Chapter 1 Examples
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Cash
Accounts Receivable
Notes Receivable
Inventory
Supplies
Prepaid expenses
Property, plant, and equipment
Accounts Payable
Salaries Payable
Interest payable
Notes payable
Common Stock
Retained Earnings
A. Amounts company expects to collect from another party (individual or other company) who has borrowed
money from the company and signed promissory note with company.
B. Liquid assets
C. Amounts the company expects to collect from customers based on selling product or services to them.
D. Items that will be consumed by the company during the operation of the business such as office supplies.
E. Amounts due employees for their work performed.
F. Company prepays for advertisements, rent, insurance, and supplies.
G. Amount shareholders have invested in the business (external source)
H. Amounts periodically due to another party as the cost of lending money to the company.
I. Merchandise for sale by company to customers.
J. Land, buildings, computers, store fixtures, or manufacturing equipment.
K. Amounts owed to vendors for the purchase of materials or services.
L. Total Amount owed to lenders based on money borrowed by the company for which a promissory notes was
signed.
M. Cumulative amount of net income earned and kept in business (internal source)
Question 2
A. If the assets of a business are $240,000 and the liabilities are $80,000 how much is the Stockholders’ equity?
B. If the stockholders’ equity in a business is $160,000 and the liabilities are $130,000, how much are the assets?
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C. A company reported monthly revenues of $129,000 and expenses of $85,000. What is the result of operations
for the month?
D. If the beginning balance of retained earnings is $100,000, revenue is $75,000, expenses total $50,000, and the
company pays a $10,000 dividend, what is the ending balance of retained earnings?
Question 3 - Krispy Kreme Doughnuts has cash of $147 million; inventory of $58 million; and property, plant, and
equipment of $206 million. Accounts Payable are $154 million and Notes Payable total $148 million.
A. How much in resources does Krispy Kreme have to work with?
B. How much does Krispy Kreme owe creditors?
C. How much of the company’s assets do the Krispy Kreme stockholders actually own?
D. Use these data to write Krispy Kreme Doughnuts’ accounting equation.
Question 4
A. Peru, Inc., began the year with total liabilities of $140,000 and total stockholders’ equity of $300,000. During
the year, total assets increased by 20%. How much are total assets at the end of the year?
B. Social Networking Associates began the year with total assets of $500,000 and total liabilities of $200,000. Net
income for the year was $100,000, and dividends were zero. How much is stockholders’ equity at the end of the
year?
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ANSWERS
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1. ___B___ Cash
___C___ Accounts Receivable
___A___ Notes Receivable
___I___ Inventory
___D___ Supplies
___F___ Prepaid expenses
___J___ Property, plant, and equipment
___K___ Accounts Payable
___E___ Salaries Payable
___H___ Interest payable
___L___ Notes payable
___G___ Common Stock
___M___ Retained Earnings
Question 2
A. If the assets of a business are $240,000 and the liabilities are $80,000 how much is the Stockholders’ equity?
Owner’s Equity = Assets - Liabilities
Owner’s Equity = 240,000 – 80,000
Owner’s Equity = 160,000
B. If the stockholders’ equity in a business is $160,000 and the liabilities are $130,000, how much are the assets?
Assets = Liabilities + Stockholders’ Equity
Assets = 130,000 + 160,000
Assets = 290,000
C. A company reported monthly revenues of $129,000 and expenses of $85,000. What is the result of operations
for the month?
Revenues – Expenses = Net Income (Loss)
129,000 – 85,000 = Net Income
Net Income = 44,000
D. If the beginning balance of retained earnings is $100,000, revenue is $75,000, expenses total $50,000, and the
company pays a $10,000 dividend, what is the ending balance of retained earnings?
Ending Balance of Retained Earnings = Beginning balance of RE + Net Income – Dividends
Ending Balance of Retained Earnings = 100,000 + (75,000 – 50,000) – 10,000
Ending Balance of Retained Earnings = 100,000 + 25,000 – 10,000
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Ending Balance of Retained Earnings = 115,000
Question 3 - Krispy Kreme Doughnuts has cash of $147 million; inventory of $58 million; and property, plant, and
equipment of $206 million. Accounts Payable are $154 million and Notes Payable total $148 million.
A. How much in resources does Krispy Kreme have to work with?
Assets = resources owned by the company
Assets = 147 + 58 + 206
Assets = 411
B. How much does Krispy Kreme owe creditors?
Liabilities = amounts owed to creditors
Liabilities = 154 + 148
Liabilities = 302
C. How much of the company’s assets do the Krispy Kreme stockholders actually own?
Stockholder’s Equity = Equity means ownership
Stockholder’s Equity = (147 + 58 + 206) – (154 + 148)
Stockholder’s Equity = 411 - 302
Stockholder’s Equity = 109
D. Use these data to write Krispy Kreme Doughnuts’ accounting equation.
411 = 302 + 109
Question 4
A. Peru, Inc., began the year with total liabilities of $140,000 and total stockholders’ equity of $300,000. During
the year, total assets increased by 20%. How much are total assets at the end of the year?
Assets = 140,000 + 300,000 = 440,000
Increase in Assets = 440,000 * 20% = 88,000
Assets at year end = 440,000 + 88,000 = 528,000
B. Social Networking Associates began the year with total assets of $500,000 and total liabilities of $200,000. Net
income for the year was $100,000, and dividends were zero. How much is stockholders’ equity at the end of the
year?
Assets = Liabilities + Owners Equity
Owners Equity = Paid in Capital + Ending Retained Earnings
Ending Retained Earnings = Beginning RE +Net Income – Dividends
Owner’s Equity = 500,000 – 200,000
Owner’s Equity = 300,000 (at the beginning of the year)
Owner’s Equity = 300,000 + 100,000 – 0
Owner’s Equity = 400,000 (at the end of the year)
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