CHAPTER 1

Nexis had beginning equity of $78,000; revenues of $108,000, and expenses of $80,600. The company had no other transactions impacting equity. Calculate the ending equity

$105,400. Explanation Ending Equity = Beginning Equity + Revenues − Expenses Ending Equity = $78,000 + $108,000 − $80,600 Ending Equity = $105,400

A company's balance sheet shows: Cash $56,000, Accounts receivable $33,000, Office equipment $67,000, and Accounts payable $34,000. What is the amount of total equity?

$122,000. Explanation Assets = Liabilities + Equity Cash + Accounts Receivable + Office Equipment = Accounts Payable + Equity $56,000 + $33,000 + $67,000 = $34,000 + Equity$156,000 = $34,000 + Equity Equity = $122,000

Lito Company had cash inflows from operating activities of $36,000; cash outflows from investing activities of $31,000, and cash outflows from financing activities of $21,000. Calculate the net increase or decrease in cash.

$16,000 decrease. Explanation Net Increase/(Decrease) in Cash = Cash Flows from Operating Activities + Cash Flows from Investing Activities + Cash Flows from Financing Activities Net Increase/(Decrease) in Cash = $36,000 + ($31,000) + ($21,000) Net Increase/(Decrease) in Cash = ($16,000)

Use the following information for Meeker Corporation to determine the amount of equity to report. Cash$ 84,000 Buildings1 32,500 Land 224,200 Liabilities 139,000

$301,700. Explanation Assets − Liabilities = Equity Cash + Buildings + Land − Liabilities = Equity $84,000 + $132,500 + $224,200 − $139,000 = $301,700

Zinc has beginning equity of $277,000, total revenues of $77,000, and total expenses of $50,000. The company has no other transactions impacting equity. Its ending equity is:

$304,000. Explanation Ending Equity = Beginning Equity + Total Revenues + Total Expenses Ending Equity = $277,000 + $77,000 − $50,000 Ending Equity = $304,000

Use the following information as of December 31 to determine equity. Cash$ 73,000, Buildings 191,000, Equipment 222,000, Liabilities 157,000

$329,000. Explanation Assets = Liabilities + Equity Cash + Equipment + Buildings = Liabilities + Equity $73,000 + $222,000 + $191,000 = $157,000 + Equity$486,000 = $157,000 + Equity; Equity = $329,000

On August 31 of the current year, the assets and liabilities of Gladstone, Incorporated are as follows: Cash $32,100; Supplies, $750; Equipment, $11,500; Accounts Payable, $10,300. What is the amount of equity as of August 31 of the current year?

$34,050. Explanation Assets − Liabilities = EquityCash + Supplies + Equipment − Accounts Payable = Equity $32,100 + $750 + $11,500 − $10,300 = $34,050

Zippy had cash inflows from operating activities of $69,500; cash outflows from investing activities of $54,000; and cash inflows from financing activities of $32,000. The net change in cash was:

$47,500 increase. Explanation Net Change in Cash = Cash Flows from Operating Activities + Cash Flows from Investing Activities + Cash Flows from Financing Activities Net Change in Cash = $69,500 + ($54,000) + $32,000; Net Change in Cash = $47,500

If equity is $370,000 and liabilities are $197,000, then assets equal:

$567,000. Explanation Assets = Liabilities + EquityAssets $197,000 + $370,000 = $567,000

Doc's Ribhouse had beginning equity of $56,500; net income of $23,000. The company has no other transactions impacting equity. Calculate the ending equity.

$79,500 Explanation Ending Equity = Beginning Equity + Net Income Ending Equity = $56,500 + $23,000 = $79,500

A company's balance sheet shows cash of $44,000, accounts receivable of $50,000, equipment of $90,000, and equity of $92,000. What is the amount of liabilities?

$92,000. Explanation Assets − Equity = Liabilities Cash + Accounts Receivable + Equipment − Equity = Liabilities $44,000 + $50,000 + $90,000 − $92,000 = $92,000

Rush Company had net income of $198 million and average total assets of $1,970 million. Its return on assets (ROA) is

10.1%. Explanation Return on Assets = Net Income/Average Total Assets Return on Assets = $198 million/$1,970 million = 0.101 = 10.1%

Speedy Company has net income of $35,955, and assets at the beginning of the year of $217,000. Assets at the end of the year total $263,000. Compute its return on assets.

15.0%. Explanation Return on Assets = Net Income/Average Total Assets Return on Assets = $35,955/[($217,000 + $263,000)/2] Return on Assets = $35,955/$240,000 = 0.150 = 15.0%

Cruz Company had revenues of $96,000 and expenses of $58,000 for the year. Its assets at the beginning of the year were $408,000. At the end of the year, assets were worth $458,000. Calculate its return on assets.

