. 2,540
Accounts Payable
(l) � 270 (g) � 200
(j) � 540
Bal. 470
Office Equipment
(g) � 287.50
Helen Franz, Capital
(a) � 15,000
Fees Income
(d) � 2,100
(f) � 1,305
(m) � 1,400
(o) � 2,100
Bal. 6,905
Helen Franz, Drawing
(q) � 1,750
Advertising Expense
(b) � 1,000
Salaries Expense
(k) � 2,000
Utilities Expense
(n) � 280
Telephone Expense
(e) � 187.50
Miscellaneous Expense
(h) � 325
(r) � 300
Bal. 625
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 38
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 39
CRITICAL THINKING PROBLEM 3.1 (continued)
Helen Franz, Architect
Trial Balance
January 31, 2010
Cash 11 9 8 0 00
Accounts Receivable 1 7 2 5 00
Office Furniture 2 5 4 0 00
Office Equipment 2 8 7 50
Accounts Payable 4 7 0 00
Helen Franz, Capital 15 0 0 0 00
Helen Franz, Drawing 1 7 5 0 00
Fees Income 6 9 0 5 00
Advertising Expense 1 0 0 0 00
Utilities Expense 2 8 0 00
Salaries Expense 2 0 0 0 00
Telephone Expense 1 8 7 50
Miscellaneous Expense 6 2 5 00
Totals 22 3 7 5 00 22 3 7 5 00
ACCOUNT NAME DEBIT CREDIT
Helen Franz, Architect
Income Statement
Month Ended January 31, 2010
Revenue
Fees Income 6 9 0 5 00
Expenses
Advertising Expense 1 0 0 0 00
Utilities Expense 2 8 0 00
Salaries Expense 2 0 0 0 00
Telephone Expense 1 8 7 50
Miscellaneous Expense 6 2 5 00
Total Expenses 4 0 9 2 50
Net Income 2 8 1 2 50
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 39
40 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 3.1 (continued)
Helen Franz, Architect
Statement of Owner’s Equity
Month Ended January 31, 2010
Helen Franz, Capital, January 1, 2010 15 0 0 0 00
Net Income for January 2 8 1 2 50
Less Withdrawals for January 1 7 5 0 00
Increase in Capital 1 0 6 2 50
Helen Franz, Capital, January 31, 2010 16 0 6 2 50
Helen Franz, Architect
Balance Sheet
January 31, 2010
Assets Liabilities
Cash 11 9 8 0 00 Accounts Payable 4 7 0 00
Accounts Receivable 1 7 2 5 00
Office Furniture 2 5 4 0 00 Owner’s Equity
Office Equipment 2 8 7 50 Helen Franz, Capital 16 0 6 2 50
Total Assets 16 5 3 2 50 Total Liabilities and Owner’s Equity 16 5 3 2 50
Analyze: Assets ($16,532.50) � Liabilities ($470) � Owner’s Equity ($16,062.50)
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 40
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 41
CRITICAL THINKING PROBLEM 3.2
Accounts Receivable
1,150
Cash
3,000 1,000
600 1,800
500 200
500
100
Bal. 500
Equipment and Tools
1,000
Ted Coe, Capital
3,000
Truck
1,800
Fees Income
600
1,150
500
Bal. 2,250
Salary Expense
500
Gasoline Expense
200
Advertising Expense
100
Elegant Lawn Care
Income Statement
Three Months Ended August 31, 2010
Revenue
Fees Income 2 2 5 0 00
Expenses
Salary Expense 5 0 0 00
Gasoline Expense 2 0 0 00
Advertising Expense 1 0 0 00
Total Expenses 8 0 0 00
Net Income 1 4 5 0 00
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 41
42 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 3.2 (continued)
Elegant Lawn Care
Balance Sheet
August 31, 2010
Assets Liabilities
Cash 5 0 0 00
Accounts Receivable 1 1 5 0 00
Equipment/Tool 1 0 0 0 00 Owner’s Equity
Truck 1 8 0 0 00 Ted Coe, Capital 4 4 5 0 00
Total Assets 4 4 5 0 00 Total Liabilities and Owner’s Equity 4 4 5 0 00
Elegant Lawn Care
Statement of Owner’s Equity
Three Months Ended August 31, 2010
Ted Coe, Capital, June 1, 2010 3 0 0 0 00
Net Income for June–August 1 4 5 0 00
Ted Coe, Capital, August 31, 2010 4 4 5 0 00
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 42
Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 ■ 43
CRITICAL THINKING PROBLEM 3.2 (continued)
Ted is better off than he would have been had he left his money in the savings account. He earned a profit of $1,450
from his Elegant Lawn Care business, compared to approximately $45.00 in interest his money would have earned
over the three summer months (assuming a bank interest rate of 6%; $3,000 � 0.06 � 3/12).
