Workbook Ch1

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1 Chapter 1 FINANCIAL STATEMENTS: PERSONAL ACCOUNTING Assessment Questions AS-1 LO 1-1 Define accounting and describe the purpose of accounting. Accounting is a system to identify, measure and communicate all the financial activities of an individual or a business. The purpose of accounting is to allow interested users to make informed judgments based on accurately recorded information. AS-2 LO 1-2 In simple terms, what are assets and liabilities? Assets are what you own and liabilities are what you owe. AS-3 LO 1-3 What are revenues and expenses? Provide an example of each in your personal life. Revenues are increases in net worth caused by providing goods or services. In your personal life, one way revenue is earned is by working and earning a salary. Expenses are a decrease in net worth due to the costs of day-to-day activities. In your personal life, expenses include items such as rent and food. AS-4 LO 1-2 Explain the role of the balance sheet. The balance sheet is a document that is used to record what you own (assets) and what you owe (liabilities) on a specific date. The balance sheet provides a snapshot of your financial position. The difference between the value of what you own and what you owe represents your net worth. LO 1-1 Describe the purpose of accounting LO 1-2 Describe the balance sheet LO 1-3 Describe the income statement LO 1-4 Define an accounting period LO 1-5 Explain how the accounting equation works LO 1-6 Explain accrual-based accounting LO 1-7 Explain how to account for debt LO 1-8 Explain how to account for assets LO 1-9 Define capital LO 1-10 Demonstrate how double entries are recorded in T-accounts LEARNING OBJECTIVES Access the integrated resource library for tutorials, practice exercises, the digital textbook and more.

Chapter 1 Financial Statements: Personal Accounting 2 AS-5 LO 1-3 Explain the role of the income statement. The income statement is a record of transactions summarizing revenue and expenses. The purpose of this statement is to determine the change in net worth over a specific period of time. AS-6 LO 1-3 Define surplus and deficit. Surplus is the amount by which revenues exceed expenses for the period. Deficit is the amount by which expenses exceed revenues for the period. The amount is taken from the personal income statement. A surplus increases net worth and a deficit decreases net worth. AS-7 LO 1-4 What are some advantages of using monthly accounting periods in your personal balance sheet? The advantages include tracking regular monthly living expenses (e.g. rent, cell phone), frequently assessing realistic expectations and helping reduce chances for errors. AS-8 LO 1-5 What is the accounting equation in personal accounting? Assets = Liabilities + Net Worth AS-9 LO 1-2, 5 What is net worth? Net Worth = Assets - Liabilities. If all assets are cashed out to pay off outstanding liabilities, the remaining cash represents net worth. AS-10 LO 1-6 Explain accrual-based accounting. Accrual-based accounting means that revenues (increases in net worth) and expenses (decreases in net worth) are recognized in the time period in which they occur, regardless of when the cash payment is received or made.

Chapter 1 Financial Statements: Personal Accounting 3 AS-11 LO 1-6 Briefly describe the cash-based method of accounting. Under the cash-based method of accounting, revenues and expenses are recorded only when the cash is received or paid. AS-12 LO 1-7 True or False: When you borrow money, you have more cash but your net worth decreases. False. Borrowing money does not change your net worth. AS-13 LO 1-7 True or False: When you pay off the principal of a loan, your cash decreases and your net worth increases. False. Repaying debt does not change your net worth. AS-14 LO 1-8 True or False: Buying an asset has no impact on net worth. True. When you buy an asset you simply exchange one asset (cash) for another asset (e.g. car, furniture). AS-15 LO 1-8 Briefly explain the difference in net worth between buying an asset with cash and taking on a bank loan to buy the asset. There is no difference in net worth. Buying an asset with cash involves exchanging one asset for another. Taking on a bank loan to buy an asset results in both an increase in an asset and an increase in a liability (loan), with no resulting impact on net worth. AS-16 LO 1-9 What is capital? Capital is an increase to net worth other than revenue (such as winning the lottery or receiving a gift). AS-17 LO 1-9 What is the equation for calculating ending net worth for a period? Ending Net Worth = Beginning Net Worth + Capital + Surplus (Deficit)

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Chapter 1 Financial Statements: Personal Accounting 4 AS-18 LO 1-10 What is a T-account? A T-account is used to record accounting transactions for individual items. It is a tool used to track the double entries for each transaction on opposite sides (increase or decrease) of each account. AS-19 LO 1-10 Where do the opening balances of the assets and liabilities normally appear on T-accounts? The opening balances of the asset accounts normally appear on the left side of the T-accounts (increase side). The opening balances of the liabilities and net worth normally appear on the right side of the T-accounts (increase side).

Chapter 1 Financial Statements: Personal Accounting 5 Practice Questions PR-1 LO 1-2 Kim McDonald has the following financial information. Cash $2,000 Contents of Home 10,000 Unpaid Accounts 3,000 House 200,000 Mortgage 130,000 What is the total of Kim’s assets? Assets = Cash + Contents of Home + House = $2,000 + $10,000 + $200,000 = $212,000 PR-2 LO 1-2 Darryl purchased a new laptop on January 1, 2022, worth $2,000. He paid the entire amount using cash. He also purchased a new cell phone worth $300 on account. How will these transactions affect Darryl’s net worth? Net Worth = Assets − Liabilities = ($2,000 − $2,000 + $300) − ($300) = $0 Net worth is unaffected because Darryl simply traded one asset (cash) for another asset (laptop) and purchased another asset (cell phone) on account (assuming a liability). PR-3 LO 1-2 Consider the following information. Cash $6,000 Car 50,000 Contents of Home 3,000 Bank Loan 10,000 Unpaid Accounts 2,000 Net Worth ? How much is the net worth? Net Worth = Assets - Liabilities = ($6,000 + 50,000 + 3,000) - ($10,000 + 2,000) = $47,000 The net worth is $47,000.

