BRIEF EXERCISES

BRIEF EXERCISES

BE1-2 Given the accounting equation, answer each of the following

questions
(a) The liabilities of McGlone Company are $120,000 and the owner’s equity
is $232,000. What is the amount of McGlone Company’s total assets?
(b) The total assets of Company are $190,000 and its owner’s equity is
$80,000. What is the amount of its total liabilities?
(c) The total assets of McGlone Co. are $800,000 and its liabilities are equal
to one half of its total assets. What is the amount of McGlone Co.’s owner’s
equity?
 BRIEF EXERCISES

BE1-3 At the beginning of the year, Hernandez Company had total assets of
$800,000 and total liabilities of $500,000. Answer the following questions.
(a) If total assets increased $150,000 during the year and total liabilities
decreased $80,000, what is the amount of owner’s equity at the end of the
year?
(b) During the year, total liabilities increased $100,000 and owner’s equity
decreased $70,000. What is the amount of total assets at the end of the year?
(c) If total assets decreased $80,000 and owner’s equity increased $120,000
during the year, what is the amount of total liabilities at the end of the year?
 BRIEF EXERCISES

BE1-4 Use the expanded accounting equation to answer each of the following
questions:
(a) The liabilities of Cai Company are $90,000. Meiyu Cai’s capital account
is $150,000; drawings are $40,000; revenues, $450,000; and expenses,
$320,000. What is the amount of Cai Company’s total assets?
(b) The total assets of Pereira Company are $57,000. Karen Perry’s capital
account is $25,000; drawings are $7,000; revenues, $50,000; and expenses,
$35,000. What is the amount of the company’s total liabilities?
(c) The total assets of Yap Co. are $600,000 and its liabilities are equal to
two-thirds of its total assets. What is the amount of Yap Co.’s owner’s equity?
 BRIEF EXERCISES

BE1-5 Indicate whether each of the following items is an asset (A), liability
(L), or part of owner’s equity (OE).
_______(a) Accounts receivable _______(d) Office supplies
_______(b) Salaries payable _______(e) Owner’s investment
_______(c) Equipment _______(f) Notes payable
 BRIEF EXERCISES

BE1-6 Presented below are three business transactions. On a sheet of paper,

list the letters (a), (b), (c) with columns for assets,liabilities,and owner’s
equity.For each column,indicate whether the transactions increased (+),
decreased (-), or had no effect (NE) on assets, liabilities, and owner’s equity.
(a) Purchased supplies on account.
(b) Received cash for providing a service.
(c) Paid expenses in cash.
 BRIEF EXERCISES

BE1-7 Follow the same format as BE1-6 on the previous page.

Determine the effect on assets, liabilities, and owner’s equity of
the following three transactions.
(a) Invested cash in the business.
(b) Withdrawal of cash by owner.
(c) Received cash from a customer who had previously been billed
for services provided
 BRIEF EXERCISES

BE1-8 Classify each of the following items as owner’s drawing (D),

revenue (R), or expense (E).
_______(a) Advertising expense _______(e) Bergman, Drawing
_______(b) Commission revenue _______(f) Rent revenue
_______(c) Insurance expense _______(g) Utilities expense
_______(d) Salaries expense
 BRIEF EXERCISES

BE1-9 Presented below are three transactions. Mark each

transaction as affecting owner’s investment (I), owner’s drawings
(D), revenue (R), expense (E), or not affecting owner’s equity
(NOE).
_______(a) Received cash for services performed
_______(b) Paid cash to purchase equipment
_______(c) Paid employee salaries
 BRIEF EXERCISES

BE1-9 Presented below are three transactions. Mark each

transaction as affecting owner’s investment (I), owner’s drawings
(D), revenue (R), expense (E), or not affecting owner’s equity
(NOE).
_______(a) Received cash for services performed
_______(b) Paid cash to purchase equipment
_______(c) Paid employee salaries
 EXERCISES

E1-2 (a) The following are users of financial statements.

