Book 1 - Chapter 17

Multiple Choice

	1.	d
	2.	c
	3.	d Choice c is incorrect because it says: “. . . at a specific date.” Revenues and expenses are over a period of time.
	4.	c An expense either decreases an asset or increases a liability (see Learning Goal 6 on page 94).
	5.	b A revenue either increases an asset or decreases a liability (see Learning Goal 6 on page 94).
	6.	d Revenues and expenses are combined as the net income or net loss taken from the income statement.
	7.	b
	8.	d
	9.	d
	10.	c
	11.	c
	12.	c
	13.	d You could also find out the cash balance from the statement of cash flows.
	14.	c
	15.	a Because Revenues – Expenses = Net Income. So, R – 50,000 = (7,000). R = 43,000.
	16.	a Because Beginning Balance + (–10,000 – 12,000 + 5,000) = 90,000. So, Beginning Balance = 107,000.
	17.	a Total owner’s equity increased by $20,000. There are three possible changes on the statement of owner’s equity (net income/(loss), investments, and drawing), but there was no drawing. Therefore, net income is the $20,000 increase minus the increase caused by the investment of $5,000 = $15,000.
	18.	c
	19.	c
	20.	a
	Discussion Questions and Brief Exercises for Learning Goals 12–17
	1.	The correct format is:
		Name of Company Name of Financial Statement Date (or Period, if a change statement)
	2.	For change statements (income statement, statement of owner’s equity, and statement of cash flows), the date should identify the period of time and the date on which it ends. For example, “Month Ended December 31, 2008.” “Period Ended” is not acceptable because it does not identify the exact period of time. For a balance sheet, the exact date should be used. For example, “December 31, 2008.”
	3.	Revenue: The dollar amount of sales of goods or services. This increases owner’s equity. Expense: The dollar amount of goods or services used up in operations. This decreases owner’s equity.

	4.	Assets: Business property, the wealth of the business Liabilities: Debts owed, the first claim on the business wealth Owner’s equity: The residual claim on the wealth left to the owner after all debts are paid


	5.	The purpose of the income statement is to explain the change in owner’s equity, for a specific period of time, that has resulted only from the business operations. This is accomplished by identifying revenues and expenses and subtracting the total expenses from the total revenues.

Learning Goal 17

SOLUTIONS

Learning Goal 17: Compare, Contrast, and Connect All the Financial Statements

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