Chapter 1 Financial Statements: Personal Accounting 6 PR-4 LO 1-3 Harvey Singh recorded the following items during the month. Food Expense $600 Rent Expense 1,500 Revenue 4,000 Utilities Expense 200 What is Harvey’s surplus or deficit for the month? Revenue – Expenses = Surplus $4,000 − ($600 + $1,500 + $200) = $1,700 surplus PR-5 LO 1-3 Rachel Lee recorded the following items during the month. Entertainment Expense $900 Food Expense 800 Revenue 2,000 Utilities Expense 400 What is Rachel’s surplus or deficit for the month? Revenue – Expenses = Surplus $2,000 – ($900 + $800 + $400) = $100 deficit PR-6 LO 1-5 Calculate the missing amounts in the table below. Scenario 1 Scenario 2 Total Assets $123,000 $148,000 Total Liabilities $29,000 $34,000 Net Worth $94,000 $114,000 PR-7 LO 1-5 Calculate the missing amounts in the following table. Scenario 1 Scenario 2 Total Assets $125,900 $150,300 Total Liabilities $33,200 $33,200 Net Worth $92,700 $117,100

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Chapter 1 Financial Statements: Personal Accounting 7 PR-8 LO 1-5 Indicate whether the parts of the accounting equation will increase or decrease for each transaction by placing a “+” or “ - ” in the appropriate space. If a part is not changed by the transaction, leave the space blank. The first transaction has been completed for you. Transaction Assets Liabilities Net Worth 1. Deposited salary earned + + 2. Purchased a new TV on credit + + 3. Received a cash gift + + 4. Purchased gas for car on credit + - 5. Made a loan payment including interest - - - 6. Received cash as a student loan + + 7. Received a paycheque + + PR-9 LO 1-5 Indicate whether the parts of the accounting equation will increase or decrease for each transaction by placing a “+” or “ - ” in the appropriate space. If a part is not changed by the transaction, leave the space blank. The first transaction has been completed for you. Transaction Assets = Liabilities + Net Worth 1. Deposited salary earned + + 2. Purchased a new bicycle on credit + + 3. Purchased groceries on credit + - 4. Borrowed money from the bank + + 5. Purchased a ring for $200 cash ( - /+) 6. Received a cash gift + + 7. Made a loan payment with interest - - - PR-10 LO 1-7 Sheri McMillan has a $12,000 bank loan and has just made a payment of $1,000. Of the $1,000 payment, $100 is for interest and the rest is for the principal. What is the new balance of the bank loan? The balance of the bank loan has decreased to $11,100 ($12,000 − $900). PR-11 LO 1-7 Carole de Gaulle has a $70,000 mortgage and has just made a mortgage payment of $800. Of the $800 payment, $150 is for interest and the rest is for the principal. By how much has Carole’s net worth changed? Carole’s net worth has decreased by $150, which is the interest amount of the payment. PR-12 LO 1-8 Saul Richards purchased a used car for $3,000 cash. By how much has his net worth changed? Saul’s net worth has not changed, since both cash and the car are assets. + =

Chapter 1 Financial Statements: Personal Accounting 8 PR-13 LO 1-9 Timothy Hollister collected the following amounts in cash for the month of February 2022. Salary paid by employer $2,400 Winnings at the casino $270 Gifts $295 Performance bonus paid by employer $450 Calculate Timothy’s total revenue and total capital items for February 2022. Total Revenue : $2,400 + $450 = $2,850 Total Capital : $270 + $295 = $565 Timothy’s total revenue is $2,850 and his total capital is $565. PR-14 LO 1-9 Prisha Afsahani received the following amounts in cash for the month of November 2022. Salary $2,100 Gifts $240 Winnings at the casino $170 Performance bonus paid by employer $460 Calculate Prisha’s total revenue and total capital items for November 2022. Total Revenue : $2,100 + $460 = $2,560 Total Capital : $170 + $240 = $410 Prisha’s total revenue is $2,560, and her total capital is $410. PR-15 LO 1-10 Record the following transactions in the T-accounts. Provide names for the T-accounts as needed. 1. Bought food for the week by paying $100 cash 2. Paid for entertainment by paying $50 cash Cash Food Expense 1. $100 1. $100 2. 50 Entertainment Expense 2. $50

Chapter 1 Financial Statements: Personal Accounting 9 PR-16 LO 1-10 Record the following transactions in the T-accounts. Provide names for the T-accounts as needed. 1. Received $2,000 cash from an employer 2. Purchased a TV and sound system for $1,400 and paid with a credit card Cash Revenue 1. $2,000 1. $2,000 Contents of Home Unpaid Accounts 2. $1,400 2. $1,400

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Chapter 1 Financial Statements: Personal Accounting 10 Application Questions Group A AP-1A LO 1-1 Classify each of the following as an asset, a liability or other. Item Classification Vehicle Asset Credit card debt Liability Bank loan Liability Cell phone expense Other Home line of credit used Liability House Asset Bank account Asset Wages earned Other Boat Asset Car loan Liability AP-2A LO 1-2 April Rose had the following financial data for the year ended December 31, 2022. Cash $6,000 Jewellery 10,000 Car 18,000 House 256,000 Bank Loan 45,000 Unpaid Accounts 5,000 Mortgage 140,000 Required a) Calculate April’s total assets. Cash $6,000 Jewellery 10,000 Car 18,000 House 256,000 Total Assets $290,000 b) Calculate April’s total liabilities. Bank Loan $45,000 Unpaid Accounts 5,000 Mortgage 140,000 Total Liabilities $190,000

Chapter 1 Financial Statements: Personal Accounting 11 AP-3A LO 1-2 Using the opening balances provided in each balance sheet, enter the updated amounts for each transaction in the blank balance sheets labelled Answers. a) Akira borrowed $4,000 from the bank. Opening Balances Assets Liabilities Cash $5,000 Unpaid Accounts $3,000 Investment 8,000 Bank Loan 0 Contents of Home 6,000 Car Loan 5,000 Car 20,000 Student Loan 6,000 House 280,000 Mortgage 250,000 Total Liabilities 264,000 Net Worth 55,000 Total Assets $319,000 Total Liabilities + Net Worth $319,000 Answers Assets Liabilities Cash $9,000 Unpaid Accounts $3,000 Investment 8,000 Bank Loan 4,000 Contents of Home 6,000 Car Loan 5,000 Car 20,000 Student Loan 6,000 House 280,000 Mortgage 250,000 Total Liabilities 268,000 Net Worth 55,000 Total Assets $323,000 Total Liabilities + Net Worth $323,000 b) Indira purchased $3,000 worth of investments with cash. Opening Balances Assets Liabilities Cash $7,000 Unpaid Accounts $3,000 Investment 8,000 Bank Loan 0 Contents of Home 6,000 Car Loan 5,000 Car 20,000 Student Loan 6,000 House 180,000 Mortgage 150,000 Total Liabilities 164,000 Net Worth 57,000 Total Assets $221,000 Total Liabilities + Net Worth $221,000

