ans~ch4

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Answers to Practical Exercises and Problems for CHAPTER 4

Name: Score:

Subject / Section: Professor:

P4-1. Label each of the following transactions as increasing owner's equity (+);

decreasing owner's equity (−), or as having no effect on owner's equity (0).

Write the aroriate sy!bol in the sace rovided.

+ a. "nvest!ent by owner

0 b. #urchase of sulies on credit

+ c. $evenue transaction

− d. %&ense transaction

0 e. orrowing !oney on a note ayable

− f. Withdrawal by owner

P4-2. ill in the blans below with the accounting rincile that best alies.

*. ost rincile . ontinuity of the business unit. usiness entity . onsistency. onservatis! -. atching/. ull disclosure ". nit of !easure!ent%. ateriality 1. 2b3ective evidence

4. * restaurant records accrued wages at the end of the fiscal year because of the matching rincile.

5. * hotel reduces its inventory values to reflect the !aret value of itsfood stocs, which are lower than the original cost, because of theconservatism rincile.

6. * !otel does not reduce the value of its glassware to liquidation value because of the cost rincile.

7. 8he cost of ten relace!ent wastebasets is e&ensed rather thanrecorded as equi!ent due to the materiality rincile.

9. 8he !ethod of dereciation used is reflected in the financial reort because of the full disclosure rincile.

:. When one !ethod of inventory valuation is used at the end of 5009and another !ethod is used at the end of 500:, this violates theconsistency rincile.

. 8he cost of steas taen ho!e by the owner for ersonal use isrecorded as a <withdrawal= because of the business entity rincile.

>. * boat doc is recorded at #55,900 (the a!ount aid) rather than the

original contract rice of #59,000 because of the objective evidence rincile .

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Name: Score:


P4-3. 8he following are the transactions in one !onth of oeration of $ose$estaurant. "n the sace rovided, indicate which ele!ents of the

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accounting equation are increased or decreased as a result of the

transaction. 8ransaction 4 is given as an e&a!le.

TRANSACTION 1: Rose Santos invested P10,000 in a small restaurant, called Rose

Restaurant.

ASSETS = LIABILITIES + INEST!ENT " #IT$%RA#ALS + REEN&E " E'PENSESE(. Increase = )))))))))) + Increase " ))))))))))))))) + ))))))))) " ))))))))))

TRANSACTION 2: T*e Restaurant urc*ased P,000 -ort* o ood and /everae,

ain P2,000 o t*e amount and uttin t*e ot*er P1,000 on account.

ASSETS = LIABILITIES + INEST!ENT " #IT$%RA#ALS + REEN&E " E'PENSES )))))))) = )))))))))) + )))))))))))) " ))))))))))))))) + ))))))))) " ))))))))))

TRANSACTION 3: T*e Restaurant sold ood and /everae costin P2,000 or

P3,000 cas*.


TRANSACTION 4: T*e Restaurant aid rent or t*e mont*, P1,000.


TRANSACTION 5: T*e Restaurant aid salaries o P1,00 or t*e mont*.


TRANSACTION 6: Rose made a -it*dra-al o P1,000 cas* rom t*e /usiness or

ersonal use.


TRANSACTION 7: Rose received a /ill or P400 o advertisin durin t*e mont*.


TRANSACTION 8: T*e Restaurant aid t*e P1,000 /alance o-ed or t*e ood

sulies /ou*t earlier in t*e mont* in transaction 5.


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Decrease

Decrease

IIncrease

Increase

Decrease

IDecrease

IDecrease

IIncrease

Increase/Decre

ase

Increase

Increase/

Decrease

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Name: Score:


P4-4. ebeng's afe sold two ieces of equi!ent during 5005. $elevantinfor!ation is as follows.

4. ?ale of cooing range?elling rice @ # 900

2riginal cost @ #6,000 *ccu!ulated dereciation @ #5,00

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(1) Selling price"et boo# value$%ost &'00ess$ ccum* Depreciation ',0-ain on sale

() Selling price"et boo# value$%ost 0'00

ess$ ccum* Depreciation 1!'00oss on sale(1'!00)

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5. ?ale of van

?elling rice @ # 6,900 2riginal cost @ #50,000

*ccu!ulated dereciation @ #49,000

Required:/eter!ine the gain or loss on the sale of each iece of equi!ent.

