M2-18. a. no effect e. increase b. decrease f. increase c. decrease g. increase d. no effect M2-19. a. Balance sheet e. Balance sheet i. Income statement b. Income statement f. Balance sheet j. Income statement c. Balance sheet g. Balance sheet k. Balance sheet d. Income statement h. Balance sheet l. Balance sheet M2-20. a. Net income computation Service revenue (record when earned) $100,000 Wage expense. (60,000) Net income $ 40,000 b. Yes, recognizing the wage liability would cause wage expense to increase by $10,000 and net income would decrease by the same amount (before taxes). Solutions Manual, Chapter 2 2-1
E2-35. Use the accounting equation and the information on changes in contributed capital and retained earnings. Beginning equity (= Beginning assets Beginning liabilities) + Common Stock Issued + Net income (= Revenues Expenses) Dividends Ending equity (= Ending assets Ending liabilities) a. Equity, Beginning ($28,000 - $18,600) $ 9,400 Equity, Ending ($30,000 - $17,300) 12,700 Increase 3,300 Add: Net Capital Withdrawn ($5,000 - $2,000) 3,000 Net Income 6,300 Add: Expenses 8,500 Revenues $14,800 b. Equity, Beginning ($12,000 - $5,000) $ 7,000 Add: Net Capital Contributed ($4,500 - $1,500) 3,000 10,000 Add: Net Income ($28,000 - $21,000) 7,000 Equity, Ending $17,000 Assets, Ending $26,000 Equity, Ending 17,000 Liabilities, Ending, $ 9,000 c. Equity, Beginning ($28,000 - $19,000) $ 9,000 Add: Net Income ($18,000 - $11,000) 7,000 16,000 Less: Dividends 1,000 15,000 Equity, Ending ($34,000 - $15,000) 19,000 Common Stock Issued $ 4,000 2-2 Financial Accounting, 5 th Edition
d. Common Stock Issued $ 3,500 Net Income ($24,000 - $17,000) 7,000 10,500 Cash Dividends 6,500 Increase in Equity 4,000 Equity, Ending ($40,000 - $19,000) 21,000 Equity, Beginning 17,000 Add: Liabilities, Beginning 9,000 Total Assets, Beginning $26,000 Solutions Manual, Chapter 2 2-3
E2-39. Income statement Balance sheet Sales... $30,000 Cash... $ 8,000 Wages expense... 12,000 Accounts receivable... 30,000 Net income (loss)... $18,000 Total assets... $38,000 Wages payable... $12,000 Common stock... 8,000 earnings... 18,000 Total liabilities and equity... $38,000 E2-40. a. Procter & Gamble ($ millions) Amount Classification Net sales... $ 83,062 I Income tax expense... 3,178 I earnings... 84,990 B Net earnings... 11,785 I Property, plant and equipment (net)... 22,304 B Selling, general and administrative expense... 25,314 I Accounts receivable... 6,386 B Total liabilities... 74,290 B Stockholders' equity... 69,976 B Net earnings from continuing operations 11,707 I b. Total assets = Total liabilities + Stockholders equity Total assets = $74,290 + $69,976 = $144,266 2-4 Financial Accounting, 5 th Edition
2-44. Transaction Balance Sheet Income Statement Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Revenues - Expenses = Net Income (1) Receive 50,000 in exchange for common stock. +50,000 +50,000 Common Stock (2) Borrow 10,000 from bank. +10,000 +10,000 Notes Payable (3) Purchase 2,000 of supplies inventory on credit. +2,000 Inventory = +2,000 Accounts Payable (4) Receive 15,000 cash from customers for services provided. Revenue (5) Pay 2,000 cash to supplier in part (3). - 2,000-2,000 Accounts Payable (6) Receive order for future services with 3,500 advance payment. +3,500 +3,500 Unearned Revenue (7) Pay 5,000 cash dividend to shareholders. - 5,000-5,000 (8) Pay employees 6,000 cash for compensation earned. - 6,000-6,000 - +6,000 Wages Expense = - 6,000 (9) Pay 500 cash for interest on loan in (2). - 500-500 - +500 Interest Expense = - 500 Totals 65,000 + 2,000 = 13,500 + 50,000 + 3,500 15,000-6,500 = 8,500 Solutions Manual, Chapter 2 2-5
E2-45. a. 1. Cash (+A)... 50,000 Common stock (+SE)... 50,000 Receive 50,000 in exchange for common stock. 2. Cash (+A)... 10,000 Notes payable (+L)... 10,000 Borrow 10,000 from bank. 3. Inventory (+A)... 2,000 Accounts payable (+L)... 2,000 Purchase 2,000 supplies inventory on account. 4. Cash (+A)... 15,000 Revenue (+R, +SE)... 15,000 Recognize 15,000 revenue for services provided. 5. Accounts payable (-L)... 2,000 Cash (-A)... 2,000 Pay supplier 2,000 cash. 6. Cash (+A)... 3,500 Unearned revenue (+L)... 3,500 Receive 3,500 advance from customer. 7. earnings (-SE)... 5,000 Cash (-A)... 5,000 Pay 5,000 cash dividend to shareholders. 8. Wages expense (+E, -SE)... 6,000 Cash (-A)... 6,000 Pay employees 6,000 9. Interest expense (+E, -SE)... 500 Cash (-A)... 500 Pay 500 interest on note. 2-6 Financial Accounting, 5 th Edition
b. + Cash (A) - - Accounts Payable (L) + (1) 50,000 2,000 (5) (5) 2,000 2,000 (3) (2) 10,000 5,000 (7) 0 Bal. (4) 15,000 6,000 (8) (6) 3,500 500 (9) - Unearned Revenue (L) + Bal. 65,000 3,500 (6) 3,500 Bal. + Supplies Inventory (A) - - Notes Payable (L) + (3) 2,000 10,000 (2) Bal. 2,000 10,000 Bal. - Revenue (R) + - Common Stock (SE) + 15,000 (4) 50,000 (1) 15,000 Bal. 50,000 Bal. + Wages Expense (E) - - (SE) + (8) 6,000 (7) 5,000 Bal. 6,000 Bal. 5,000 + Interest Expense (E) - (9) 500 Solutions Manual, Chapter 2 2-7