Chapter 1

Exercises: Set B
E1-1B Larabee Company performs the following accounting tasks during the year. Classify the three
activities of accounting.
______Summarizing economic events.
______Selecting economic activities relevant to the company. (LO 1)
______Reporting information in a standard format.
______Preparing accounting reports.
______Measuring events in dollars and cents.
______Keeping a systematic chronological diary of events.
______Explaining uses, meaning, and limitations of data.
______Classifying economic events.
______Analyzing and interpreting information.
Instructions
Categorize the accounting tasks performed by Larabee as relating to either the
identification (I), recording (R), or communication (C) aspects of accounting.

E1-2B (a) The following are users of financial statements. Identify users of
accounting information.
______Customers ______Securities and Exchange Commission
______Internal Revenue Service ______Store manager (LO 1)
______Labor unions ______Suppliers
______Marketing manager ______Vice-president of finance
______Production supervisor
Instructions
Identify the users as being either external users or internal users.
(b) The following questions could be asked by an internal user or an external user.
______ Will the company be able to pay its short-term debts?
______ Which product should we emphasize?
______ What does it cost us to manufacture each unit produced?
______ How does the company’s profitability compare to other companies?
______ Do we need to borrow in the near future?
______ Did the company earn a satisfactory income?
______ Can we afford to give our employees a pay raise?
Instructions
Identify each of the questions as being more likely asked by an internal user or an
external user.

E1-3B Bill Belachek, president of Belachek Company, has instructed Tom Brady, Discuss ethics and the
the head of the accounting department for Belachek Company, to report the historical cost principle.
company’s land in the company’s accounting reports at its fair value of $150,000 (LO 2)
instead of its cost of $100,000. Belachek says, “Showing the land at $150,000 will
make our company look like a better investment when we try to attract new investors
next month.”
Instructions
Explain the ethical situation involved for Tom Brady, identifying the stakeholders and
the alternatives.

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Use accounting E1-4B The following situations involve accounting principles and assumptions.
concepts.
1. Lance Company owns equipment that is worth substantially more than it
(LO 2) originally cost. In an effort to provide more relevant information, Lance reports
the equipment at fair value in its accounting reports.
2. Wesson Company includes in its accounting records only transaction data that
can be expressed in terms of money.
3. Jose’ Vargas, president of Jose’s Cantina, records his personal living costs as
expenses of the Cantina.
Instructions
For each of the three situations, state 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.

Classify accounts as E1-5B Phast Cleaners has the following balance sheet items.
assets, liabilities, and
stockholders’ equity. Retained earnings Accounts receivable
Cash Salaries and wages payable
(LO 3) Equipment Income taxes payable
Supplies Common stock
Instructions
Classify each item as an asset, liability, or stockholders’ equity.

Analyze the effect of E1-6B Selected transactions for Greene Lawn Care Company are listed below.
transactions.
1. Sold common stock for cash to start business.
(LO 4) 2. Paid monthly utilities.
3. Purchased land on account.
4. Billed customers for services performed.
5. Paid dividends.
6. Received cash from customers billed in (4).
7. Incurred utilities expense on account.
8. Purchased 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 stockholders’ equity. For example, the first
answer is: (1) Increase in assets and increase in stockholders’ equity.

Analyze the effect of E1-7B Sonne Computer Timeshare Company entered into the following
transactions on assets, transactions during May 2022.
liabilities, and 1. Purchased equipment for $15,000 from Office Interior’s on account.
stockholders’ equity.
2. Paid $3,000 cash for May rent on storage space.
(LO 4) 3. Received $12,000 cash from customers for contracts billed in April.
4. Provided services to Sharpe Construction Company for $4,000 cash.
5. Paid Western Power Co. $10,000 cash for energy usage in May.
6. Stockholders invested an additional $30,000 in the business.
7. Paid Office Interior’s for the equipment purchased in (1) above.
8. Incurred advertising expense for May of $1,500 on account.
Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
(a) an increase in assets and a decrease in assets.
(b) an increase in assets and an increase in stockholders’ equity.
(c) an increase in assets and an increase in liabilities.
(d) a decrease in assets and a decrease in stockholders’ equity.
(e) a decrease in assets and a decrease in liabilities.
(f) an increase in liabilities and a decrease in stockholders’ equity.
(g) an increase in stockholders’ equity and a decrease in liabilities.

E1-8B An analysis of the transactions made by P. Patron & Co., a certified public Analyze transactions
accounting firm, for the month of August is shown below. Each increase and and compute net
decrease in stockholders’ equity is explained. income.
(LO 4, 5)
Assets = Liabilities + Stockholders’ Equity
+ Accounts + + = Accounts + Common + Retained Earnings
Cash Receivable Supplies Equipment Payable Stock Rev.  Exp.  Div.
1. +$25,000 +25,000
2. 4,000 +$6,000 +$2,000
3. 650 +$650
4. +5,000 +$2,500 +$7,500 Service Revenue
5. 1,200 1,200
6. 1,500 $1,500 Dividends
7. 850 $850 Rent Expense
8. +750 750 Salaries and
9. 4,500 4,500 Wages Expense

10. +300 300

Utilities Expense

Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the amount of net income for the month.
Prepare financial
E1-9B An analysis of transactions for P. Patron & Co. was presented in E1–8B. statements.
Assume that August is the company’s first month of business. (LO 5)

Instructions
Prepare an income statement and a retained earnings statement for August and a
balance sheet at August 31, 2022.