Chapter 1 Financial Statements: Personal Accounting 12 Answers Assets Liabilities Cash $4,000 Unpaid Accounts $3,000 Investment 11,000 Bank Loan 0 Contents of Home 6,000 Car Loan 5,000 Car 20,000 Student Loan 6,000 House 180,000 Mortgage 150,000 Total Liabilities 164,000 Net Worth 57,000 Total Assets $221,000 Total Liabilities + Net Worth $221,000 c) Lloyd paid $1,000 to reduce an outstanding car loan (principal portion). Opening Balances Assets Liabilities Cash $3,000 Unpaid Accounts $3,000 Contents of Home 6,000 Bank Loan 0 Car 20,000 Car Loan 5,000 House 180,000 Student Loan 6,000 Mortgage 150,000 Total Liabilities 164,000 Net Worth 45,000 Total Assets $209,000 Total Liabilities + Net Worth $209,000 Answers Assets Liabilities Cash $2,000 Unpaid Accounts $3,000 Contents of Home 6,000 Bank Loan 0 Car 20,000 Car Loan 4,000 House 180,000 Student Loan 6,000 Mortgage 150,000 Total Liabilities 163,000 Net Worth 45,000 Total Assets $208,000 Total Liabilities + Net Worth $208,000 d) Daniella bought a motorcycle for $6,000. She paid a $1,000 deposit with cash and borrowed $5,000 from the bank. Opening Balances Assets Liabilities Cash $2,000 Unpaid Accounts $3,000 Contents of Home 4,000 Bank Loan 1,000 Motorcycle 0 Student Loan 11,000 Car 20,000 Mortgage 150,000 House 180,000 Total Liabilities 165,000 Net Worth 41,000 Total Assets $206,000 Total Liabilities + Net Worth $206,000

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Chapter 1 Financial Statements: Personal Accounting 13 Answers Assets Liabilities Cash $1,000 Unpaid Accounts $3,000 Contents of Home 4,000 Bank Loan 6,000 Motorcycle 6,000 Student Loan 11,000 Car 20,000 Mortgage 150,000 House 180,000 Total Liabilities 170,000 Net Worth 41,000 Total Assets $211,000 Total Liabilities + Net Worth $211,000 AP-4A LO 1-2, 5 Consider the following information for Julius Palanca. Cash $12,000 Jewellery 18,000 Car 22,000 House 161,000 Unpaid Accounts 5,000 Bank Loan 10,000 Mortgage 125,000 Required a) Calculate Julius’s total assets. Cash $12,000 Jewellery 18,000 Car 22,000 House 161,000 Total Assets $213,000 b) Calculate Julius’s total liabilities. Unpaid Accounts $5,000 Bank Loan 10,000 Mortgage 125,000 Total Liabilities $140,000 c) Calculate Julius’s net worth. Total Assets $213,000 Less Total Liabilities 140,000 Net Worth $73,000

Chapter 1 Financial Statements: Personal Accounting 14 AP-5A LO 1-2, 5 On December 1, 2022, Shervin decided to track his finances. On this date, his assets and liabilities were as follows. Cash $14,000 Investments 3,300 House 160,000 Contents of Home 19,000 Car 30,000 Student Loan 10,000 Unpaid Accounts 17,000 Bank Loan 25,000 Mortgage 120,000 Required a) What is the value of his total assets? Cash $14,000 Investments 3,300 House 160,000 Contents of Home 19,000 Car 30,000 Total Assets $226,300 b) What is the value of his total liabilities? Student Loan $10,000 Unpaid Accounts 17,000 Bank Loan 25,000 Mortgage 120,000 Total Liabilities $172,000 c) What is Shervin’s net worth on December 1, 2022? Total Assets $226,300 Less Total Liabilities 172,000 Net Worth $54,300 AP-6A LO 1-1, 2, 5 Fill in the missing information in the shaded cells. Assets Liabilities Cash $212,000 Line of Credit $135,000 Investments 56,000 Car Loan 32,000 Car 35,000 Mortgage 1,636,000 House 900,000 Total Liabilities 1,803,000 Cottage 750,000 Net Worth 150,000 Total Assets $1,953,000 Total Liabilities + Net Worth $1,953,000

Chapter 1 Financial Statements: Personal Accounting 15 AP-7A LO 1-3 Tobias Kaufman is an administrator at a market research firm. In November, he received a salary increase from $3,500 per month to $4,000 per month. He would like to know how this has impacted his net worth. He has never prepared a personal balance sheet or an income statement, which would help him calculate his net worth. Tobias gathered the following information to help him understand his financial position. September 30, 2022 October 31, 2022 November 30, 2022 Cash $1,000 $2,150 $4,050 House 120,000 120,000 120,000 Bank Loan 400 350 300 Salary 3,500 3,500 4,000 Entertainment Expense 200 500 400 Food Expense 1,500 1,200 1,100 Insurance Expense 150 150 150 Utilities Expense 200 400 300 Miscellaneous Expense 175 50 100 Prepare Tobias Kaufman’s income statement for each of the three months and for the whole period. Tobias Kaufman Personal Income Statement For the Month Ending September 30, 2022 October 31, 2022 November 30, 2022 Total Revenue $3,500 $3,500 $4,000 $11,000 Expenses Entertainment Expense 200 500 400 1,100 Food Expense 1,500 1,200 1,100 3,800 Insurance Expense 150 150 150 450 Utilities Expense 200 400 300 900 Miscellaneous Expense 175 50 100 325 Total Expenses $2,225 $2,300 $2,050 $6,575 Surplus (Deficit) $1,275 $1,200 $1,950 $4,425