* A?W%$ B (4) # 00 gain (5) # 1'!00 loss

P4-5. 8he following transactions were co!leted by ?un o!any, a cateringservice, during the first !onth of oeration.

4. ?hawn riggs, owner, invested #40,000 in the business. (b)

5. #urchased itchen equi!ent on credit for #5,900. (a)

6. #urchased additional equi!ent with cash, #600. (c)

7. #rovided catering service to custo!ers and collected

cash, #:00. (b)

9. #aid #4,000 of a!ount owed to creditor in (5) above. (d)

"ndicate the effect of each of these transactions on the basic accountingequation by inserting the aroriate letter fro! the following list in thesace rovided to the right of each transaction.

(a) increase in asset, increase in liability(b) increase in asset, increase in equity

(c) increase in one asset, decrease in another asset(d) decrease in asset, decrease in liability(e) decrease in asset, decrease in equity

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Name: Score:Subject / Section: Professor:

P4-6. "sland rill $estaurant began oerations in 1anuary 5004. /uring its first!onth of oerations the following transactions occurredB

a. ?old 4,000 shares of noCar co!!on stoc for cash of #40,000. b. orrowed #45,000 fro! ?tandard an. * ro!issory note was

signed stating that the loan lus 45D interest would be reaid in 4>!onths.

c. #urchased #,900 worth of food sulies for cash.d. #urchased equi!ent costing #44,000, aying #5,000 down with the

balance on account.

e. $eceived cash of #,900 for catering services erfor!ed during1anuary. ost of food served C #7,000.

f. illed custo!ers #E,000 for catering services erfor!ed during1anuary. ost of food served C #9,000.

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g. #aid #5,900 rent for 1anuary 5004.

h. #aid #4,900 for utilities for 1anuary 5004.i. #aid #5,000 to artCti!e e!loyees for wages. 3. #aid a cash dividend to shareholders in the a!ount of #900.

Required:"n the table below, indicate the effect of each transaction on the financialstate!ent ite!s listed. "ndicate whether the ite! is increased or decreased

by entering a F+F or a F−F.

Financial Statement Transaction

Item a b c d e f g h i j

%ash + + − − + − − − −

.ood Supplies + − −

uipment +ccounts eceivable +"otes ayable +ccounts ayable +%ommon Stoc# +Dividends +%atering Service evenue + +%ost of .ood Served + −

ent 2pense +3tilities 2pense +4age 2pense +

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Name: Score:


P4-7. $efer to the transactions listed in #roble! 7C:.

Required:"n the table below, identify which accounting ele!ents are affected by eachtransaction. "ndicate whether the accounting ele!ent is increased or

decreased by entering a F+F or a F−F. "f the transactions causes an

increase and a decrease in a single accounting ele!ent, lace both a F+F

and a F−F in the aroriate bo&.

Accounting Transaction

Element a b c d e f g h i j

ssets + + ± ± ± ± − − − −

iabilities + +

uity + −

evenues + +

2penses + + + + +

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P4-8. $efer to the transactions listed in #roble! 7C:.

Required:"n the table below, indicate with an FGF which financial state!ents areaffected by the transactions listed.

Financial Transaction

Statement a b c d e f g h i j

Income Statement 5 5 5 5 5

Statement of etained arnings 5

6alance Sheet 5 5 5 5 5 5 5 5 5 5

P4-9. ill in the !issing nu!bers in the accounting equation for each of theite!s in the following tableB

Items ASSETS LIABILITIES !NE"S# E$%IT&

a* 10'000 7'000 4,000

b* 1!'000 7,000 8'000

c* 37,000 1&'000 9'000

d* 90'000 1:'000 21,000

e* 47,000 '000 !'000

f* 7'000 10,000 17'000

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Name: Score:


P4-10. 8he following infor!ation is available for Len ?antosB

January 1 January 31*ssets #45,000 #50,000Liabilities ,000

o!!on ?toc >,000

$etained %arnings 0 9,000

Required:

a. /eter!ine the !issing nu!bers which belong in the bo&es above.

b. -ow !uch is net inco!e for the !onth of 1anuary if there were nodividendsH # !'000 .

c. -ow !uch is net inco!e for the !onth of 1anuary if there weredividends of #7,000H # :'000 .

d. "f net inco!e for the !onth of 1anuary was #44,000, how !uch weredividendsH # 7'000 .

