The Financial Statements
(5 min.) S 1-1
|Computed amounts in boxes |
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| |Total Assets |= |Total Liabilities |+ |Stockholders’ Equity |
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|a. |$300,000 ...view middle of the document...
) S 1-3
a. Corporation, 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.
b. Proprietorship. There is a single owner of the business, so the owner is answerable to no other owner.
c. 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 1-4
1. The entity assumption applies.
2. Application of the entity assumption will separate Newberry’s personal assets from the assets of Healthy Food Brands. This will help Newberry, investors, and lenders know how much assets, liabilities and equity the business has, and this knowledge will help all parties evaluate the business realistically.
(5-10 min.) S 1-5
a. Historical cost principle
b. Stable-monetary-unit assumption
c. Entity assumption
d. Historical cost principle
(5 min.) S 1-6
1. Owners’ Equity = Assets − Liabilities
This way of determining the amount of owners’ equity applies to any company, your household, or a single IHOP restaurant.
2. Liabilities = Assets − Owners’ Equity
(5 min.) S 1-7
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.
2. 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.
(5-10 min.) S 1-8
|a. |Accounts payable L |g. |Accounts receivable A |
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|b. |Common stock S |h. |Long-term debt L |
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|c. |Supplies A |i. |Merchandise inventory A |
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