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Chapter 1 Financial Statements: Personal Accounting 16 AP-8A LO 1-3, 6 Emma Sue had the following transactions in July 2022. Complete her personal income statement for the month by filling in the shaded cells. • Earned and deposited a salary of $2,000 • Paid $400 for food on her credit card • Earned $600 in interest on her RRSP investment • Purchased new furniture worth $1,000 with cash • Paid the monthly rent of $2,200 on her line of credit Personal Income Statement For the Month Ended July 31, 2022 Revenues $2,600 Expenses Food Expense $400 Insurance Expense 200 Rent Expense 2,200 Utilities Expense 100 Total Expenses 2,900 Surplus (Deficit) ($300) AP-9A LO 1-3, 5, 6 The following information was taken from the personal records of Juliet Lahm on April 30, 2022. Cash $3,000 Jewellery 2,000 House 190,000 Mortgage 80,000 Net Worth 115,000 The following transactions occurred during the month of May 2022. 1. Earned monthly salary of $5,050 2. Paid $1,200 cash for utilities 3. Purchased a car worth $10,000 on account 4. Paid $600 cash for food 5. Paid $400 cash for gas Required a) Complete the cash T-account to determine the ending balance of cash. INCREASE DECREASE + CASH - Opening Balance $3,000 2. 1,200 1. 5,050 4. 600 5. 400 Ending Balance $5,850

Chapter 1 Financial Statements: Personal Accounting 17 b) Complete the personal income statement to determine the surplus or deficit for the period. Personal Income Statement For the Month Ended May 31, 2022 Revenue $5,050 Expenses Utilities Expense $1,200 Food Expense 600 Gasoline Expense 400 Total Expenses $2,200 Surplus (Deficit) $2,850 c) What is Juliet Lahm’s net worth on May 31? Net Worth, Beginning $115,000 Add: Surplus $2,850 Net Worth, Ending $117,850 AP-10A LO 1-5 Peter Sims has the following personal balance sheet information, but the liability section is missing. Cash $35,000 Car 58,000 House 100,000 Liabilities ? Net Worth 55,000 Determine the total amount of liabilities. Since Assets = Liabilities + Net Worth, then Liabilities = Assets - Net Worth. Liabilities = ($35,000 + 58,000 + 100,000) - $55,000 = $138,000 The total amount of liabilities is $138,000. AP-11A LO 1-5 As of December 31, 2021, Maria Green had total assets of $40,000 and total liabilities of $15,000. As of December 31, 2022, Maria’s total assets and liabilities increased to $50,000 and $30,000, respectively. How has Maria’s net worth changed since the end of 2021? Dec 31, 2021 Dec 31, 2022 Total Assets $40,000 $50,000 Total Liabilities $15,000 $30,000 Net Worth $25,000 $20,000 Maria Green’s net worth has decreased by $5,000 ($25,000 − $20,000).

Chapter 1 Financial Statements: Personal Accounting 18 AP-12A LO 1-5 Tamira Jackson is working at a law firm. Her salary recently increased and she would like to keep track of her net worth. Tamira has gathered the following information. Assume her net worth at the beginning of June (opening net worth) is $0. June 30, 2022 July 31, 2022 August 31, 2022 Cash $2,500 $4,100 $6,300 Car 13,000 13,000 13,000 Credit Card Bills 1,000 800 500 Car Loan 12,000 11,500 11,000 Salary 4,300 4,900 4,900 Food Expense 290 500 100 Entertainment Expense 210 800 500 Rent Expense 1,300 1,300 1,300 Complete the table below. June 30, 2022 July 31, 2022 August 31, 2022 Opening Net Worth $0 $2,500 $4,800 Surplus (Deficit) $2,500 $2,300 $3,000 Closing Net Worth $2,500 $4,800 $7,800 Analysis Tamira notices that her cash has not increased by as much as her net worth has. Why is this the case? Some transactions, such as purchasing assets or paying back debt, affect cash but not net worth. Tamira has not purchased any assets during the period. Her credit card debt has decreased by $500 and her car loan has decreased by $1,000. She used $1,500 cash to pay back her debts, which is why the increase in cash is $1,500 less than the increase in net worth. AP-13A LO 1-5 Nicola Miller gathered the following personal accounting information but some of it was destroyed. Bicycle $700 Car 3,000 Cash 800 Furniture ? Net Worth 3,350 Overdue Rent ? Television 500 Total Assets 6,100 Unpaid Bills 2,300

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Chapter 1 Financial Statements: Personal Accounting 19 Required a) How much is Nicola’s furniture worth? Nicola’s assets include a bicycle, car, television, cash and furniture. From her personal accounting information, the assets, excluding the furniture, are worth $5,000. Nicola’s total assets are $6,100, which means the furniture must be worth $1,100 ($6,100 − $5,000). b) How much rent does Nicola owe? Remember that Assets = Liabilities + Net Worth, also expressed as Liabilities = Assets - Net Worth. Nicola’s total assets are $6,100 and her net worth is $3,350. Therefore, her total liabilities are $2,750. Nicola’s liabilities include her unpaid bills and overdue rent. Unpaid bills total $2,300, so she must owe $450 in rent. Analysis Nicola has worked 80 hours at her job as a bartender and earned $1,900 but will not get paid for another two weeks. According to accrual-based accounting, has Nicola’s net worth increased? Why or why not? Accrual-based accounting states that net worth changes when activities occur, regardless of when cash is paid or received. In this case, Nicola has already earned her salary so her net worth has increased. An asset account could be created to record this. AP-14A LO 1-5 State how the following transactions affect net worth (increase, decrease, no change). Transaction Effect on Net Worth Borrow cash no change Pay for entertainment costs with cash decrease Pay for food with cash decrease Buy assets with cash no change Charge home repairs expense on credit card decrease Pay insurance expense with cash decrease Pay loan principal with cash no change Purchase assets on account no change Receive salary increase Pay rent expense with cash decrease

