Chapter 1: Brief Exercises
Brief Exercises
BE1.1 The following is the basic accounting equation. Determine the
missing amounts.
Assets = Liabilities + Owner’s Equity
(a) $90000 $50000 ?
(b) ? $44000 $70000
(c) $94000 ? $53000
Solution: (a) We know, Assets = Liabilities + Owner’s Equity
$90000 = $50000 + Owner’s Equity
$90000 – $50000 = Owner’s Equity
Owner’s Equity = $40000 (Ans.)
(b) We know, Assets = Liabilities + Owner’s Equity
Assets = $44000 + $70000
Assets = $114000 (Ans.)
(c) We know, Assets = Liabilities + Owner’s Equity
$94000 = Liabilities + $53000
$94000 – $53000 = Liabilities
Liabilities = $41000 (Ans.)
BE1.2 Given the accounting equation, answer each of the following
question.
(a) The liabilities of Berber Company are $120000 and the owner’s
equity is $230000. What is the amount of Berber Company’s total
assets?
(b) The total assets of Berber Company are $190000 and its owner’s
equity is $89000. What is the amount of its total liabilities?
(c) The total assets of Berber Company are $900000 and its liabilities are
equal to one half of its total assets. What is the amount of Berber
Company’s owner’s equity?
Solution: (a) A = L + OE = 120000 + 230000 = 350000
(b) L = A – OE = 190000 – 89000 = 101000
(c) OE = A – L = 900000 – ½(900000) = 450000
BE1.3 At the beginning of the year, Gilles Company had total assets of
$800000 and total liabilities of $300000. Answer the following questions.
(a) If total assets increased $150000 during the year and total liabilities
decreased $60000, what is the amount of owner’s equity at the end of
the year?
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(b) During the year, total liabilities increased $100000 and owner’s equity
decreased $70000. What is the amount of total assets at the end of the
year?
(c) If total assets decreased $80000 and owner’s equity increased $120000
during the year, what is the amount of total liabilities at the end of the
year?
Solution: We know, Assets = Liabilities + Owner’s Equity
Given $800000 = $300000 + $500000 (Balancing figure)
(a) Owner’s Equity = Assets – Liabilities
= ($800000 + $150000) – ($500000 – $60000)
= $950000 – $440000
= $510000 (Ans.)
(b) Assets = Liabilities + Owner’s Equity
= ($300000 + $100000) + ($500000 – $70000)
= $400000 + $430000
= $830000 (Ans.)
(c) Liabilities = Assets – Owner’s Equity
= ($800000 – $80000) – ($500000 + $120000)
= $720000 – $620000
= $100000 (Ans.)
BE1.4 Use the expanded accounting equation to answer each of the
following questions.
a. The liabilities of Platt Company are $90,000. Owner’s capital is
$150,000; drawings are $40,000; revenues, $450,000; and expenses,
$340,000. What is the amount of Platt Company’s total assets?
b. The total assets of Sierra Company are $57,000. Owner’s capital is
$35,000; drawings are $7,000; revenues, $52,000; and expenses,
$35,000. What is the amount of the company’s total liabilities?
c. The total assets of Birch Co. are $660,000 and its liabilities are equal
to two-thirds of its total assets. What is the amount of Birch Co.’s
owner’s equity?
Solution: (a) A = L + OC – D + R – E
= 90000 + 150000 – 40000 + 450000 – 340000
= $310000 [Ans.]
(b) L = A – OC + D – R + E
= 57000 – 35000 + 7000 – 52000 + 35000
= $12000 [Ans.]
(c) OE = A – L
= 660000 – ⅔ ( 660000)
= $220000 [Ans.]
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Chapter 1: Brief Exercises
BE1.5 Indicate whether each of the following items is an asset (A), liabilities
(L), or part of owner’s equity (OE).
____ (a) Accounts receivable ____ (d) Supplies
____ (b) Salaries and wages payable ____ (e) Owner’s capital
____ (c) Equipment ____ (f) Notes payable
Solution: (a) A, (b) L, (c) A, (d) A, (e) OE, (f) L.
BE1.6 Classify each of the following items as owner’s drawing (D), revenue
(R), or expense (E).
____ (a) Advertising expense ____ (e) Owner’s drawings
____ (b) Service revenue ____ (f) Rent revenue
____ (c) Insurance expense ____ (g) Utilities expense
____ (d) Salaries and wages payable
Solution: (a) E, (b) R, (c) E, (d) E, (e) D, (f) R, (g) E.
BE1.7 Presented below are three business transactions. On a sheet of paper,
list the letters (a), (b), (c) with columns for assets, liabilities, and owner’s
equity. For each column, indicate whether the transactions increased (+),
decreased (–), or had no effect (NE) on assets, liabilities, and owner’s
equity.
(a) Purchased supplies on account.
(b) Received cash for performing a service.
(c) Paid expenses in cash.
Solution: Effect of Transactions
No. Assets = Liabilities + Owner’s Equity
(a) + = + + NE
(b) + = NE + +
(c) – = NE + –
BE1.8 Follow the same format as BE 1.7 above. Determine the effect on
assets, liabilities, and owner’s equity of the following three transactions.
(a) Invested cash in the business.
(b) Withdrawal of cash by owner.
(c) Received cash from a customer who had previously been billed for
services performed.
Solution: Effect of Transactions
No. Assets = Liability + Owner’s Equity
(a) + = NE + +
(b) – = NE + –
(c) +, – = NE + NE
BE1.9 Presented below are three transactions. Mark each transaction as
affecting owner’s investment (I), owner’s drawing (D), revenue (R), expense
(E), or not affecting owner’s equity (NOE).
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Accounting Principles Manual
____ (a) Received cash for services performed
____ (b) Paid cash to purchase equipment
____ (c) Paid employee salaries
Solution: (a) R, (b) NOE, (c) E.
BE1.10 In alphabetical order below are balance sheet items for Smyth
Company at December 31, 2022. Kathy Smyth is the owner of Smyth
Company. Prepare a balance sheet following the format of Illustration 1.10.
Accounts payable $90000
Accounts receivable 62500
Cash 49000
Owner’s capital 21500
Solution: SMYTH COMPANY
Balance Sheet
December 31, 2022
Assets Amount
Cash $49000
Accounts receivable 62500
Total assets $111500
Liabilities and Owner’s Equity
Liabilities:
Accounts payable $90000
Total liabilities 90000
Owner’s equity:
Owner’s capital 21500
Total liabilities and owner’s equity $111500
BE1.11 Indicate whether the following items would appear on the income
statement (IS), balance sheet (BS), or owner’s equity statement (OE).
____ (a) Notes payable ____ (d) Cash
____ (b) Advertising expense ____ (e) Service revenue
____ (c) Owner’s capital
Solution: (a) BS, (b) IS, (c) OE, and BS (d) BS, (e) IS.
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