Chapter 1 Introduction to Accounting and Business
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EX 1-7 Accounting equation
OBJ. 3, 4
Mega Concepts is a motivational consulting business. At the end of its accounting period, December 31, 2013, Mega Concepts has assets of 1,250,000 and liabilities of 475,000.
Using the accounting equation and considering each case independently, determine the following amounts:
a. Stockholders’ equity as of December 31, 2013. b. Stockholders’ equity as of December 31, 2014, assuming that assets increased by
225,000 and liabilities increased by 110,000 during 2014. c. Stockholders’ equity as of December 31, 2014, assuming that assets decreased by
300,000 and liabilities increased by 90,000 during 2014. d. Stockholders’ equity as of December 31, 2014, assuming that assets increased by
550,000 and liabilities decreased by 135,000 during 2014. e. Net income or net loss during 2014, assuming that as of December 31, 2014,
assets were 1,500,000, liabilities were 375,000, and no additional capital stock was issued or dividends paid.
EX 1-8 Asset, liability, and stockholders’ equity items
OBJ. 3
Indicate whether each of the following is identified with 1 an asset, 2 a liability, or 3 stockholders’ equity:
a. accounts payable b. cash
c. fees earned d. land
e. supplies f. wages expense
EX 1-9 Effect of transactions on accounting equation
OBJ. 4
Describe how the following business transactions affect the three elements of the ac- counting equation.
a. Invested cash in business. b. Paid for utilities used in the business.
c. Purchased supplies for cash. d. Purchased supplies on account.
e. Received cash for services performed.
EX 1-10 Effect of transactions on accounting equation
OBJ. 4
a. A vacant lot acquired for 180,000 is sold for 440,000 in cash. What is the effect of the sale on the total amount of the seller’s 1 assets, 2 liabilities, and 3 stockholders’ equity?
b. Assume that the seller owes 69,000 on a loan for the land. After receiving the 440,000 cash in a, the seller pays the 69,000 owed. What is the effect of the payment on
the total amount of the seller’s 1 assets, 2 liabilities, and 3 stockholders’ equity? c. Is it true that a transaction always affects at least two elements Assets, Liabilities, or
Stockholders’ Equity of the accounting equation? Explain.
EX 1-11 Effect of transactions on stockholders’ equity
OBJ. 4
Indicate whether each of the following types of transactions will either a increase stock- holders’ equity or b decrease stockholders’ equity:
1. expenses 2. issuing capital stock in exchange for cash
3. dividends 4. revenues
b. 890,000
a. 1 increase 260,000
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Chapter 1 Introduction to Accounting and Business
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