Chapter 1 Financial Statements: Personal Accounting 20 AP-15A LO 1-6 Using the following chart, indicate whether there is an increase, decrease or no change to cash and net worth for the transactions listed. The first transaction has been completed for you. Cash Net Worth Transaction Increase Decrease No Change Increase Decrease No Change Deposit salary earned X X Pay cash for food X X Purchase a new car using cash X X Pay rent X X Pay student loan principal X X Buy a new computer with cash X X Obtain a bank loan X X Pay entertainment expenses X X Record cash earned from a part-time job X X AP-16A LO 1-2, 5, 7 At the beginning of the month, Khalil had the following personal balance sheet. Assets Liabilities Cash $8,000 Unpaid Accounts $21,500 Investments 2,000 Car Loan 15,000 Car 29,000 Total Liabilities 36,500 Net Worth 2,500 Total Assets $39,000 Total Liabilities + Net Worth $39,000 Khalil’s unpaid accounts represent credit card debt. Because the interest was so high, Khalil wanted to reduce that debt. During the month, he had the following related transactions. • Borrowed $6,000 from his parents • Paid off $5,000 of the credit card debt • Borrowed $5,000 from a friend • Paid off $3,000 of the credit card debt Khalil had to keep the above loans separate. Required a) Based on the above information, prepare an updated balance sheet for Khalil at the end of the month. Assets Liabilities Cash $11,000 Unpaid Accounts $13,500 Investments 2,000 Loan from Parents 6,000 Car 29,000 Loan from Friend 5,000 Car Loan 15,000 Total Liabilities 39,500 Net Worth 2,500 Total Assets $42,000 Total Liabilities + Net Worth $42,000

Chapter 1 Financial Statements: Personal Accounting 21 b) Comment on the change in Khalil’s financial position. Khalil moved money around. He used assets to pay off liabilities, so there was no change in his net worth. His total assets and liabilities increased by the same amount, so there is no change in his net worth. AP-17A LO 1-2, 5, 7, 8 At the beginning of the year, Jaymes had the following personal balance sheet. Assets Liabilities Cash $15,000 Unpaid Accounts $1,000 Investments 6,000 Car Loan 15,000 Car 26,000 Total Liabilities 16,000 Net Worth 31,000 Total Assets $47,000 Total Liabilities + Net Worth $47,000 During the year, Jaymes had the following transactions. • Paid $4,000 of the car loan with cash • Purchased a house for $200,000 • Used $5,000 cash as a down payment on the house; the mortgage balance is $195,000 His car still has a value of $26,000, and his investments did not change. Jaymes usually owes the credit card company $1,000. Required a) Based on the above information, prepare an updated balance sheet for Jaymes at the end of the year. Assets Liabilities Cash $6,000 Unpaid Accounts $1,000 Investments 6,000 Car Loan 11,000 Car 26,000 Mortgage 195,000 House 200,000 Total Liabilities 207,000 Net Worth 31,000 Total Assets $238,000 Total Liabilities + Net Worth $238,000 b) Comment on the change in his financial position. Jaymes’s purchase of the house increased his net worth. Although he used some assets to pay off liabilities, his assets increased more than his liabilities did. That resulted in an increase in net worth for the year.

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Chapter 1 Financial Statements: Personal Accounting 22 AP-18A LO 1-5, 9 Indicate whether assets, liabilities and/or net worth will increase or decrease and by how much, based on each transaction. The first one has been done for you. Always ensure the accounting equation is balanced. Provide an explanation only if net worth is affected. Transaction Assets Liabilities Net Worth Explanation 1. Purchased a new television for $700 on credit + 700 + 700 2. Received $2,000 in salary + 2,000 +2,000 Recorded salary earned as revenue 3. Received a $1,200 gift from a great aunt + 1,200 +1,200 Recorded gift as capital 4. Purchased a new $500 gaming console with cash - 500 + 500 5. Paid for groceries with $80 cash - 80 - 80 Paid for grocery expense 6. Paid $400 toward the car loan principal - 400 - 400 7. Paid $30 interest on the car loan - 30 - 30 Paid for interest expense 8. Paid $600 toward unpaid bills - 600 - 600 9. Paid $100 for one month of insurance - 100 - 100 Paid for insurance expense AP-19A LO 1-5, 9 The following information is available from Lily’s financial records as at November 1, 2022. Cash $18,000 Furniture 3,100 Valuables & Electronics 3,200 House 255,000 Student Loan 39,000 Mortgage 100,000 Bank Loan 2,000 Net Worth 138,300 Indicate whether the account balances will increase or decrease and by how much, based on each transaction. Always ensure the accounting equation is balanced. Provide an explanation only if net worth is affected. Assets Liabilities Net Worth Explanation 1. Purchased $1,600 worth of new bedroom furniture with cash + $1,600 - $1,600 2. Won a tablet worth $800 as a raffle prize + 800 + 800 Won a tablet 3. $350 was taken from the bank account for a car rental payment - 350 - 350 Paid for car rental 4. Purchased $2,000 worth of electronics by taking out a bank loan + 2,000 + 2,000 5. Made a $2,000 mortgage payment with cash, including $400 of interest - 2,000 - 1,600 - 400 Paid interest on mortgage 6. Paid $1,000 toward the student loan with cash, including $140 of interest - 1,000 - 860 - 140 Paid interest on student loan 7. Salary earned of $4,800 was directly deposited to the bank account + 4,800 + 4,800 Received salary = + + =

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Chapter 1 Financial Statements: Personal Accounting 23 Analysis The net worth account is updated only at the end of an accounting period. Revenue and expense accounts, and the net worth account, track changes in net worth during the period. For each transaction that affects net worth, determine whether revenue, expense or net worth (directly) is used to track the change. 2. net worth 3. expense 5. expense 6. expense 7. revenue AP-20A LO 1-2, 5, 9 Danita has the following personal balance sheet. Assets Liabilities Cash $6,000 Unpaid Accounts $1,200 Investments 3,200 Student Loan 1,500 Total Liabilities 2,700 Net Worth 6,500 Total Assets $9,200 Total Liabilities + Net Worth $9,200 Danita won $25,000 cash in a recent lottery. Based on this information, prepare Danita’s updated balance sheet. Assets Liabilities Cash $31,000 Unpaid Accounts $1,200 Investments 3,200 Student Loan 1,500 Total Liabilities 2,700 Net Worth 31,500 Total Assets $34,200 Total Liabilities + Net Worth $34,200 AP-21A LO 1-10 The following information relates to Darius Dickson’s personal finances as at January 1, 2022. Cash $9,000 Contents of Home 6,000 Car 29,000 House 156,000 Unpaid Accounts 5,500 Bank Loan 60,000 Net Worth 134,500 The following transactions occurred during the month of January 2022. 1. Deposited $4,040 from salary earned during the month 2. Paid maintenance expense with $120 cash 3. Purchased new furniture worth $2,500 with cash 4. Paid credit card liability of $5,500 in full 5. Paid telephone, electricity and water bills for January with $1,200 cash 6. Purchased $2,000 of groceries for personal consumption with cash

