CHAPTER 2

Basic Financial Statements

Problem-Solving Session

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Chapter 2– Demonstration Problem

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Chapter 2– Demostration Problem

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Chapter 2– Problem 2.1A

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Chapter 2– Problem 2.1A- Solution
SOLUTIONS TO PROBLEMS SET A
15 Minutes, Easy PROBLEM 2.1A
ROCKY MOUNTAIN LODGE
a.
ROCKY MOUNTAIN LODGE
Balance Sheet
December 31, Year 1

Assets Liabilities & Owners' Equity

Cash $ 37,680 Liabilities:
Accounts receivable 12,720 Accounts payable $ 65,760
Furnishings 70,440 Salaries payable 40,200
Equipment 47,040 Interest payable 14,400
Snowmobiles 18,480 Notes payable 744,000
Buildings 600,000 $ 864,360
Land 510,000 Owners' equity:
Capital stock 162,000
Retained earnings (1) 270,000
Total $ 1,296,360 Total $ 1,296,360

(1) Computed as total assets, $1,296,360, less total liabilities, $864,360, less capital stock,
$ 162,000.

b. The balance sheet indicates that Rocky Mountain Lodge is in a weak financial position.
The highly liquid assets—cash and receivables—total only $50,400 but the company has
$120,360 of debts due in the near future (accounts payable, salaries payable, and interest
payable).

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Chapter 2– Problem 2.2A

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 Chapter 2– Problem 2.2A Solution
15 Minutes, Easy PROBLEM 2.2A
MEMPHIS MOVING COMPANY

Description of transactions:

a. Purchased equipment for cash at a cost of $3,200.

b. Received $900 cash from collection of accounts receivable.

c. Purchased equipment at a cost of $13,500; paid $3,500 cash as down payment and incurred a
liability (accounts payable) for the remaining $10,000.

d. Paid $14,500 of accounts payable.

e. $15,000 cash was received from the sale of capital stock.

f. Purchased equipment on account for $7,500.

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Chapter 2– Problem 2.3A

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Chapter 2– Problem 2.3A Solution

15 Minutes, Medium PROBLEM 2.3A

MAXWELL COMMUNICATIONS
Owners'
Assets = Liabilities + Equity
Office Notes Accounts Capital
Cash + Equipment + Building + Land = Payable + Payable + Stock
December 31 balances $ 37,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 200,000
(1) 35,000 35,000
Balances $ 72,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 235,000
(2) (22,500) 55,000 35,000 67,500
Balances $ 49,500 $ 51,250 $ 180,000 $ 130,000 $ 147,500 $ 28,250 $ 235,000
(3) 9,500 9,500
Balances $ 49,500 $ 60,750 $ 180,000 $ 130,000 $ 147,500 $ 37,750 $ 235,000
(4) 20,000 20,000
Balances $ 69,500 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 37,750 $ 235,000
(5) $ (28,250) $ (28,250)
Balances $ 41,250 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 9,500 $ 235,000

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 Chapter 2– Problem 2.3A Solution

15 Minutes, Medium PROBLEM 2.3A

MAXWELL COMMUNICATIONS
Owners'
Assets = Liabilities + Equity
Office Notes Accounts Capital
Cash + Equipment + Building + Land = Payable + Payable + Stock
December 31 balances $ 37,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 200,000
(1) 35,000 35,000
Balances $ 72,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 235,000
(2) (22,500) 55,000 35,000 67,500
Balances $ 49,500 $ 51,250 $ 180,000 $ 130,000 $ 147,500 $ 28,250 $ 235,000
(3) 9,500 9,500
Balances $ 49,500 $ 60,750 $ 180,000 $ 130,000 $ 147,500 $ 37,750 $ 235,000
(4) 20,000 20,000
Balances $ 69,500 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 37,750 $ 235,000
(5) $ (28,250) $ (28,250)
Balances $ 41,250 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 9,500 $ 235,000

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 Chapter 2– Problem 2.3A Solution

15 Minutes, Medium PROBLEM 2.3A

MAXWELL COMMUNICATIONS
Owners'
Assets = Liabilities + Equity
Office Notes Accounts Capital
Cash + Equipment + Building + Land = Payable + Payable + Stock
December 31 balances $ 37,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 200,000
(1) 35,000 35,000
Balances $ 72,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 235,000
(2) (22,500) 55,000 35,000 67,500
Balances $ 49,500 $ 51,250 $ 180,000 $ 130,000 $ 147,500 $ 28,250 $ 235,000
(3) 9,500 9,500
Balances $ 49,500 $ 60,750 $ 180,000 $ 130,000 $ 147,500 $ 37,750 $ 235,000
(4) 20,000 20,000
Balances $ 69,500 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 37,750 $ 235,000
(5) $ (28,250) $ (28,250)
Balances $ 41,250 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 9,500 $ 235,000

