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Ch2Solutions.doc

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Department
Accounting
Course
ACC 100
Professor
Else Grech
Semester
Fall

Description
CHAPTER 2 Financial Statements and the Annual Report LO 2 EXERCISE 2-1 CHARACTERISTICS OF USEFUL ACCOUNTING INFORMATION 1. reliability 2. relevance 3. representational faithfulness 4. consistency 5. verifiability 6. understandability 7. neutrality 8. comparability LO 3 EXERCISE 2-2 CLASSIFICATION OF ASSETS AND LIABILITIES 1. CA 2. CL 3. NCA 4. CL 5. CL 6. CA 7. LTL 8. NCA LO 7 EXERCISE 2-5 STATEMENT OF RETAINED EARNINGS LANDON CORPORATION STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2007 Retained earnings, January 1, 2007 $130,520* Add: Net income 145,480 $276,000 Less: Dividends declared and paid 40,000 Retained earnings, December 31, 2007 $236,000 *Retained earnings, January 2, 2005 $ 0 Add: Net income: 2005: $ 85,200 2006: 125,320 210,520 Deduct: Dividends: 2005: $ 40,000 2006: 40,000 80,000 Retained earnings, December 31, 2006 $130,520 LO 3,5,7 EXERCISE 2-8 FINANCIAL STATEMENT CLASSIFICATION BS = Balance sheet; IS = Income statement; RE = Retained earnings statement 1. Accounts payable—BS 2. Accounts receivable—BS 3. Advertising expense—IS 4. Bad debts expense—IS 5. Bonds payable—BS 6. Buildings—BS 7. Cash—BS 8. Common stock—BS 9. Deferred income taxes – BS 10.Depreciation expense—IS 11. Dividends—RE 12. Land held for future expansion—BS 13. Loss on sale of equipment—IS 14. Office supplies—BS 15. Organizational costs—IS 16. Patent amortization expense—IS 17. Retained earnings—BS, RE 18. Sales—IS 19. Unearned Revenue - BS 20. Utilities expense—IS LO 3 PROBLEM 2-3 CLASSIFIED BALANCE SHEET 1. Classified balance sheet: RUTH CORPORATION BALANCE SHEET DECEMBER 31, 2007 Assets Current assets: Cash $ 13,230 Accounts receivable 69,180 Prepaid rent 1,500 Office supplies 2,340 Total current assets $ 86,250 Long-term investments 85,000 Property, plant, and equipment: Land $250,000 Automobiles $112,500 Less: Accumulated depreciation 22,500 90,000 Buildings $200,000 Less: Accumulated depreciation 40,000 160,000 Total property, plant, and equipment 500,000 Intangible assets: Patents 40,000 Total assets $711,250 Liabilities Current liabilities: Accounts payable $ 18,255 Income taxes payable 6,200 Interest payable
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