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Chapter 1 Financial Statements: Personal Accounting 24 Using the information provided, first record the opening balances in the T-accounts. Then record the transactions for the month of January in the T-accounts and complete the calculations at the bottom of the table. PERSONAL BALANCE SHEET As at January 31, 2022 PERSONAL INCOME STATEMENT For the Month Ended Jan 31, 2022 ASSETS LIABILITIES DECREASE INCREASE INCREASE DECREASE DECREASE INCREASE − REVENUE + + CASH − − UNPAID ACCOUNTS + 1. 4,040 Opening $9,000 $5,500 Opening 1. 4,040 2. 120 4. 5,500 $4,040 3. 2,500 4. 5,500 5. 1,200 LESS EXPENSES 6. 2,000 INCREASE DECREASE + ENTERTAINMENT EXPENSE − $1,720 INCREASE DECREASE + CONTENTS OF HOME − $0 INCREASE DECREASE Opening $6,000 + FOOD EXPENSE − 3. 2,500 DECREASE INCREASE 6. 2,000 − BANK LOAN + $60,000 Opening $2,000 INCREASE DECREASE $8,500 + INTEREST EXPENSE − INCREASE DECREASE + CAR − Opening $29,000 INCREASE DECREASE + MAINTENANCE EXPENSE − 2. 120 $60,000 $120 $29,000 NET WORTH INCREASE DECREASE DECREASE INCREASE + UTILITIES EXPENSE − INCREASE DECREASE − NET WORTH + 5. 1,200 + HOUSE − $134,500 Opening Opening $156,000 $1,200 $156,000 $134,500 Total Assets $195,220 Total Revenue $4,040 Total Liabilities 60,000 } $195,220 Less Total Expenses 3,320 Net Worth 135,220 Surplus (Deficit) $720

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Chapter 1 Financial Statements: Personal Accounting 25 AP-22A LO 1-10 Erika Koch is preparing her balance sheet and income statement for the month ended April 30, 2022. Use the following information to help her prepare her financial statements. Cash $5,000 Contents of Home 1,000 Car 4,000 House 280,000 Unpaid Accounts 10,000 Car Loan 30,000 Net Worth 250,000 The following transactions occurred during the month of April. 1. Deposited $4,050 from salary earned during the month 2. Purchased new home furniture worth $2,000 using a credit card 3. Paid credit card bill with $3,000 cash 4. Paid utility bills of $800 for the month of April using a credit card 5. Purchased groceries for $2,500 using cash 6. Made a principal payment of $1,250 for the car loan 7. Paid April’s rent of $1,500 with cash Using the information provided, first record the opening balances in the T-accounts. Then record the transactions for the month of April in the T-accounts and complete the calculations at the bottom of the table.

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Chapter 1 Financial Statements: Personal Accounting 26 PERSONAL BALANCE SHEET As at April 30, 2022 PERSONAL INCOME STATEMENT For the Month Ended April 30, 2022 ASSETS LIABILITIES DECREASE INCREASE INCREASE DECREASE DECREASE INCREASE − REVENUE + + CASH − − UNPAID ACCOUNTS + 1. 4,050 Opening $5,000 $10,000 Opening 1. 4,050 3. 3,000 3. 3,000 2. 2,000 $4,050 5. 2,500 4. 800 6. 1,250 7. 1,500 LESS EXPENSES INCREASE DECREASE + ENTERTAINMENT EXPENSE − $800 INCREASE DECREASE + CONTENTS OF HOME − $9,800 INCREASE DECREASE Opening $1,000 + FOOD EXPENSE − 2. 2,000 DECREASE INCREASE 5. 2,500 − CAR LOAN + $30,000 Opening $2,500 6. 1,250 INCREASE DECREASE $3,000 + INTEREST EXPENSE − INCREASE DECREASE + CAR − Opening $4,000 INCREASE DECREASE + MAINTENANCE EXPENSE − $28,750 $4,000 NET WORTH INCREASE DECREASE DECREASE INCREASE + RENT EXPENSE − INCREASE DECREASE − NET WORTH + 7. 1,500 + HOUSE − $250,000 Opening Opening $280,000 $1,500 INCREASE DECREASE + UTILITIES EXPENSE − 4. 800 $280,000 $250,000 $800 Total Assets $287,800 Total Revenue $4,050 Total Liabilities 38,550 } $287,800 Less Total Expenses 4,800 Net Worth 249,250 Surplus (Deficit) ($750)

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Chapter 1 Financial Statements: Personal Accounting 27 AP-23A LO 1-10 The following information is available from Drew Bernard’s financial records as at September 1, 2022. Cash $1,500 Car 9,400 Boat 18,000 Instruments 7,600 House 415,000 Student Loan 67,000 Unpaid Accounts 8,500 Mortgage 250,000 Net Worth 126,000 The following transactions took place during the month of September. 1. Purchased a piano worth $900 using cash 2. Put $720 worth of food on a credit card 3. Purchased an $800 guitar on credit 4. Received a cash inheritance of $45,000 5. Paid off unpaid accounts with $9,570 cash 6. Received $50 interest on the bank account Using the information provided, first record the opening balances in the T-accounts. Then record the transactions in the T-accounts and complete the calculations at the bottom of the table.

