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Financial Accounting Problem Set 1

Due on 9/27 (Tue) beginning of the class

No late homework is accepted. Staple your assignment.

I. Smart Financial Service Co. (SFS) started business on Dec. 1 2012. During Dec. 2012, the company
had the following transactions.

a. Isabel Choo, the CEO, invests $70,000 cash and office equipment valued at $10,000 in exchange for
common stock that is worth $80,000.
b. Paid $3,600 cash covering upcoming 12- months rent.
c. Purchased $1,200 of office supplies and $1,700 of office equipment, both on credit.
d. Paid a local newspaper $500 cash for printing an announcement of the offices opening. This is
recorded in an advertising expense account.
e. Completed a consulting service for a client on credit and billed the client $5,000 for the consulting
f. Promised to provide a financial analysis for Clark University. The client immediately paid $4,000
cash in advance for the service which will be provided next month.
g. Made a $700 cash payment on the equipment purchased in transaction c.
h. Paid $2,000 cash for the consultants. This is recorded in a salary expense account.
i. Paid $1,000 cash for dividends.

1. Journalize and post the transactions.

2. Create an unadjusted Trial Balance for SFS as of Dec. 31, 2012.
3. Based on the unadjusted trial balance, determine the net income for the company during Dec.
4. Based on the unadjusted trial balance, determine the values of total assets, total liabilities, and
total equities for SFS as of Dec. 31, 2012.

II. Refer to the table below, answer the following questions.

Key Figure Li Ning Co. Adidas Puma

Return on assets 5.6% 6.1% 9.3%
Debt ratio 50.0% 53.2% 37.8%

1. Which company operated its assets more efficiently for generating net income? Why? Explain briefly.
2. Which company has more risk of failing to pay its debt? Explain briefly.

If you need more practice problems,

(1) Work on Demonstration Problem on p. 71. Solution is available on pp. 72-75.
(2) Multiple Choice Quiz Q1 & Q2 (Answers p.92) --- No need to submit!