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9'000

8'000

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P4-11. 8he following infor!ation is available for the artnershi of #at I 1ay, who

share rofits and losses equallyB

January 1 January 31*ssets #90,000

Liabilities #4:,000

#at, aital ,000 45,0001ay, aital 46,000 4>,000

Required:

a. /eter!ine the !issing nu!bers which belong in the bo&es above.

b. -ow !uch is net inco!e for the !onth of 1anuary if there were noadditional invest!ents and no withdrawalsH # 10'000 . (0'000 + ; <

&0'000)c. -ow !uch is net inco!e for the !onth of 1anuary if #at and 1ay each

withdrew #6,000H # 17'000 . (0'000 + ; = 7'000 < &0'000)

d. "f net inco!e for the !onth of 1anuary was #67,000, how !uch did#at and 1ay withdraw fro! the artnershi during 1anuaryH

# 9'000 . (0'000 + &9'000 = ; < &0'000 )

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&7'0000'000

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Name: Score:


P4-12. ountain Lae "nn had the following account balances at the beginning andend of ?ete!ber, 5004B

September 1 September 308otal *ssets #400,000 #490,0008otal Liabilities :0,000 400,000

Required:

a. -ow !uch is owners' equity at ?ete!ber 4 and at ?ete!ber 60H?ete!ber 4 # 90'000 . ?ete!ber 60 # !0'000 .

b. -ow !uch is net inco!e if the owner !ade no invest!ents and nowithdrawals in ?ete!berH # 10'000 . (90'000 + ; < !0'000)

c. -ow !uch is net inco!e if the owner had withdrawals of #9,000 in?ete!ber, and no additional invest!ents were !ade in ?ete!berH

# 1!'000 . (90'000 + ; = !'000 < !0'000)

d. "f net inco!e for ?ete!ber was #45,000, and the owner !ade noadditional invest!ents, how !uch were withdrawals in ?ete!berH

# '000 . (90'000 + 1'000 = ; < !0'000)

e. "f the owner withdrew #,000 and invested an additional #40,000during ?ete!ber, how !uch was net inco!e for ?ete!berH# ,'000 . (90'000 + ; = ,'000 + 10'000 < !0'000)

P4-13. -ere are so!e tyical transactions of the ?lade o!any. "ndicate, using lus and !inus signs as well as the a!ounts, the increase (+) or decrease

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(C) in any of the five classifications of accounts that results fro! each of

the transactions.

Transaction A L E " E0* aid >ages for the >ee#' ,!0* =,!0 +,!01* ?>ner invested euipment in the business'

1'00* +1'00 +1'00* 6illed customers for services rendered' '000* +'000 +'000&* eceived bill for minor repairs to euipment'

&0* +&0 +&09* eceived :00 from charge customers on

account*+:00=:00

!* ?>ner >ithdre> cash for personal use' !00* =!00 =!007* aid creditors on account' 00* =00 =00,* aid rent for the month' :00* =:00 +:00

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Name: Score:


P4-14. -ere are selected transactions of %at *ll $estaurant. $ecord thetransactions in the funda!ental accounting equation for! below. 8he firsttransaction is given as an e&a!le.

0. %. . . invested #4>,000 cash in the business.4. ought equi!ent for cash, #5,700.5. $eceived #6,:00 in cash for services erfor!ed.6. ought sulies on account, #>00.7. illed custo!ers for services erfor!ed, #7,000.9. $eceived and aid electric bill, #450.:. #aid wages for the !onth, #4,>00.. $eturned #4>0 worth of sulies, receiving credit or a reduction in

the bill.>. #aid creditors on account, #700.E. %. . . withdrew #>00 for ersonal use.40. $eceived #6,770 fro! charge custo!er to aly on account.

ASSETS = LIABILITIES + 6#NER7S E8&IT9

Accounts:as* + Receiva/le + E;uiment + Sulies

Accounts Paa/le

E. B. :.,:aital + Revenue " E(enses

0. + 13,000 +13,000

1. < 5,200 + 5,200

5. + 4,00 + 4,00

4. + 300 + 300

2. + 2,000 + 2,000

. < 150 + 150

. < 1,300 +1,300>. < 130 < 130

3. < 200 < 200

?. < 300 < 300

10. + 4,220 < 4,220

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ans~ch4

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