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Chapter 1 Financial Statements: Personal Accounting 28 PERSONAL BALANCE SHEET As at September 30, 2022 INCOME STATEMENT For the Month Ended September 30, 2022 ASSETS LIABILITIES DECREASE INCREASE INCREASE DECREASE DECREASE INCREASE − REVENUE + + CASH − − STUDENT LOAN + 6. 50 Opening $1,500 $67,000 Opening 1. 900 $50 4. 45,000 5. 9,570 6. 50 $36,080 $67,000 LESS EXPENSES INCREASE DECREASE INCREASE DECREASE DECREASE INCREASE + ENTERTAINMENT EXPENSE − + CAR − − UNPAID ACCOUNTS + Opening $9,400 $8,500 Opening 2. 720 3. 800 $9,400 5. 9,570 INCREASE DECREASE $450 + FOOD EXPENSE − INCREASE DECREASE 2. 720 + BOAT − DECREASE INCREASE Opening $18,000 − MORTGAGE + $720 $250,000 Opening INCREASE DECREASE $18,000 + INTEREST EXPENSE − INCREASE DECREASE $250,000 + INSTRUMENTS − Opening $7,600 NET WORTH 1. 900 DECREASE INCREASE INCREASE DECREASE 3. 800 − NET WORTH + + MAINTENANCE EXPENSE − $9,300 $126,000 Opening 4. 45,000 INCREASE DECREASE + HOUSE − Opening $415,000 $171,000 $415,000 Total Assets $487,780 Total Revenue $50 Total Liabilities 317,450 } $487,780 Less Total Expenses 720 Net Worth 170,330 Surplus (Deficit) ($670)

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Chapter 1 Financial Statements: Personal Accounting 29 Application Questions Group B AP-1B LO 1-1 Classify each of the following as an asset, a liability or other. Item Classification Recreational Vehicle Asset Home mortgage Liability Interest earned on bank account Other Cottage Asset Investment Asset Foreign currency bank account Asset Money borrowed from family Liability Truck Asset Art work Asset Vacant land owned Asset AP-2B LO 1-2 Dana Garrison had the following personal financial information on December 31, 2022. Cash $7,900 Computer 700 Car 19,100 House 255,000 Mortgage 150,000 Unpaid Accounts 4,600 Bank Loan 37,700 Required a) Calculate Dana’s total assets. Total Assets: $7,900 + $700 + $19,100 + $255,000 = $282,700 Dana’s total assets equal $282,700. b) Calculate Dana’s total liabilities. Total Liabilities: $150,000 + $4,600 + $37,700 = $192,300 Dana’s total liabilities equal $192,300.

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Chapter 1 Financial Statements: Personal Accounting 30 AP-3B LO 1-2 Using the opening balances provided in each balance sheet, enter the updated amounts for each transaction in the blank balance sheets labelled Answers. a) Anna applied for and received a student loan of $5,700. Opening Balances Assets Liabilities Cash $5,600 Unpaid Accounts $2,500 Investment 8,400 Bank Loan 900 Contents of Home 6,200 Car Loan 4,800 Car 22,300 Student Loan 5,500 House 287,900 Mortgage 241,500 Total Liabilities 255,200 Net Worth 75,200 Total Assets $330,400 Total Liabilities + Net Worth $330,400 Answers Assets Liabilities Cash $11,300 Unpaid Accounts $2,500 Investment 8,400 Bank Loan 900 Contents of Home 6,200 Car Loan 4,800 Car 22,300 Student Loan 11,200 House 287,900 Mortgage 241,500 Total Liabilities 260,900 Net Worth 75,200 Total Assets $336,100 Total Liabilities + Net Worth $336,100 b) Eddie purchased some furniture and jewellery for $5,000 cash. Opening Balances Assets Liabilities Cash $8,200 Unpaid Accounts $2,400 Investment 7,200 Bank Loan 200 Contents of Home 6,100 Car Loan 4,400 Car 22,900 Student Loan 6,200 House 272,300 Mortgage 242,200 Total Liabilities 255,400 Net Worth 61,300 Total Assets $316,700 Total Liabilities + Net Worth $316,700 Answers Assets Liabilities Cash $3,200 Unpaid Accounts $2,400 Investment 7,200 Bank Loan 200 Contents of Home 11,100 Car Loan 4,400 Car 22,900 Student Loan 6,200 House 272,300 Mortgage 242,200 Total Liabilities 255,400 Net Worth 61,300 Total Assets $316,700 Total Liabilities + Net Worth $316,700

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Chapter 1 Financial Statements: Personal Accounting 31 c) Pia paid $1,200 toward the principal of the car loan. Opening Balances Assets Liabilities Cash $4,500 Unpaid Accounts $2,200 Contents of Home 5,500 Bank Loan 600 Car 19,000 Car Loan 4,200 House 290,000 Student Loan 6,800 Mortgage 242,800 Total Liabilities 256,600 Net Worth 62,400 Total Assets $319,000 Total Liabilities + Net Worth $319,000 Answers Assets Liabilities Cash $3,300 Unpaid Accounts $2,200 Contents of Home 5,500 Bank Loan 600 Car 19,000 Car Loan 3,000 House 290,000 Student Loan 6,800 Mortgage 242,800 Total Liabilities 255,400 Net Worth 62,400 Total Assets $317,800 Total Liabilities + Net Worth $317,800 d) Glenn bought a motorcycle for $7,100. He paid a $1,400 deposit with cash and borrowed $5,700 from the bank. Opening Balances Assets Liabilities Cash $5,000 Unpaid Accounts $2,000 Contents of Home 6,700 Bank Loan 1,000 Motorcycle 0 Student Loan 11,000 Car 17,000 Mortgage 242,000 House 283,300 Total Liabilities 256,000 Net Worth 56,000 Total Assets $312,000 Total Liabilities + Net Worth $312,000 Answers Assets Liabilities Cash $3,600 Unpaid Accounts $2,000 Contents of Home 6,700 Bank Loan 6,700 Motorcycle 7,100 Student Loan 11,000 Car 17,000 Mortgage 242,000 House 283,300 Total Liabilities 261,700 Net Worth 56,000 Total Assets $317,700 Total Liabilities + Net Worth $317,700