Ted needs to look beyond his current checking account balance of $500 and realize that this balance will increase
to $1,650 when he collects the $1,150 still owed to him. He also owns a truck and power mowers that he could
sell for additional cash.
Business Connections
Managerial Focus:
1. Provide summaries of
(a) revenues and expenses,
(b) assets, liabilities, and owner’s equity.
2. Review of financial records containing cash available, amounts due and dates due.
3. Reduce expenses; increase sales volume or raise prices.
4. Net income (or net loss) for the period.
Ethical Dilemma:
Do not open the account New Expenses without approval from the controller. You must identify what expenses
will be put into that account. Personal expense of the Accounts Payable clerk could be entered.
Streetwise:
1. Permanent - Current Assets, Property & Equipment, Current Liabilities, Long-Term Debt & Other Long-Term
Liabilities. Temporary – Net Sales, Cost of Sales, Selling, General & Administrative Operating Expenses,
Depreciation & Amortization and Interest & Investment Income.
2. Answer on file.
Financial Statement Analysis:
1. Financial data, operational information, plans for the future.
2. $2,575,300 billion.
3. Enterprise and Developer Solutions.
4. Yes, in fiscal year 2007, revenue increased to $3,157,881 billion compared to revenue of $2,575,300 billion in
fiscal year 2006. Net Income in fiscal year 2007 increased to $728,807 million from $505,809 million in fiscal year 2006.
5. Project Apollo, a universal client that enables rich Internet applications (RIAs) to run outside the browser
across multiple operating systems on desktop computers and other devices. Adobe Production Studio.
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 43
44 ■ Chapter 3 Copyright © 2009 The McGraw-Hill Companies, Inc. All rights reserved.
Extending the Thought:
Answers will vary. Students should recognize that all organization systems share a commonality that groups
items into classifications based on shared activities or relationships. For example, a company’s organization
chart groups reporting relationships that share a common interest or activity under one executive. Most
organizations, for example, have a director of finance and administration where managers of accounting,
budgets, human resources, payroll, and other financial-related functions report to a company chief.
Business Communication:
Students’ answers will vary, but should include the fact that the trial balance can help the accountant reveal a
variety of errors that may have been made when transactions were recorded.
Team Work:
All companies would have a cash account and accounts payable. A plumbing service would have accounts
receivable whereas a clothing store would have a credit card receivable. Both grocery store and clothing store
would have inventory. All would have wages expense except the real estate would have sales commission.
All would have office supplies expense. Depending on whether the company owned the building most would
have rent expense.
Internet Connection:
Honeywell is the most profitable. JC Penny has the most cash available. Honeywell has the most assets.
Chapter 3 Practice Test Answer Key
Part A True-False1. T2. T3. T4. T5. T6. F7. F8. F9. F
10. F11. T12. T13. T14. F15. T
Part B Matching1. a2. g3. e4. h5. c6. i7. d8. b9. f
Part C Completion1. footing2. slide3. transposition4. trial balance5. normal balance
pri30597_SM_ch03.qxd 8/2/08 5:09 AM Page 44
Related Documents
