Problem 1-1.

An analysis of the transactions made by Acme Consulting for the month of July is shown below.

Cash + Accounts + Supplies + Equipment = Accounts + Owners’ Description of

Receivable Inventory Payable Equity Transaction
1. +20,000 +20,000 Investment
2. -5,000 +7,000 +2,000 Purchase of equipment
3. -1,000 +1,000
4. - 4,500 - 4,500 Salaries
5. + 5,000 + 5,000 + 10,000 Revenues
6. -1,500 -1,500
7. +1,000 -1,000
8. - 750 - 750 Rent
9. – 500 - 500 Utilities
10. +200 - 200 Travel
11. -200 - 200

Required: a) Explain each transaction.

Problem 1-2.
During the month of June, Bon Voyage Travel recorded the following transactions:
1. Owners invested 25,000 in cash to start the business. They received common stock.
2. The month’s rent of 500 was prepaid in cash.
3. Equipment costing 8,000 was bought on credit.
4. 500 was paid for office supplies.
5. Advertising costing 750 was paid for with cash.
6. Paid 3,000 employee salaries in cash.
7. Earned travel commission of 10,000 of which 2,000 was received in cash.
8. Paid 5,000 of the 8,000 owed to the equipment supplier.
9. Used 100 of the office supplies.
10. Charged 1,000 of miscellaneous expenses on the corporate credit card.
Required: Explain how the transactions during the month changed the basic accounting equation (Assets =
Liabilities + Owners’ equity) for the company.

Problems 1-3
Indicate the net effect on assets, liabilities, and owners’ equity resulting from each of the following transactions:

1. Capital stock was issued for 100,000 cash.

2. Bonds payable of 25,000 were refunded with capital stock.
3. Depreciation of plant and equipment equalled 8,500 for the year.
4. Inventory was purchased for 15,900 cash.
5. 9,400 worth of inventory was purchased on credit.
6. Inventory costing 4,500 was sold for 7,200 on credit.
7. 3,500 in cash was received for merchandise sold on credit.
8. Dividends of 3,000 were declared.
9. The declared dividends of 3,000 were paid.
10. The company declared a stock split, and replaced each outstanding share with two new shares.

Required: Explain how the transactions during the month changed the basic accounting equation (Assets =
Liabilities + Owners’ equity) for the company.

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Case 2-1: Lone Pine Café (A)

On March 31, 2010 the partnership that had been organized to operate the Lone Pine Café was dissolved under
unusual circumstances, and in connection with its dissolution, preparation of a balance sheet became necessary .

The partnership was formed by Mr. and Mrs. Henry Antoine and Mr’s Sandara Landers, who had become
acquainted while working in a Portland, Oregon, restaurant. On November 1, 2009, each of the three partners
contributed 16,000 cash to the partnership and agreed to share the profits proportionally to their contributed
capital (i.e., one-third each). The Antoines’ contribution represented by practically all of their savings. Mrs.
Landers’ payment was the proceeds of her late husband’s insurance policy.

On that day also the partnership signed a one-year lease to the Lone Pine Café, located in a nearby recreational
area. The monthly rent on the café was 1,500. This facility attracted the partners in part because there were living
accommodations on the floor above the restaurant. One room was occupied by the Antoines and another by Mrs.
Landers.

The partners borrowed 21,000 from a local bank and used this plus 35,000 of partnership funds to buy out the
previous operator of the café. Of this amount, 53,200 was for equipment and 2,800 was for the food and
beverages then on hand. The partnership paid 1,428 for local operating licenses, good for one year beginning
November 1, and paid 1,400 for a new cash register. The remainder of the 69,000, was deposited in a checking
account.

Shortly after November 1, the partners opened the restaurant. Mr. Antoine was the cook, and Mrs. Anotoine and
Mrs. Landers waited on customers. Mrs. Antoine also ordered the food, beverages, and supplies, operated the
cash register, and was responsible for the checking account.

The restaurant operated throughout the winter season of 2009-2010. It was not very successful. On the morning
of March 31, 2010, Mrs. Antoine discovered that Mr. Antoine and Mrs. Landers had disappeared. Mrs. Landers
had taken all her possessions, but Mr. Antoine had left behind most of his clothing, presumably because he could
not remove it without warning Mrs. Antoine. The new cash register and its contents were also missing. No other
partnership assets were missing. Mrs. Antoine concluded that the partnership was dissolved. (The court
subsequently affirmed that the partnership was dissolved as of March 30.)

Mrs. Antoine decided to continue operating the Lone Pine Café. She realized that accounting would have to be
made as of March 30 and called in Donald Simpson, as acquaintance who was knowledgeable about accounting.

