Answers to Chapter 1 In-Class Exercises
1. B
Please review the following slide:
2. B
Beginning retained earnings @ 2016-01-01
+ Net earnings for the year 2016
– Dividends
Ending retained earnings @2016-12-31
X
1,050,000
(450,000)
6,500,000
à X = 6,500,000+450,000-1,050,000 = 5,900,000
3. C
First, use retained earnings equation to get ending retained earnings:
Beginning retained earnings (0 at very beginning)
+ Net earnings for the year
– Dividends
Ending retained earnings
0
75,000
(30,000)
45,000
Second, apply accounting equation A = L + SE
à A = L + (contributed capital + retained earnings)
à 225,000 = 100,000 + (contributed capital + 45,000)
à contributed capital = 80,000
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4. C
Financial accounting provides financial information for external users (mainly creditors and investors) for
their decision-making. Managerial accounting is used by internal users (managers).
5. D
The statement of financial position shows how assets are financed by L and SE.
6. A
(1) Use accounting equation A = L + SE à 85,000 = 35,000 + SE à SE = 50,000
(2) SE = contributed capital + retained earnings à 50,000 = 20,000 + R/E à R/E = 30,000
(3) Use retained earning equation:
Beginning retained earnings (0 at very beginning)
+ Net earnings for the year
– Dividends
Ending retained earnings
0
X
0
30,000
à Net earnings = 30,000
(4) Net earnings = revenue – expense à 30,000 = 95,000 – expense à expense = 65,000
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