Fundamentals Of Financial Accounting
Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
Question
Chapter 1, Problem 6SDC

1.

To determine

Prepare the financial report of Person A and Person J, and compare what it owns and owes on September 30, along with a list of any decisions made while preparing the report.

1.

Expert Solution
Check Mark

Explanation of Solution

Balance Sheet: Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

The financial report that compares what A and J own and owe, could be the balance sheet as it summarizes the assets and the liabilities on a given date.

The comparisons were made on the basis of:

  • To estimate the net worth of both the individuals;
  • Use both the Historical Cost and Fair Value to make an acceptable comparison;
  • The potential assets have not been included in the report.

The Net worth of Person A as on September 30 is shown below:

Person A
ParticularsAmount ($)Amount ($)
Assets
 Current Assets  
 Cash $1,000  
 Art work $800  
 Total assets (A) $1,800
Liabilities
Liabilities  
 Loan payable $250  
 Total liabilities (B) $250
Net Worth (AB) $1,550

Table (1)

The Net worth of Person J as on September 30 is shown below:

Person J
ParticularsAmount ($)Amount ($)
Assets
 Current Assets  
 Cash $6,000  
 Play Station Console $250  
 Total assets (A) $6,250
Liabilities
Liabilities  
 Tuition payable $800  
 Loan payable $4,800  
 Total liabilities (B) $5,600
Net Worth (AB) $650

Table (2)

The Net worth of Person A as on September 30, based on fair value is shown below:

Person A
ParticularsAmount ($)Amount ($)
Assets
 Current Assets  
 Cash $1,000  
 Art work $1,400  
 Total assets (A) $2,400
Liabilities
Liabilities  
 Loan payable $250  
 Total liabilities (B) $250
Net Worth (AB) $2,150

Table (3)

The Net worth of Person J as on September 30, is shown below:

Person J
ParticularsAmount ($)Amount ($)
Assets
 Current Assets  
 Cash $6,000  
 Play Station Console $180  
 Total assets (A) $6,180
Liabilities
Liabilities  
 Tuition payable $800  
 Loan payable $4,800  
 Total liabilities (B) $5,600
Net Worth (AB) $580

Table (2)

2.

To determine

Identify the character that is better amongst Person A and Person J, and justify as a creditor to whom one would rather lend money.

2.

Expert Solution
Check Mark

Explanation of Solution

Identify the character that is better amongst A and J and justify as a creditor to whom one would rather lend money as follows:

The financial position of person A is better off than person J as has a greater net worth. Also being a creditor lending money to person A would be far more advisable as person A has greater ability to repay the loan and also has less amount of loan when compared to person J.

3.

To determine

Prepare the financial report that compares what person A and person J earned in October along with a list of any decisions made while preparing the report.

3.

Expert Solution
Check Mark

Explanation of Solution

Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

The above report was made on the following basis:

  • Income tax for both the individuals is not calculated;
  • Winning of lottery may not recur.

The Net income of person A in October, is shown below:

Person A
ParticularsAmount ($)Amount ($)
Revenues  
Part Time Job  (for October) $1,500
Expenses  
Rent expense (for October)$470  
Living expenses (for October)$950  
Total expenses $1,420
Net income $80

Table (5)

The Net income of person J in October is shown below:

J
ParticularsAmount ($)Amount ($)
Revenues  
Part Time Job  (for October) $1,950
Expenses 
Rent expense (for October)$800  
Living expenses (for October)$950  
Total expenses $1,750
Net income $200

Table (6)

4.

To determine

Identify the successful character amongst person A and person J and justify as a creditor to whom one would rather lend money as a three year loan.

4.

Expert Solution
Check Mark

Explanation of Solution

Identify the successful character amongst person A and person J and justify as a creditor to whom one would rather lend money as a three year loan as follows:

Person J is more successful than person A in the month of October. However, being a creditor lending money to A would be far more advisable as person A has a stable income which ensures a greater ability to repay the loan and also has less amount of loan when compared to person J.

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Chapter 1 Solutions

Fundamentals Of Financial Accounting

Ch. 1 - Describe the basic accounting equation that...Ch. 1 - Describe the equation that provides the structure...Ch. 1 - Describe the equation that provides the structure...Ch. 1 - Prob. 14QCh. 1 - Prob. 15QCh. 1 - Prob. 16QCh. 1 - Briefly define what an ethical dilemma is and...Ch. 1 - Prob. 18QCh. 1 - Prob. 1MCCh. 1 - Which of the following is true regarding the...Ch. 1 - Which of the following is false regarding the...Ch. 1 - Which of the following regarding retained earnings...Ch. 1 - Prob. 5MCCh. 1 - Which of the following statements regarding the...Ch. 1 - Prob. 7MCCh. 1 - Which of the following is true? a. FASB creates...Ch. 1 - Which of the following would not be a goal of...Ch. 1 - Prob. 10MCCh. 1 - Prob. 1MECh. 1 - Matching Definitions with Terms or Abbreviations...Ch. 1 - Matching Definitions with Terms Match each...Ch. 1 - Matching Financial Statement Items to Balance...Ch. 1 - Matching Financial Statement Items to Balance...Ch. 1 - Matching Financial Statement Items to Balance...Ch. 1 - Matching Financial Statement Items to Balance...Ch. 1 - Matching Financial Statement Items to the Basic...Ch. 1 - Matching Financial Statement Items to the Four...Ch. 1 - Reporting Amounts on the Statement of Cash Flows...Ch. 1 - Prob. 11MECh. 1 - Preparing a Statement of Retained Earnings Stone...Ch. 1 - Relationships among Financial Statements Items...Ch. 1 - Prob. 14MECh. 1 - Relationships among Financial Statements Items...Ch. 1 - Preparing an Income Statement, Statement of...Ch. 1 - Reporting Amounts on the Four Basic Financial...Ch. 1 - Reporting Amounts on the Four Basic Financial...Ch. 1 - Preparing a Balance Sheet DSW, Inc., is a designer...Ch. 1 - Completing a Balance Sheet and Inferring Net...Ch. 1 - Labeling and Classifying Business Transactions The...Ch. 1 - Preparing an Income Statement and Inferring...Ch. 1 - Preparing an Income Statement Home Realty,...Ch. 1 - Prob. 8ECh. 1 - Preparing an Income Statement and Balance Sheet...Ch. 1 - Analyzing and Interpreting an Income Statement...Ch. 1 - Prob. 11ECh. 1 - Matching Cash Flow Statement Items to Business...Ch. 1 - Preparing an Income Statement. Statement of...Ch. 1 - Interpreting the Financial Statements Refer to...Ch. 1 - Reporting Amounts on the Four Basic Financial...Ch. 1 - Evaluating Financial Statements Refer to CP1-3....Ch. 1 - Preparing an Income Statement, Statement of...Ch. 1 - Prob. 2PACh. 1 - Reporting Amounts on the Four Basic Financial...Ch. 1 - Evaluating Financial Statements Refer to PA1-3....Ch. 1 - Preparing an Income Statement and Balance Sheet...Ch. 1 - Interpreting the Financial Statements Refer to PB...Ch. 1 - Reporting Amounts on the Four Basic Financial...Ch. 1 - Evaluating Financial Statements Refer to PB1-3....Ch. 1 - Finding Financial Information Answer the following...Ch. 1 - Comparing Financial Information Refer to the...Ch. 1 - Prob. 5SDCCh. 1 - Prob. 6SDCCh. 1 - Prob. 1CC
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