In response to Mr. Simpson’s questions, Mrs. Antoine said that the cash register had contained 311 that the
checking account balance was 1,030. Ski instructors who were permitted to charge their meals had run up
accounts totalling 870. (These accounts subsequently were paid in full.) The Lone Pine Café owed suppliers
amounts totalling 1,583. Mr. Simpson estimated that depreciation on the assets amounted to 2,445. Food and
beverages on hand were estimated to be worth 2,430. During the period of its operation, the partners drew
salaries at agreed-upon amounts and these payments were up to date. The clothing that Mr. Antoine left behind
was estimated to be worth 750. The partnership had also repaid 2,100 of the bank loan. Mr. Simpson explained
that in order to account for the partners’ equity, he would prepare a balance sheet. He would list the items that
the partnership owned as of March 30, subtract the amounts that it owed to outside parties, and the balance
would be equity of the three partners. Each partner would be entitled to one third of this amount.

Questions
1. Prepare balance sheet for the Lone Pine Café as of November 1, 2009.
2. Prepare a balance sheet as of March 30, 2010.

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Case 2-2: Lone Pine Café (B)

In addition to preparing the balance sheet described in Lone Pine Café (A), Mr. Simpson, the accountant, agreed
to prepare an income statement. He said that such a financial statement would show Mrs. Antoine how
profitable operations had been, and thus help her to judge whether it was worthwhile to continue operating the
restaurant. In addition to the information given in the (A) case, Mr. Simpson learned that cash received from
customers through March 30 amounted to 43,480 and the cash payments were as follows:

Monthly payments to partners* 23,150

Wages to part-time employees 5,480
Interest 540
Food and beverage suppliers 10,016
Telephone and electricity 3,270
Miscellaneous 255
Rent payments 7,500

*One-third to each to partners*

1. Prepare an income statement for the period of the café’s operations through March 30, 2010.
2. What does this income statement tell Mrs. Antoine?

Case 4.1 (Cash flow Statement)

The owner of a small business has asked you to prepare a statement that will show him where his firm's cash
came from and how it was used this year (some cash entries may not be recorded). He gives you the following
information based on the Cash account in his general ledger:
Balance at the beginning of year 3,450
Sale of old machine 3,105
Cash sales 27,600

Payment on vendor accounts for COGS for current year 17,250

Purchase of supplies 345
Purchase of additional inventory 1,000
Down payment on new truck 3,450
Rent payments 8,625
Utilities 2,070
Interest payment 1,035
Other miscellaneous expenses 1,725
Payment on debt 3,450
Part-time help 6,900
Balance at end of year 17,045
In addition, the following is available from company records:. Prepare a cash flow statement – direct methods
1. Sales were 61,410 for the year.
2. The Accounts Receivable balance decreased by 690.
3. Cash operating expenses totalled 39,570 (including COGS, rent, utilities, part-time help, wages, and other
miscellaneous expenses).
4. Accounts Payable of last year decreased by a net of 2,760 during the year.
5. Depreciation of 1,725 was taken this year

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Case 3-1: Copies Express
Copies Express was incorporated on November 20, 2009, and began operating on January 2, 2010. The balance
sheet as of the beginning of operations is shown in Exhibit 1.
In preparing financial statements for the first year of operations, the accountant reviewed the record of cash
receipts and cash disbursements for Copies Express. This information appears in Exhibit 2.
Exhibit 1 Copies Express, Inc.
Balance Sheet as of January 02, 2010
Assets
Cash 2,000
Supplies 24,400
Building Equipment 300,000
Land 12,000

Total 338,400

Liabilities and Owners’ Equity

Accounts payable 10,400

Bank loan 24,000
Capital stock 304,000
338,400

In addition, the accountant examined certain other information relative to operations. These additional items
appear in Exhibit 3.

Exhibit 2 Copies Express, Inc.

Cash Receipts and Disbursements: 2010

Cash Receipts:
Cash sales 176,450
Collects accounts receivable 64,750
Total 241,200
Cash disbursements:
Wages and salaries 85,750
Heat, light, power 15,000
Additional supplies 52,600
Selling and administration 28,375
Interest (Note 1) 2,880
Payment – Bank Loan (12/31) 12,000
Payment – accounts payable 10,400
Total 207,005
Note 1. Interest at 12 percent per annum on the bank loan was payable June 3 and December 31
[(24,000*.12)=2,880]. Interest payments for 2010 were made when due.

Exhibit 3 Other Information Relative to Operations

1. At the end of 2010, Copies Express owed 9,875 to suppliers for the purchase of photocopy supplies for
which it had not yet paid.
2. The yearly depreciation expense on the buildings and equipment was 15,000.
3. At the end of 2010, Copies Express was owed 11,000 for copying services by customers who had not yet
paid. Copies Express expected that all of these customers would pay within 30 days.
4. An inventory taken of the supplies at year-end revealed that the year’s cost of supplies was 60,250.
5. Income taxes for 2010 were expected to be 11, 593. They were unpaid as of December 31, 2010.

Questions
1. Prepare an income statement for 2010 and a balance sheet as of December 31, 2010.

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