Copyright 2017 Pearson Education Inc. Chapter 1 The Financial Statements 1-1

Copyright ©2017 Pearson Education Inc. Chapter 1 The Financial Statements 1-1 Chapter 1 The Financial Statements Ethics Check (5-10 min.) EC 1-1 a.Integrity b.Objectivity and independence c.Integrity d.Due care Financial Accounting 11e Harrison Horngren Thomas Tietz (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Supplement Files Download Link at the end of this File 1 / 4

1-2 Financial Accounting 11/e Solutions Manual Copyright © 2017 Pearson Education Inc.Short Exercises

(5 min.) S 1-1

• Assets are the economic resources of a business that are expected

to produce a benefit in the future.Owners’ equity represents the insider claims of a business, the owners’ interest in its assets.Assets and owners’ equity differ in that assets are resources and owners’ equity is a claim to assets.Assets must be at least as large as owners’ equity, so equity can be smaller than assets.

• Both liabilities and owners’ equity are claims to assets.

Liabilities are the outsider claims to the assets of a business; they are obligations to pay creditors.Owners’ equity represents the insider claims to the assets of the business; they are the owners’ interest in its assets.

(5 min.) S 1-2

• Accounts receivable A g. Notes payable L

• Long-term debt L h. Retained earnings S

• Merchandise inventory A i. Land A

• Prepaid expenses A j. Accounts payable L

• Accrued expenses payable L k. Common stock S

• Equipment A l. Supplies A
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Copyright © 2017 Pearson Education Inc. Chapter 1 The Financial Statements 1-3 (5 min.) S 1-3

• Revenues and expenses 2. Net income (or net loss)

(10 min.) S 1-4

• Corporation, limited partners of a Limited-liability partnership (LLP)

and Limited-liability company (LLC). If any of these businesses fails and cannot pay its liabilities, creditors cannot force the owners to pay the business’s debts from the owners’ personal assets. Creditors can go after the general partner of a limited liability partnership.

• Proprietorship. There is a single owner of the business, so the

owner is answerable to no other owner.

• Partnership. If the partnership fails and cannot pay its liabilities,

creditors can force the partners to pay the business’s debts from their personal assets. A partnership affords more protection for creditors than a proprietorship because there are two or more owners to share this liability.(5 min.) S 1-5

• The entity assumption applies.
• Application of the entity assumption will separate Olson’s personal

assets from the assets of Healthy Fast Foods. This will help Olson, investors, and lenders know how much assets , liabilities and equity the business has, and this knowledge will help all parties evaluate the business realistically.

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1-4 Financial Accounting 11/e Solutions Manual Copyright © 2017 Pearson Education Inc.(5-10 min.) S 1-6

• Historical cost principle; the sale price is the amount actually

received from the sale

• Entity assumption
• Stable-monetary-unit assumption
• Historical cost principle; $300 is the accounting value of the

laptop

(5 min.) S 1-7

Computed amounts in boxes

Total Assets = Total Liabilities + Stockholders’ Equity

• $610,000 = $270,000 + $340,000

• 95,000 = 70,000 + 25,000

• 420,000 = 70,000 + 350,000

(5 min.) S 1-8

• Liabilities = Assets − Owners’ Equity
• Owners’ Equity = Assets − Liabilities

This way of determining the amount of owners’ equity applies to any company, your household, or a single IHOP restaurant.

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