Chapter 1 Exercises Chris Trevino

January 28, 2011

Actg. 04A

1. Braxton Corp. was organized on January 1, 2010, to operate a limousines service to and from the
airport. For each of the following business activities, indicate whether it is a financing.

1. (investing) Issued shares of stock to each of the four owners

2. (operating) Purchased two limousines.
3. (activity) Paid first month’s rent.
4. (financing) Obtained loan from local bank.
5. (operating) Received cash from customers for trip to the airport.
6. (activity) Paid driver first week’s wages.
7. (operating) Purchased 500-gallon fuel tank.

4. Ginger Enterprises began the year with total assets of $500,000 and total liabilities of $250,000. Using
this information and the accounting equation, answer each of the following independent questions.

1. What was the amount of Ginger’s owners’ equity at the beginning of the year?

Assets = Liabilities + Owners’ Equity

$500,000 = $250,000 + Owners’ Equity
$500,000 - $250,000 = $250,000 Owners’ Equity

2. If Ginger’s total assets increased by $100,000 and its total liabilities increased by $77,000 during the
year, what was the amount of Ginger’s owners’ equity at the end of the year?

Assets = Liabilities + Owners’ Equity

$600,000 = $327,000 + Owners’ Equity
$600,000 - $327,000 = 273,000 Owners’ Equity

3. If Gingers’ total liabilities increase by $33,000 and its owners’ equity decreased by $58’000 during the
year, what was the amount of its total liabilities at the end of the year?

Assets = Liabilities + Owners’ Equity

Assets = $283,000 + $192,000
Assets = $475,000

4. If Ginger’s total assets double to $1,000,000 and its owners’ equity remained the same during the
year, what was the amount of its total liabilities at the end of the year?

Assets = Liabilities + Owners’ Equity

$1,000,000 = Liabilities + $250,000
$1,000,000 - $250,000
Liabilities = $750,000
8. Classify each of the following items according to (1) whether it belongs on the income statement (IS)
Or balance sheet (BS) and (2) whether it is a revenue (R), expense (E), asset (A), liability (L), or
stockholders’ equity (SE) item.

1. Salaries expense (IS) (E)

2. Equipment (BS) (A)
3. Accounts payable (BS) (L)
4. Membership fees earned (IS) (L)
5. Capital stock (BS) (SE)
6. Accounts receivable (BS) (A)
7. Buildings (BS) (A)
8. Advertising expense (IS) (E)
9. Retained earnings (BS) (SE)

10. The following information is available from the records of Prestige Landscape Design Inc. at the end
of the 2010 calendar year:

Prestige Landscape Design Inc.

Income Statement
For the month ended December 31, 2010

Revenues:
Landscaping revenues $25,000
Total $25,000

Expenses:
Rent Ex. $6,500
Salary and wages Ex. $12,000
Total $18,500

Net Income $6,500

1. What is Prestige’s net income for the year ended December 31, 2010?
Prestige’s net income $6,500

Prestige Landscape Design Inc.

Statement of Retained Earnings
For the month ended December 31, 2010

Beginning balance, retained earnings $8,500

Net Income $6,500

Dividends $3,000

End Balance $12,000

2. What is Prestige’s Retained Earned balance at the end of the year?
The ending balance is $12,000

Prestige Landscape Design Inc

Balance Sheet
For the month ended December 31, 2010

Assets: Liabilities:
Cash $13,000 Accts. Pay. $5,000
Accts. Rec. $4,500
Office equipment $7,500

Owners’ Equity:
Capital stock $8,000
Retained Earnings $12,000

Total $25,000 $25,000

3. What is the total amount of Prestige’s assets at the end of the year?
The total assets for that year was $25,000

4. What is the total amount of Prestige’s liabilities at the end of the year?
The total liability for that year is $5,000

5. How much owners’ equity does Prestige have at the end of the year?
The total owners’ equity for that year is $20,000

6. What is Prestige’s accounting equation at December 31, 2010?

Assets = Liabilities + Owners’ Equity
$25,000 = $5,000 + $20,000