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Exercises
Exercise 1–1
Requirement 1

| Pete, Pete, and Roy | | | Operating Cash Flow | | | | | | Year 1 | Year 2 | Cash collected | $160,000 | $190,000 | Cash disbursements: | | | Salaries | (90,000) | (100,000) | Utilities | (30,000) | (40,000) | Purchase of insurance policy | (60,000) | - 0 - | Net operating cash flow | $(20,000) | $ 50,000 | | | |
Requirement 2

| Pete, Pete, and Roy | | | Income Statements | | | | | | Year 1 | Year 2 | Revenues | $170,000 | $220,000 | Expenses: | | | Salaries | (90,000) | (100,000) | Utilities | (35,000) | (35,000) | Insurance | (20,000) | (20,000) | Net Income | $ 25,000 | $ 65,000 | | | |
Requirement 3 Year 1: Amount billed to customers $170,000 Less: Cash collected (160,000) Ending accounts receivable $ 10,000 Year 2: Beginning accounts receivable $ 10,000 Plus: Amounts billed to customers 220,000 $230,000 Less: Cash collected (190,000) Ending accounts receivable $ 40,000

Exercise 1–7 List A List B o 1. Predictive value a. Decreases in equity resulting from transfers to owners. h 2. Relevance b. Requires consideration of the costs and value of information. g 3. Timeliness c. Important for making interfirm comparisons. a 4. Distribution to owners d. Applying the same accounting practices over time. j 5. Confirmatory value e. Users understand the information in the context of the decision being made. e 6. Understandability f. Agreement between a measure and the phenomenon it purports to represent. n 7. Gain g. Information is