8.8%. Explanation Return on Assets = Net Income/Average Total Assets Return on Assets = (Revenues − Expenses)/Average Total Assets Return on Assets = ($96,000 − $58,000)/[($408,000 + $458,000)/2] Return on Assets = $38,000/$433,000 = 0.0878 = 8.8%

Flitter reported net income of $26,500 for the past year. At the beginning of the year the company had $218,000 in assets and $68,000 in liabilities. By year end, assets had increased to $318,000 and liabilities were $93,000. Calculate its return on assets:

9.9%. Explanation Return on Assets = Net Income/Average Total Assets Return on Assets = $26,500/[($218,000 + $318,000)/2] Return on Assets = $26,500/$268,000 = 0.099 = 9.9%

If a company receives $13,500 from a client for services provided, the effect on the accounting equation would be:

Assets increase $13,500 and equity increases $13,500

If a company purchases equipment costing $3,600 on credit, the effect on the accounting equation would be:

Assets increase $3,600 and liabilities increase $3,600.

If the liabilities of a company increased $108,000 during a period of time and equity in the company decreased $36,000 during the same period, what was the effect on the assets?

Assets would have increased $72,000. Explanation Assets = Liabilities + Equity Change in Assets = Change in Liabilities + Change in Equity Change in Assets = +$108,000 − $36,000Change in Assets = +$72,000

If the assets of a business increased $121,000 during a period of time and its liabilities increased $83,000 during the same period, equity in the business must have:

Increased $38,000.

If the liabilities of a business increased $87,000 during a period of time and equity in the business decreased $36,000 during the same period, the assets of the business must have:

Increased $51,000. Assets = Liabilities + Equity Change in Assets = Change in Liabilities + Change in Equity Change in Assets = +$87,000 − $36,000 Change in Assets = Increase of $51,000

If a company uses $1,320 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,320 and another asset decreases $1,320, causing no effect.

If Dallas Company billed a client for $23,000 of consulting work completed, the accounts receivable asset increases by $23,000 and

Revenue increases $23,000

A company is considering purchasing a parcel of land that was originally acquired by the seller for $104,000. While the land is currently offered for sale at $188,000, it is considered by the purchaser as easily being worth $178,000, and is finally purchased for $175,000, the land should be recorded in the purchaser's books at:

$175,000.

A company reported total equity of $147,000 at the beginning of the year. The company reported $212,000 in revenues and $166,000 in expenses for the year. Liabilities at the end of the year totaled $93,000. What are the total assets of the company at the end of the year?

$286,000. Explanation Assets = Liabilities + Equity Assets = $93,000 + (Beginning Equity + Revenues − Expenses) Assets = $93,000 + ($147,000 + $212,000 − $166,000) Assets = $93,000 + $193,000; Assets = $286,000

Determine the net income of a company for which the following information is available for the month of July. Employee salaries expense$ 194,000 Interest expense 24,000 Rent expense 34,000 Consulting revenue 456,000

$204,000. Explanation Net Income = Revenues − Expenses Net Income = Consulting Revenue − Employee Salaries Expense − Interest Expense − Rent Expense Net Income = $456,000 − $194,000 − $24,000 − $34,000; Net Income = $204,000

On May 31 of the current year, the assets and liabilities of Riser, Incorporated are as follows: Cash $11,300; Accounts Receivable, $6,700; Supplies, $650; Equipment, $11,200; Accounts Payable, $8,600. What is the amount of equity as of May 31 of the current year?

$21,250 Explanation Assets = Liabilities + Equity Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Equity $11,300 + $6,700 + $650 + $11,200 = $8,600 + Equity$29,850 = $8,600 + Equity; Equity = $21,250

Saddleback Company paid off $35,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

Assets decrease $35,000; liabilities decrease $35,000. Explanation Assets = Liabilities + Equity Assets would decrease by $35,000 in Cash due to the payment of the accounts payable. Liabilities would also decrease by $35,000 in Accounts Payable due to the payment of an obligation. There is no effect on Equity.

Echo Company has assets of $640,000, liabilities of $270,000, and equity of $370,000. It buys office equipment on credit for $95,000. What would be the effects of this transaction on the accounting equation?

Assets increase by $95,000 and liabilities increase by $95,000. Explanation Assets = Liabilities + Equity$640,000 = $270,000 + $370,000 Assets increase by $95,000 (Equipment) due to the purchase. Liabilities also increase by $95,000 (Accounts Payable) due to the purchase on credit.