ACCT2 Financial – Ch.

1 – H/W Exercise Solutions

Q15. (a) Understandability

(b) Relevance
(c) Reliability
(d) Consistency
(e) Materiality
(f) Conservatism

Q16. (a) Cost Principle

(b) Conservatism
(c) Entity Concept (Assumption)
(d) Relevance

The Harbour Group should follow GAAP.

Prob 19. Incorrect headings:

“Resources”  “Assets (split into Current and Non-Current)

“Debts”  “Liabilities” (split into Current and Non-Current)
“Contributed Capital” should go under “Equity”
“Retained Earnings” should go under “Equity”

Etc…

Prob 21. OCEAN TOUR BUSINESS

On July 1 Contributed Capital $50 000

Loan – Parents *
$60 000
Rent – Boat + Equipment
$48 000
Advertising $25 000
Fuel
$135 000
EOM July Additional Fuel
$20 000
Monthly Interest Payment *
$500

INCOME STATEMENT FOR PERIOD

$ $
Revenue 216 000
 Service Fees 214 920
AC Receivable 1 080
Expenses (228
500)
Rent – Boat + Equipment (48
000)
Advertising (25
000)
Fuel (135
000)
Fuel (Additional) (20
000)
Loan Interest Payment (500)
NET INCOME (12 500) Loss
RETAINED EARNINGS

Opening Balance $0
- Profit or Loss ($12 500)
- Dividends ($0)
Closing Balance ($12 500)

BALANCE SHEET

Assets
Cash 106 420
AC Receivable 1 080
TOTAL ASSETS 107 500

Liabilities
Loan 60 000

Equity
Contributed Capital 60 000
Retained Earnings (12 500)

TOTAL LIABILITIES AND EQUITY 107 500

CASH (Operating)

Contributed Capital 60 000

Loan 60 000
120 000
Rent (48 000)
Advertising (25 000)
Fuel (155 000)
Interest Paid (500)
Money from Service Revenue 214 920
106 420