1 Ex. 1–4 1. B 2. B 3. E 4. F 5. B 6. F 7. X 8. E 9. X 10. B2 Ex. 1–6 Toys “R” Us: $9,397 – $5,367 = $4,030 Estée Lauder: $3,417 – $1,955 = $1,462 Ex. 1–15 It would be incorrect to say that the business had incurred a net loss of $21,750. The excess of the dividends over the net income for the period is a decrease in the amount of retained earnings in the business.3 Ex. 1–16 Company M Owners’ equity at end of year ($1,200,000 – $650,000)............................................. $550,000 Owners’ equity at beginning of year ($750,000 – $300,000)................................................ 450,000 Net income (increase in owner's equity)............. $100,000 Company N Increase in owners’ equity (as determined for M)...... $100,000 Add dividends................................................................ 60,000 Net income ................................................................. $160,000 Company O Increase in owners’ equity (as determined for M)...... $100,000 Deduct additional issuance of capital stock............... 150,000 Net loss ...................................................................... $ (50,000) Company P Increase in owners’ equity (as determined for M)...... $100,000 Deduct additional issuance of capital stock............... 150,000 $ (50,000) Add dividends................................................................ 60,000 Net income ................................................................. $ 10,000 Ex. 1–17 Balance sheet items: 1, 3, 4, 8, 9, 10 Ex. 1–18 Income statement items: 2, 5, 6, 74 Ex. 1–19 MADRAS COMPANY Retained Earnings Statement For the Month Ended April 30, 2006 Retained earnings, April 1, 2006................................ $297,200 Net income for the month........................................... $73,000 Less dividends ............................................................ 12,000 Increase in retained earnings .................................... 61,000 Retained earnings, April 30, 2006.............................. $358,200 Ex. 1–20 HERCULES SERVICES Income Statement For the Month Ended November 30, 2006 Fees earned ................................................................. $232,120 Operating expenses: Wages expense ....................................................... $100,100 Rent expense ........................................................... 35,000 Supplies expense .................................................... 4,550 Miscellaneous expense........................................... 3,150 Total operating expenses ................................... 142,800 Net income................................................................... $ 89,3205 Ex. 1–21 In each case, solve for a single unknown, using the following equation: Owners’ equity (beginning) + Additional issue of capital stock – Dividends + Revenues – Expenses = Owners’ equity (ending) A. Owners’ equity at end of year ($894,000 – $390,000) ............ $504,000 Owners’ equity at beginning of year ($720,000 – $432,000) . 288,000 Increase in owners’ equity....................................................... $216,000 Deduct increase due to net income ($237,300 – $129,600)... 107,700 $108,300 Add dividends........................................................................... 48,000 Additional issue of capital stock......................................... (a) $156,300 B. Owners’ equity at end of year ($175,000 – $55,000) .............. $120,000 Owners’ equity at beginning of year ($125,000 – $65,000) ... 60,000 Increase in owners’ equity....................................................... $ 60,000 Add dividends........................................................................... 8,000 $ 68,000 Deduct additional issue of capital stock ................................ 25,000 Increase due to net income ..................................................... $ 43,000 Add expenses ........................................................................... 32,000 Revenue ................................................................................ (b) $ 75,000 C. Owners’ equity at end of year ($144,000 – $128,000) ............ $ 16,000 Owners’ equity at beginning of year ($160,000 – $121,600) . 38,400 Decrease in owners’ equity ..................................................... $ (22,400) Add decrease due to net loss ($184,000 – $196,000) ............ 12,000 $ (10,400) Deduct additional issue of capital stock ................................ (16,000) Dividends from the business .............................................. (c) $ (26,400) D. Owners’ equity at end of year ($310,000 – $170,000) ............ $140,000 Add decrease due to net loss ($140,000 – $160,000) ............ 20,000 $160,000 Add dividends........................................................................... 75,000 $235,000 Deduct additional issue of capital stock ................................ 50,000 $185,000 Add liabilities at beginning of year ......................................... 150,000 Assets at beginning of year................................................. (d) $335,0006 Ex. 1–22 a. DERBY INTERIORS Balance Sheet October 31, 2006 Assets Liabilities Cash ................................. $48,000 Accounts payable ........ $12,320 Accounts receivable ....... 27,200 Supplies ........................... 2,400 Stockholders’ Equity Capital stock ................ $15,000 Retained earnings........ 50,280* 65,280 Total liabilities and Total assets ..................... $77,600 stockholders’ equity . $77,600 *$50,280 = – $12,320 + $27,200 + $48,000 + $2,400 – $15,000 DERBY INTERIORS Balance Sheet November 30, 2006 Assets Liabilities Cash ................................. $ 81,600 Accounts payable ........ $ 13,280 Accounts receivable ....... 31,300 Supplies ........................... 2,000