______Customers ______Securities and Exchange Commission
______Internal Revenue Service ______Store manager
______Labor unions ______Suppliers
______Marketing manager ______Vice-president of finance
______Production supervisor
Instructions
Identify the users as being either external users or internal users.
 EXERCISES

E1-2 (b) The following questions could be asked by an internal user or an

external user.
______Can we afford to give our employees a pay raise?
______Did the company earn a satisfactory income?
______Do we need to borrow in the near future?
______How does the company’s profitability compare to other companies?
______What does it cost us to manufacture each unit produced?
______Which product should we emphasize?
______Will the company be able to pay its short-term debts?
Instructions
Identify each of the questions as being more likely asked by an internal user
or an external user.
 EXERCISES

E1-4 The following situations involve accounting principles and assumptions.

1. Grossman Company owns buildings that are worth substantially more than they
originally cost. In an effort to provide more relevant information, Grossman reports the
buildings at market value in its accounting reports.
2. Jones Company includes in its accounting records only transaction data that can be
expressed in terms of money.
3. Caleb Borke, owner of Caleb’s Cantina, records his personal living costs as expenses of
the Cantina.
Instructions
For each of the three situations, say if the accounting method used is correct or incorrect.
If correct, identify which principle or assumption supports the method used. If incorrect,
identify which principle or assumption has been violated.
 EXERCISES

E1-6 Selected transactions for Evergreen Lawn Care Company are listed below.
1. Made cash investment to start business.
2. Paid monthly rent.
3. Purchased equipment on account.
4. Billed customers for services performed.
5. Withdrew cash for owner’s personal use.
6. Received cash from customers billed in (4).
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on
assets, liabilities, and owner’s equity. For example, the first answer is: (1) Increase in
assets and increase in owner’s equity
 EXERCISES

E1-8 An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the
month of August is shown below. The expenses were $650 for rent, $4,900 for salaries, and $500 for
utilities.

Describe each transaction that occurred for the month.

 PROBLEMS: SET A

P1-1A Barone’s Repair Shop was started on May 1 by Nancy Barone. A summary of May
transactions is presented below.
1. Invested $10,000 cash to start the repair shop.
2. Purchased equipment for $5,000 cash.
3. Paid $400 cash for May office rent.
4. Paid $500 cash for supplies.
5. Incurred $250 of advertising costs in the Beacon News on account.
6. Received $5,100 in cash from customers for repair service.
7. Withdrew $1,000 cash for personal use.
8. Paid part-time employee salaries $2,000.
9. Paid utility bills $140.
10. Provided repair service on account to customers $750.
11. Collected cash of $120 for services billed in transaction (10).
Instructions
Prepare a tabular analysis of the transactions, using the following column headings: Cash,
Accounts Receivable, Supplies, Equipment,Accounts Payable, N. Barone, Capital; N. Barone,
Drawings; Revenues, and Expenses
 PROBLEMS: SET A
P1-4A Mark Miller started his own delivery service, Miller Deliveries, on June 1, 2010.The following transactions
occurred during the month of June.
June 1 Mark invested $10,000 cash in the business.
2 Purchased a used van for deliveries for $12,000. Mark paid $2,000 cash and signed a note payable for the
remaining balance.
3 Paid $500 for office rent for the month.
5 Performed $4,400 of services on account.
9 Withdrew $200 cash for personal use.
12 Purchased supplies for $150 on account.
15 Received a cash payment of $1,250 for services provided on June 5.
17 Purchased gasoline for $100 on account.
20 Received a cash payment of $1,500 for services provided.
23 Made a cash payment of $500 on the note payable.
26 Paid $250 for utilities.
29 Paid for the gasoline purchased on account on June 17.
30 Paid $1,000 for employee salaries.
Show the effects of the previous transactions on the accounting equation using the following format: