The following data were taken from Alvarado Company’s balance sheet:Compute the ratio of liabilities to owner’s equity.

The following data were taken from Alvarado Company’s balance sheet:

                      Dec. 31, 2019 | Dec. 31, 2018

Total liabilities        $4,085,000 | $2,880,000

Total owner’s equity.     4,300,000 | 3,600,000

a. Compute the ratio of liabilities to owner’s equity.

b. Has the creditor’s risk increased or decreased from December 31, 2018, to December 31, 2019?

Answer:

a.Dec. 31, Dec. 31, Total liabilities...................................................... $4,085,000 $2,880,000 Total owner’s equity................................................ $4,300,000 $3,600,000 Ratio of liabilities to owner’s equity........................... 0.95 0.80 * $4,085,000 ÷ $4,300,000 ** $2,880,000 ÷ $3,600,000 b. Increased

The following data were taken from Mesa Company’s balance sheet:Compute the ratio of liabilities to owner’s equity.

The following data were taken from Mesa Company’s balance sheet:

                            Dec. 31, 2019 | Dec. 31, 2018

Total liabilities             $547,800 | $518,000

Total owner’s equity      415,000 | 370,000

a. Compute the ratio of liabilities to owner’s equity.

b. Has the creditor’s risk increased or decreased from December 31, 2018, to December 31, 2019?

Answer:

 

a.Dec. 31, Dec. 31,2019 2018 Total liabilities...................................... ............... $547,800 $518,000 Total owner’s equity................................................ $415,000 $370,000 Ratio of liabilities to owner’s equity........................... 1.32 1.40 * $547,800 ÷ $415,000 ** $518,000 ÷ $370,000 b. Decreased

A summary of cash flows for Sentinel Travel Service for the year ended August 31, 2019, follows:

A summary of cash flows for Sentinel Travel Service for the year ended August 31, 2019, follows:

Cash receipts:

Cash received from customers $734,000

Cash received from additional investment of owner 36,000

Cash payments:

Cash paid for operating expenses 745,600

Cash paid for land 50,000

Cash paid to owner for personal use 20,000

The cash balance as of September 1, 2019, was $89,000.

Prepare a statement of cash flows for Sentinel Travel Service for the year ended August 31, 2019.

Answer:

SENTINEL TRAVEL SERVICE

Statement of Cash Flows

For the Year Ended August 31, 2019

Cash flows from operating activities:  Cash receipt from customers Cash payments for operating expenses Net cash flow used for operating activities Cash flows used for investing activities: Cash payment for purchase of land Cash flows from financing activities: Cash receipt from owner as investment Cash withdrawals by owner Net cash flow from financing activities Net decrease in cash during year Cash as of September 1, 2018 Cash as of August 31, 2019 (50,000) $ 734,000 (745,600)$(45,600) 16,000 $ 36,000 (20,000) SENTINEL TRAVEL SERVICE Statement of Cash Flows For the Year Ended August 31, 2019 $(11,600)$ 43,400

A summary of cash flows for Adventure Travel Service for the year ended April 30, 2019, follows:

A summary of cash flows for Adventure Travel Service for the year ended April 30, 2019, follows:

Cash receipts:

Cash received from customers $2,080,000

Cash received from additional investment of owner 60,000

Cash payments:

Cash paid for operating expenses 1,706,000

Cash paid for land 400,000

Cash paid to owner for personal use 40,000

The cash balance as of May 1, 2018, was $203,000.

Prepare a statement of cash flows for Adventure Travel Service for the year ended April 30, 2019.

Answer:

ADVENTURE TRAVEL SERVICE

Statement of Cash Flows

For the Year Ended April 30, 2019

Cash flows from operating activities:  Cash receipts from customers $ 2,080,000 Cash payments for operating expenses (1,706,000) Net cash flow from operating activities$ 374,000 Cash flows used for investing activities: Cash payment for purchase of land(400,000) Cash flows from financing activities: Cash receipt from owner as investment $ 60,000 Cash withdrawals by owner(40,000) Net cash flow from financing activities20,000 Net decrease in cash during year$ (6,000) Cash as of May 1, 2018203,000 Cash as of April 30, 2019$ 197,000

Using the following data for Sentinel Travel Service as well as the statement of owner’s equity shown in Practice Exercise

Using the following data for Sentinel Travel Service as well as the statement of owner’s equity shown in Practice Exercise 1-5B, prepare a report form balance sheet as of August 31, 2019: 

Accounts payable $ 44,600

Accounts receivable 75,500

Cash 45,400

Land 310,000

Supplies 4,700

Answer:

SENTINEL TRAVEL SERVICE

Balance Sheet

August 31, 2019

Cash$ 45,400 Accounts receivable75,500 Supplies4,700 Land310,000 Total assets$435,600 Accounts payable$ 44,600 Barb Schroeder, capital391,000 Total liabilities and owner’s equity$435,600

Using the following data for Adventure Travel Service as well as the statement of owner’s equity shown in Practice Exercise

Using the following data for Adventure Travel Service as well as the statement of owner’s equity shown in Practice Exercise 1-5A, prepare a report form balance sheet as of April 30, 2019: 

Accounts payable $105,000

Accounts receivable 485,000

Cash 197,000

Land 900,000

Supplies 18,000

Answer:

ADVENTURE TRAVEL SERVICE

Balance Sheet

April 30, 2019

Cash$ 197,000 Accounts receivable485,000 Supplies18,000 Land900,000 Total assets$1,600,000 Accounts payable$ 105,000 Jerome Foley, capital1,495,000 Total liabilities and owner’s equity$1,600,000

Using the income statement for Sentinel Travel Service shown in Practice Exercise 1-4B, prepare a statement of owner’s equity for the year ended

Using the income statement for Sentinel Travel Service shown in Practice Exercise 1-4B, prepare a statement of owner’s equity for the year ended August 31, 2019. Barb Schroeder, the owner, invested an additional $36,000 in the business during the year and withdrew cash of $18,000 for personal use. Barb Schroeder, capital as of September 1, 2018, was $380,000.

Answer: 

SENTINEL TRAVEL SERVICE

Statement of Owner’s Equity

Barb Schroeder, capital, September 1, 2018$380,000 Additional investment by owner during year $ 36,000 Net loss for the year(7,000) Withdrawals(18,000) Increase in owner’s equity11,000 Barb Schroeder, capital, August 31, 2019$391,000

Using the income statement for Adventure Travel Service shown in Practice Exercise 1-4A, prepare a statement of owner’s equity

Using the income statement for Adventure Travel Service shown in Practice Exercise 1-4A, prepare a statement of owner’s equity for the year ended April 30, 2019. Jerome Foley, the owner, invested an additional $60,000 in the business during the year and withdrew cash of $40,000 for personal use. Jerome Foley, capital as of May 1, 2018, was $1,020,000. 

Answer:

ADVENTURE TRAVEL SERVICE

Statement of Owner’s Equity

For the Year Ended April 30, 2019

Jerome Foley, capital, May 1, 2018$1,020,000 Additional investment by owner during year $ 60,000 Net income for the year455,000 Withdrawals(40,000) Increase in owner’s equity475,000 Jerome Foley, capital, April 30, 2019$1,495,000

The revenues and expenses of Sentinel Travel Service for the year ended August 31, 2019, follow:

The revenues and expenses of Sentinel Travel Service for the year ended August 31, 2019, follow: 

Fees earned $750,000

Office expense 295,000

Miscellaneous expense 12,000

Wages expense 450,000

Prepare an income statement for the year ended August 31, 2019.

Answer:

SENTINEL TRAVEL SERVICE

Income Statement

For the Year Ended August 31, 2019

Fees earned$750,000 Expenses: Wages expense$450,000 Office expense295,000 Miscellaneous expense12,000 Total expenses757,000 Net loss$ (7,000)

The revenues and expenses of Adventure Travel Service for the year ended April 30, 2019, follow: Fees earned $2,180,000

The revenues and expenses of Adventure Travel Service for the year ended April 30, 2019, follow: 

Fees earned $2,180,000

Office expense 400,000

Miscellaneous expense 25,000

Wages expense 1,300,000

Prepare an income statement for the year ended April 30, 2019.

Answer:

ADVENTURE TRAVEL SERVICE

Income Statement

For the Year Ended April 30,2019

Fees earned$2,180,000 Expenses: Wages expense$1,300,000 Office expense400,000 Miscellaneous expense25,000 Total expenses1,725,000 Net income$ 455,000

Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery Service during May

Interstate Delivery Service is owned and operated by Katie Wyer. The following selected transactions were completed by Interstate Delivery Service during May:

1. Received cash from owner as additional investment, $18,000.

2. Paid advertising expense, $4,850.

3. Purchased supplies on account, $2,100.

4. Billed customers for delivery services on account, $14,700.

5. Received cash from customers on account, $8,200.

Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense). Also indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) follows:

(1) Asset (Cash) increases by $18,000; Owner’s Equity (Katie Wyer, Capital) increases by $18,000.

Answer:

(2) 

Expense (Advertising Expense) increases by $4,850; 

Asset (Cash) decreases by $4,850.

(3) 

Asset (Supplies) increases by $2,100; 

Liability (Accounts Payable) increases by $2,100.

(4) 

Asset (Accounts Receivable) increases by $14,700; 

Revenue (Delivery Service Fees) increases by $14,700.

(5) 

Asset (Cash) increases by $8,200; 

Asset (Accounts Receivable) decreases by $8,200.

Bridgeport Delivery Service is owned and operated by Jerome Foley. The following selected transactions were completed by Bridgeport Delivery Service during February:

Bridgeport Delivery Service is owned and operated by Jerome Foley. The following selected transactions were completed by Bridgeport Delivery Service during February:

1. Received cash from owner as additional investment, $40,000.

2. Billed customers for delivery services on account, $13,750.

3. Paid creditors on account, $2,500.

4. Received cash from customers on account, $9,000.

5. Paid cash to owner for personal use, $1,000.

Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense). Also indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) follows:

(1) Asset (Cash) increases by $40,000; Owner’s Equity ( Jerome Foley, Capital) increases by $40,000.

Answer:

(2) 

Asset (Accounts Receivable) increases by $13,750; 

Revenue (Delivery Service Fees) increases by $13,750. 

(3) 

Liability (Accounts Payable) decreases by $2,500; Asset (Cash) decreases by $2,500.

(4) 

Asset (Cash) increases by $9,000; 

Asset (Accounts Receivable) decreases by $9,000.

(5) 

Asset (Cash) decreases by $1,000; 

Owner's Equity (Jerome Foley, Drawing) decreases by $1,000.

Terry Fleming is the owner and operator of Go-For-It LLC, a motivational consulting business.

Terry Fleming is the owner and operator of Go-For-It LLC, a motivational consulting business. At the end of its accounting period, December 31, 2018, Go-For-It has assets of $675,000 and liabilities of $215,000. Using the accounting equation, determine the following amounts:

a. Owner’s equity as of December 31, 2018.

b. Owner’s equity as of December 31, 2019, assuming that assets increased by $112,300 and liabilities increased by $32,000 during 2019.

Answer:

a. A = L  +  OE $675,000 = $215,000 + OE

OE = $460,000 b. A = L  +  OE +$112,300 = +$32,000 + OE OE = +$80,300 OE on December 31, 2019 = $460,000 + $80,300 = $540,300

Fritz Evans is the owner and operator of Be-The-One, a motivational consulting business. At the end of its accounting period

Fritz Evans is the owner and operator of Be-The-One, a motivational consulting business. At the end of its accounting period, December 31, 2018, Be-The-One has assets of $395,000 and liabilities of $97,000. Using the accounting equation, determine the following amounts:

a. Owner’s equity as of December 31, 2018.

b. Owner’s equity as of December 31, 2019, assuming that assets decreased by $65,000 and liabilities increased by $36,000 during 2019.

Answer:

a. A = L  +  OE $395,000 = $97,000 + OE

OE = $298,000 b. A = L  +  OE

–$65,000 = +$36,000 + OE OE = –$101,000 OE on December 31, 2019 = $298,000 – $101,000 = $197,000

On February 3, Clairemont Repair Service extended an offer of $360,000 for land that had been priced for sale at $400,000

On February 3, Clairemont Repair Service extended an offer of $360,000 for land that had been priced for sale at $400,000. On February 28, Clairemont Repair Service accepted the seller’s counteroffer of $380,000. On October 23, the land was assessed at a value of $390,000 for property tax purposes. On January 15 of the next year, Clairemont Repair Service was offered $450,000 for the land by a national retail chain. At what value should the land be recorded in Clairemont Repair Service’s records?

Answer:

$380,000. Under the cost concept, the land should be recorded at the cost to Clairemont Repair Service.

On March 31, Higgins Repair Service extended an offer of $415,000 for land that had been priced for sale at $460,000

On March 31, Higgins Repair Service extended an offer of $415,000 for land that had been priced for sale at $460,000. On April 15, Higgins Repair Service accepted the seller’s counteroffer of $437,500. On September 9, the land was assessed at a value of $375,000 for property tax purposes. On December 8, Higgins Repair Service was offered $475,000 for the land by a national retail chain. At what value should the land be recorded in Higgins Repair Service’s records?

Answer:

$437,500. Under the cost concept, the land should be recorded at the cost to Higgins Repair Service.