E1-10B Daisey Company had the following assets and liabilities on the dates Determine net income
indicated. (or loss).
December 31 Total Assets Total Liabilities (LO 5)
2021 $400,000 $220,000
2022 $510,000 $300,000
2023 $590,000 $400,000

Daisey began business on January 1, 2021, with an investment of $120,000 from

stockholders.

Instructions
From an analysis of the change in stockholders’ equity during the year, compute the
net income (or loss) for:
(a) 2021, assuming Daisey paid $13,000 in dividends for the year.
(b) 2022, assuming stockholders made an additional investment of $60,000 and
Daisey paid no dividends in 2022.
(c) 2023, assuming stockholders made an additional investment of $15,000 and
Daisey paid dividends of $45,000 in 2023.
 E1-11B Two items are omitted from each of the following summaries of balance
sheet and income statement data for two corporations for the year 2022, Brad Pitt
and Jolie Enterprises.

Analyze financial Brad Jolie

statementsitems. Pitt Enterprises
(LO 5) Beginning of year:
Total assets $ 95,000 $129,000
Total liabilities 80,000 (c)
Total stockholders’ equity (a) 90,000
End of year:
Total assets 160,000 180,000
Total liabilities 120,000 50,000
Total stockholders’ equity 40,000 130,000
Changes during year in stockholders’ equity:
Additional investment (b) 3,000
Dividends 20,000 (d)
Total revenues 215,000 120,000
Total expenses 185,000 75,000

Instructions
Determine the missing amounts.

Prepare income E1-12B The following information relates to Ignatenko Co. for the year 2022.
statement and retained
earnings statement. Retained earnings, January 1, 2022 $42,000 Advertising expense $ 1,300
(LO 5) Dividends during 2022 4,000 Rent expense 10,200
Service revenue 60,500 Utilities expense 3,000
Salaries and wages expense 28,000
Instructions
After analyzing the data, prepare an income statement and a retained earnings
statement for the year ending December 31, 2022.

Correct an incorrectly E1-13B Larry Latham is the bookkeeper for Penez Company. Larry has been trying
prepared balance to determine the correct balance sheet for Penez Company. Penez’s balance sheet is
sheet. shown below.
(LO 5)
Penez Company
Balance Sheet
December 31, 2022
Assets Liabilities
Cash $17,000 Accounts payable $19,000
Supplies 7,000 Accounts receivable (9,500)
Equipment 45,000 Common stock 49,000
Dividends 5,000 Retained earnings 15,500
Total assets $74,000 Total liabilities and
stockholders’ equity $74,000
Instructions
Prepare a correct balance sheet.
E1-14B Deer Park, a public camping ground near the Lake Joseph National Compute net income
Recreation Area, has compiled the following financial information as of December 31, and prepare a balance
2022. sheet.
(LO 5)
Revenues during 2022—camping fees $160,000 Notes payable $ 65,000
Revenues during 2022—general store 50,000 Expenses during 2022 160,000
Accounts payable 12,000 Supplies on hand 3,500
Cash on hand 27,000 Common stock 20,000
Original cost of equipment 116,500 Retained earnings ?
Fair value of equipment 130,000
Instructions
(a) Determine Deer Park’s net income for 2022.
(b) Prepare a balance sheet for Deer Park as of December 31, 2022.

E1-15B Presented below is financial information related to the 2022 operations of Prepare an income
Mike Gregory Company. statement.
(LO 5)
Maintenance and repairs expense $98,000
Utilities expense 7,000
Salaries and wages expense 160,000
Advertising expense 3,800
Ticket revenue 340,000
Instructions
Prepare the 2022 income statement for Mike Gregory Company.

E1-16B Presented below is information related to King and James, Attorneys at Prepare a retained
Law. earnings statement.
(LO 5)
Retained earnings, January 1, 2022 $ 26,000
Service revenue—2022 330,000
Total expenses—2022 210,000
Assets, January 1, 2022 86,000
Liabilities, January 1, 2022 60,000
Assets, December 31, 2022 152,000
Liabilities, December 31, 2022 80,000
Dividends—2022 74,000
Instructions
Prepare the 2022 retained earnings statement for King and James, Attorneys at Law.

E1-17B This information is for Midvale Company for the year ended December 31, Prepare a cash flow
2022. statement.
(LO 5)
Cash received from revenues from customers $ 500,000
Cash received for issuance of common stock 250,000
Cash paid for new equipment 90,000
Cash dividends paid 10,000
Cash paid for expenses 340,000
Cash balance 1/1/2022 40,000
Instructions
Prepare the 2022 statement of cash flows for Midvale Company.