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PE 1-1A page 29

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  1. PE 1-1A page 29 On November 15, Johnson Repair Service extended an offer of $35,000 for land that had been priced for sale at $43,000. On December 8, Johnson Repair Service accepted the seller’s counteroffer of $37,000. On December 30, the land was assessed at a value of $50,000 for property tax purposes. On April 1, Johnson Repair Service was offered $60,000 for the land by a national retail chain. At what value should the land be recorded in Johnson Repair Service’s records?

  2. PE 1-1A page 29 Answer $37,000. Under the cost concept, the land should be recorded at the cost to Johnson Repair Service.

  3. PE 1-2A page 29 Daryl Wallin is the owner and operator of Pima LLC, a motivational consulting business. At the end of its accounting period, December 31, 2007, Pima has assets of $617,000 and li-abilities of $382,000. Using the accounting equation, determine the following amounts: a. Owner’s equity, as of December 31, 2007. b. Owner’s equity, as of December 31, 2008, assuming that assets increased by $114,000 and liabilities decreased by $29,000 during 2008.

  4. PE 1-2A page 29 Answer • A = L + OE • $617,000 = $382,000 + OE • OE = $235,000 • A = L + OE • +$114,000 = –$29,000 + OE • OE = +$143,000 • OE on December 31, 2008 = • $378,000 = $235,000 + $143,000

  5. PE 1-3A page 30 Mime Delivery Service is owned and operated by Pamela Kolp. The following selected trans-actions were completed by Mime Delivery Service during October: 1. Received cash from owner as additional investment, $7,500. 2. Paid creditors on account, $815. 3. Billed customers for delivery services on account, $3,250. 4. Received cash from customers on account, $1,150. 5. Paid cash to owner for personal use, $500. Indicate the effect of each transaction on the accounting equation elements (Assets, Liabil-ities, Owner’s Equity, Drawing, Revenue, and Expense) by listing the numbers identifying the transactions, (1) through (5). Also, indicate the specific item within the accounting equa-tion element that is affected. To illustrate, the answer to (1) is shown below. (1) Asset (Cash) increases by $7,500; Owner’s Equity (Pamela Kolp, Capital) increases by $7,500.

  6. PE 1-3A page 30 Answer (2) Asset (Cash) decreases by $815; Liability (Accounts Payable) decreases by $815. (3) Asset (Accounts Receivable) increases by $3,250; Revenue (Delivery Service Fees) increases by $3,250. (4) Asset (Cash) increases by $1,150; Asset (Accounts Receivable) decreases by $1,150. (5) Asset (Cash) decreases by $500; Drawing (Pamela Kolp, Drawing) increases by $500.

  7. PE 1-4A page 30 The assets and liabilities of Herat Travel Service at June 30, 2008, the end of the current year, and its revenue and expenses for the year are listed below. The capital of the owner, Lola Stahn, was $75,000 at July 1, 2007, the beginning of the current year. Accounts payable $ 15,300 Miscellaneous expense $ 3,150 Accounts receivable 24,350 Office expense 91,350 Cash 70,800 Supplies 5,350 Fees earned 378,200 Wages expense 181,500 Land 100,000 Prepare an income statement for the current year ended June 30, 2008.

  8. PE 1-4A page 30 Answer

  9. PE 1-5A page 30 Using the data for Herat Travel Service shown in Practice Exercise 1-4A, prepare a statement of owner’s equity for the current year ended June 30, 2008. Lola Stahn invested an additional $20,000 in the business during the year and withdrew cash of $12,000 for personal use.

  10. PE 1-5A page 30 Answer

  11. PE 1-6A page 31 Using the data for Herat Travel Service shown in PracticeExercise1-4A and 1-5A, prepare the balance sheet as of June 30, 2008.

  12. PE 1-6A page 31 Answer

  13. PE 1-7A page 31 A summary of cash flows for Herat Travel Service for the year ended June 30, 2008, is shown below. Cash receipts: Cash received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 Cash received from additional investment of owner . . . . . . . . 20,000 Cash payments: Cash paid for operating expenses . . . . . . . . . . . . . . . . . . . . . . . 270,000 Cash paid for land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Cash paid to owner for personal use . . . . . . . . . . . . . . . . . . . . 12,000 The cash balance as of July 1, 2007, was $42,800. Prepare a statement of cash flows for Herat Travel Service for the year ended June 30, 2008.

  14. PE 1-7A page 31 Answer