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 Chapter 2– Problem 2.3A Solution

15 Minutes, Medium PROBLEM 2.3A

MAXWELL COMMUNICATIONS
Owners'
Assets = Liabilities + Equity
Office Notes Accounts Capital
Cash + Equipment + Building + Land = Payable + Payable + Stock
December 31 balances $ 37,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 200,000
(1) 35,000 35,000
Balances $ 72,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 235,000
(2) (22,500) 55,000 35,000 67,500
Balances $ 49,500 $ 51,250 $ 180,000 $ 130,000 $ 147,500 $ 28,250 $ 235,000
(3) 9,500 9,500
Balances $ 49,500 $ 60,750 $ 180,000 $ 130,000 $ 147,500 $ 37,750 $ 235,000
(4) 20,000 20,000
Balances $ 69,500 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 37,750 $ 235,000
(5) $ (28,250) $ (28,250)
Balances $ 41,250 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 9,500 $ 235,000

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 Chapter 2– Problem 2.3A Solution

15 Minutes, Medium PROBLEM 2.3A

MAXWELL COMMUNICATIONS
Owners'
Assets = Liabilities + Equity
Office Notes Accounts Capital
Cash + Equipment + Building + Land = Payable + Payable + Stock
December 31 balances $ 37,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 200,000
(1) 35,000 35,000
Balances $ 72,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 235,000
(2) (22,500) 55,000 35,000 67,500
Balances $ 49,500 $ 51,250 $ 180,000 $ 130,000 $ 147,500 $ 28,250 $ 235,000
(3) 9,500 9,500
Balances $ 49,500 $ 60,750 $ 180,000 $ 130,000 $ 147,500 $ 37,750 $ 235,000
(4) 20,000 20,000
Balances $ 69,500 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 37,750 $ 235,000
(5) $ (28,250) $ (28,250)
Balances $ 41,250 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 9,500 $ 235,000

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 Chapter 2– Problem 2.3A Solution

15 Minutes, Medium PROBLEM 2.3A

MAXWELL COMMUNICATIONS
Owners'
Assets = Liabilities + Equity
Office Notes Accounts Capital
Cash + Equipment + Building + Land = Payable + Payable + Stock
December 31 balances $ 37,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 200,000
(1) 35,000 35,000
Balances $ 72,000 $ 51,250 $ 125,000 $ 95,000 $ 80,000 $ 28,250$ 235,000
(2) (22,500) 55,000 35,000 67,500
Balances $ 49,500 $ 51,250 $ 180,000 $ 130,000 $ 147,500 $ 28,250 $ 235,000
(3) 9,500 9,500
Balances $ 49,500 $ 60,750 $ 180,000 $ 130,000 $ 147,500 $ 37,750 $ 235,000
(4) 20,000 20,000
Balances $ 69,500 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 37,750 $ 235,000
(5) $ (28,250) $ (28,250)
Balances $ 41,250 $ 60,750 $ 180,000 $ 130,000 $ 167,500 $ 9,500 $ 235,000

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 Chapter 2– Problem 2.4A

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 Chapter 2– Problem 2.4A Solution
15 Minutes, Medium PROBLEM 2.4A
PHILLIPS TRUCK RENTAL
Owners'
Assets = Liabilities + Equity
Accounts Office Notes Accounts Capital
Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
December 31 balances $ 9,500 $ 13,900 $ 3,800 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(1) (2,700) 2,700
Balances $ 6,800 $ 13,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(2) 4,000 (4,000)
Balances $ 10,800 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(3) (3,200) (3,200)
Balances $ 7,600 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 7,000 $ 65,000
(4) 10,000 10,000
Balances $ 17,600 $ 9,900 $ 6,500 $ 68,000 $ 30,000 $ 7,000 $ 65,000
(5) (15,000) 30,500 15,500
Balances $ 2,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 65,000
(6) 85,000 85,000
Balances $ 87,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 150,000

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 Chapter 2– Problem 2.4A Solution
15 Minutes, Medium PROBLEM 2.4A
PHILLIPS TRUCK RENTAL
Owners'
Assets = Liabilities + Equity
Accounts Office Notes Accounts Capital
Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
December 31 balances $ 9,500 $ 13,900 $ 3,800 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(1) (2,700) 2,700
Balances $ 6,800 $ 13,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(2) 4,000 (4,000)
Balances $ 10,800 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(3) (3,200) (3,200)
Balances $ 7,600 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 7,000 $ 65,000
(4) 10,000 10,000
Balances $ 17,600 $ 9,900 $ 6,500 $ 68,000 $ 30,000 $ 7,000 $ 65,000
(5) (15,000) 30,500 15,500
Balances $ 2,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 65,000
(6) 85,000 85,000
Balances $ 87,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 150,000

