Exercise 1-24
Business Activities
Bill and Steve recently formed a company that manufactures and sells high-end kitchen appliances. The following is a list of activities that occurred during the year.
Classify each of the business activities listed as either an operating activity (O), an investing activity (I), or a.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do” title=”Click to Continue > by I Want This”>financingactivity (F).
a. Bill and Steve each contributed cash in exchange for common stock in the company.
b. Land and a building to be used as a factory to make the appliances were purchased for cash.
c. Machines used to make the appliances were purchased for cash.
d. Various materials used in the production of the appliances were purchased for cash.
e. Three employees were.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do” title=”Click to Continue > by I Want This”>paid cashto operate the machines and make the appliances.
f. Running low on money, the company borrowed money from a local bank.
g. The money from the.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do” title=”Click to Continue > by I Want This”>bank loanwas used to buy advertising on local radio and television stations.
h. The company sold the appliances to local homeowners for cash.
i. Due to extremely high popularity of its products, Bill and Steve built another factory building on its land for cash.
j. The company paid a cash dividend to Bill and Steve.
Exercise 1-25
Accounting Concepts
A list of accounting concepts and related definitions is presented below.
Match each of the concepts with its corresponding definition.
Revenue
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Owners claim on the resources of a company
Expense
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The difference between revenues and expenses
Net income (loss)
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Increase in assets from the sale of goods or services
Dividend
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Economic resources of a company
Asset
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Cost of assets consumed in the operation of a business
Liability
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Creditors’ claims on the resources of a company
Stockholders equity
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Distribution of earnings to stockholders
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Exercise 1-26 (Algorithmic)
The Fundamental Accounting Equation
Financial information for three independent cases is given below.
Compute the missing numbers in each case.
Assets
Liabilities
Equity
1.
$112,200
$
$51,400
2.
277,000
162,500
$
3.
$
15,000
43,200
Exercise 1-28 (Algorithmic)
Identifying Current Assets and Liabilities
Dunn Sporting Goods sells athletic clothing and footwear to retail customers. Dunn’s accountant indicates that the firm’s operating cycle averages six months. At December 31, 2011, Dunn has the following assets and liabilities:
a. .cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do” title=”Click to Continue > by I Want This”>Prepaidrent in the amount of $8,500. Dunn’s rent is $500 per month.
b. A $10,400 account payable due in 45 days.
c. Inventory in the amount of $47,290. Dunn expects to sell $38,000 of the inventory within three months. The remainder will be placed in storage until September 2012. The items placed in storage should be sold by November 2012.
d. An.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do” title=”Click to Continue > by I Want This”>investmentin marketable securities in the amount of $1,900. Dunn expects to sell $700 of the marketable securities in six months. The remainder are not expected to be sold until 2014.
e. Cash in the amount of $1,020.
f. An equipment.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do” title=”Click to Continue > by I Want This”>loanin the amount of $60,000 due in March 2016. Interest of $4,500 is due in March 2012 ($3,750 of the interest relates to 2011, with the remainder relating to the ?rst three months of 2012).
g. An account receivable from a local university in the amount of $2,850. The university has promised to pay the full amount in three months.
h. Store equipment at a cost of $9,200. Accumulated depreciation has been recorded on the store equipment in the amount of $1,250.
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1. Prepare the current asset and current liability portions of Dunn’s December 31, 2011, balance sheet.
Dunn Sporting Goods
Partial Balance Sheet
December 31, 2011
Current assets:
$
Total current assets
$
Current liabilities:
$
Total current liabilities
$
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2. Compute Dunn’s working capital and current ratio at December 31, 2011. Round current ratio answer to two decimal places.
Working Capital
$
Current Ratio
3. What do these ratios tell us about Dunn’s liquidity?
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
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Exercise 1-31 (Algorithmic)
Stockholders’ Equity
On January 1, 2011, Mulcahy Manufacturing Inc., a newly formed corporation, issued 1,000 shares of common stock in exchange for $135,000 cash. No other shares were issued during 2011, and no shares were repurchased by the corporation. On November 1, 2011, the corporation’s major stockholder sold 300 shares to another stockholder for $43,800. The corporation reported net income of $28,400 for 2011.
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Prepare the stockholders’ equity section of Mulcahy’s balance sheet at December 31, 2011.
Mulcahy Manufacturing Inc.
Partial Balance Sheet
December 31, 2011
Stockholders’ equity:
$
Total stockholders’ equity
$
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