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 Chapter 2– Problem 2.4A Solution
15 Minutes, Medium PROBLEM 2.4A
PHILLIPS TRUCK RENTAL
Owners'
Assets = Liabilities + Equity
Accounts Office Notes Accounts Capital
Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
December 31 balances $ 9,500 $ 13,900 $ 3,800 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(1) (2,700) 2,700
Balances $ 6,800 $ 13,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(2) 4,000 (4,000)
Balances $ 10,800 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(3) (3,200) (3,200)
Balances $ 7,600 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 7,000 $ 65,000
(4) 10,000 10,000
Balances $ 17,600 $ 9,900 $ 6,500 $ 68,000 $ 30,000 $ 7,000 $ 65,000
(5) (15,000) 30,500 15,500
Balances $ 2,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 65,000
(6) 85,000 85,000
Balances $ 87,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 150,000

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 Chapter 2– Problem 2.4A Solution
15 Minutes, Medium PROBLEM 2.4A
PHILLIPS TRUCK RENTAL
Owners'
Assets = Liabilities + Equity
Accounts Office Notes Accounts Capital
Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
December 31 balances $ 9,500 $ 13,900 $ 3,800 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(1) (2,700) 2,700
Balances $ 6,800 $ 13,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(2) 4,000 (4,000)
Balances $ 10,800 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(3) (3,200) (3,200)
Balances $ 7,600 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 7,000 $ 65,000
(4) 10,000 10,000
Balances $ 17,600 $ 9,900 $ 6,500 $ 68,000 $ 30,000 $ 7,000 $ 65,000
(5) (15,000) 30,500 15,500
Balances $ 2,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 65,000
(6) 85,000 85,000
Balances $ 87,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 150,000

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 Chapter 2– Problem 2.4A Solution
15 Minutes, Medium PROBLEM 2.4A
PHILLIPS TRUCK RENTAL
Owners'
Assets = Liabilities + Equity
Accounts Office Notes Accounts Capital
Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
December 31 balances $ 9,500 $ 13,900 $ 3,800 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(1) (2,700) 2,700
Balances $ 6,800 $ 13,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(2) 4,000 (4,000)
Balances $ 10,800 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(3) (3,200) (3,200)
Balances $ 7,600 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 7,000 $ 65,000
(4) 10,000 10,000
Balances $ 17,600 $ 9,900 $ 6,500 $ 68,000 $ 30,000 $ 7,000 $ 65,000
(5) (15,000) 30,500 15,500
Balances $ 2,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 65,000
(6) 85,000 85,000
Balances $ 87,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 150,000

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 Chapter 2– Problem 2.4A Solution
15 Minutes, Medium PROBLEM 2.4A
PHILLIPS TRUCK RENTAL
Owners'
Assets = Liabilities + Equity
Accounts Office Notes Accounts Capital
Cash + Receivable + Equipment + Trucks = Payable + Payable + Stock
December 31 balances $ 9,500 $ 13,900 $ 3,800 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(1) (2,700) 2,700
Balances $ 6,800 $ 13,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(2) 4,000 (4,000)
Balances $ 10,800 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 10,200 $ 65,000
(3) (3,200) (3,200)
Balances $ 7,600 $ 9,900 $ 6,500 $ 68,000 $ 20,000 $ 7,000 $ 65,000
(4) 10,000 10,000
Balances $ 17,600 $ 9,900 $ 6,500 $ 68,000 $ 30,000 $ 7,000 $ 65,000
(5) (15,000) 30,500 15,500
Balances $ 2,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 65,000
(6) 85,000 85,000
Balances $ 87,600 $ 9,900 $ 6,500 $ 98,500 $ 45,500 $ 7,000 $ 150,000

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 Chapter 2– Problem 2.6A

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 Chapter 2– Problem 2.6A Solution
20 Minutes, Medium PROBLEM 2.6A
ALEXANDER FARMS, INC.
a.
ALEXANDER FARMS, INC.
Balance Sheet
September 30, current year
Assets Liabilities & Owners' Equity
Cash $ 16,710 Liabilities:
Accounts receivable 22,365 Notes payable $ 330,000
Barns and sheds 78,300 Accounts payable 77,095
Citrus trees 76,650 Property taxes payable 9,135
Livestock 120,780 Wages payable 5,820
Irrigation system 20,125 Total liabilities $ 422,050
Farm machinery 42,970 Owners' equity:
Fences & gates 33,570 Capital stock 290,000
Land 490,000 Retained earnings * 189,420
Total $ 901,470 Total $ 901,470

*Total assets, $901,470, minus total liabilities, $422,050, less capital stock, $290,000.

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