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Chapter 1 Financial Statements: Personal Accounting 32 AP-4B LO 1-2, 5 John Paradis was performing a year-end review of his finances and came up with this list. Cash $13,200 Furniture 1,900 Car 21,900 House 210,000 Unpaid Accounts 4,600 Student Loan 11,400 Mortgage 100,000 Required a) Calculate John’s total assets. Total Assets: $13,200 + $1,900 + $21,900 + $210,000 = $247,000 John’s total assets equal $247,000. b) Calculate John’s total liabilities. Total Liabilities: $4,600 + $11,400 + $100,000 = $116,000 John’s total liabilities equal $116,000. c) Calculate John’s net worth. Net Worth: $247,000 - $116,000 = $131,000 John’s net worth is equal to $131,000. AP-5B LO 1-2, 5 Consider the following financial information for Pete Griphin. Car $66,000 Boat 55,000 Car Loan 50,000 Cash 14,500 Coin Collection 1,200 Cottage 84,000 House and Property 518,500 Mortgage Principal 450,000 Trailer 4,000 Required a) Calculate Pete’s total assets. Car $66,000 Boat 55,000 Cash 14,500 Coin Collection 1,200 Cottage 84,000 House and Property $518,500 Trailer 4,000 Total Assets $743,200

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Chapter 1 Financial Statements: Personal Accounting 33 b) Calculate Pete’s total liabilities. Car Loan $50,000 Mortgage Principal 450,000 Total Liabilities $500,000 c) Calculate Pete’s net worth. Total Assets $743,200 Total Liabilities 500,000 Net Worth $243,200 Analysis Pete makes payments against his liabilities and updates all of his account balances at the end of each month. Which account balances will change at the end of the month? Which will increase and which will decrease? Cash will decrease as he makes cash payments against his bills. Mortgage principal and car loan will decrease as they are paid off. AP-6B LO 1-2, 5 Complete the following personal balance sheet by filling in the accounts listed below and the missing values in the shaded cells. Accounts • Truck Loan • Land • Net Worth Personal Balance Sheet As at December 31, 2022 Assets Liabilities Cash $9,000 Unpaid Accounts $212,000 Investments 165,000 Truck Loan 68,000 Truck 75,000 Mortgage 1,800,000 House 850,000 Total Liabilities 2,080,000 Land 1,000,000 Net Worth 19,000 Total Assets $2,099,000 Total Liabilities + Net Worth $2,099,000

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Chapter 1 Financial Statements: Personal Accounting 34 AP-7B LO 1-3 Ethan is a songwriter and composer. His income is based solely on royalties that he receives regularly. Ethan opted to use three months as his accounting period. The following information relates to income earned and expenses incurred from January 1, 2022 to March 31, 2022. January February March Royalty Income $12,000 $13,000 $10,000 Interest Expense 60 60 60 Food Expense 2,000 2,100 1,900 Maintenance Expense 350 500 180 Clothing Expense 900 1,500 0 Utilities Expense 300 500 0 Rent Expense 1,500 1,500 1,500 Miscellaneous Expense 15 50 5 Required a) Prepare a personal income statement for each of the three months and for the whole period. Ethan Personal Income Statement For the Period Ended March 31, 2022 January February March Total Revenue $12,000 $13,000 $10,000 $35,000 Expenses Interest Expense 60 60 60 180 Food Expense 2,000 2,100 1,900 6,000 Maintenance Expense 350 500 180 1,030 Clothing Expense 900 1,500 0 2,400 Utilities Expense 300 500 0 800 Rent Expense 1,500 1,500 1,500 4,500 Miscellaneous Expense 15 50 5 70 Total Expenses $5,125 $6,210 $3,645 $14,980 Surplus (Deficit) $6,875 $6,790 $6,355 $20,020 b) What amount should be added to Ethan’s net worth on March 31, 2022? The total surplus of $20,020 accumulated for three months should be added to net worth on March 31, 2022, since Ethan’s accounting period is three months.

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Chapter 1 Financial Statements: Personal Accounting 35 AP-8B LO 1-3, 6 Amy Nikon is finishing her last year of accounting at college. Her personal budget is tight, so she decided to prepare a personal income statement for this month. Fill in the shaded cells below based on the information given. • Earned monthly wages and tips of $1,200 from working in the college’s café • Won $50 in a lottery • Paid $200 for a concert on her student credit card • Paid 1,000 toward her student loan; $100 is interest and the remainder is principal • Spent $400 cash on food for the month Personal Income Statement For the Month Ended May 31, 2022 Revenues $1,200 Expenses Entertainment Expense $200 Food Expense 400 Interest Expense 100 Utility Expense 150 Total Expenses 850 Surplus $350 Analysis After completing her personal income statement, Amy noticed that she has a surplus, although she has a bank overdraft. Should she be concerned about her budget? In spite of the bank overdraft, Amy has more revenue than expenses based on accrual accounting. She might have a negative cash balance, but accruals are the accumulation of amounts owed but not yet paid, and of amounts due but not yet received. AP-9B LO 1-3, 5, 6 Christine Sutherland compiled the following information on May 31, 2022. Cash $2,100 Jewellery 3,000 House 186,200 Mortgage 171,800 Net Worth 19,500 The following transactions occurred during the month of June 2022. 1. Received $4,100 cash for her monthly salary 2. Paid $590 cash for maintenance on her car 3. Paid $540 cash for telephone, water and electricity charges 4. Purchased a car worth $10,600 on credit 5. Received $30 interest earned on bank deposits 6. Paid $320 for food with cash

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Chapter 1 Financial Statements: Personal Accounting 36 Required a) Use the T-account to calculate the ending balance of cash. INCREASE DECREASE + CASH - Opening Balance $2,100 1. 4,100 2. 590 3. 540 5. 30 6. 320 Ending Balance $4,780 b) What is the surplus or deficit for the accounting period? Surplus or deficit: $4,100 - $590 - $540 + $30 − $320 = $2,680 The surplus for the accounting period is $2,680. c) What is Christine Sutherland’s net worth on June 30? Net worth: $19,500 + $2,680 = $22,180 Christine’s net worth on June 30 is $22,180. AP-10B LO 1-5 Toshiro’s financial records show that his assets and net worth as of May 1, 2022, are as follows. Cash $6,000 Computer 4,000 Contents of Home 17,500 Car 20,000 House 137,500 Student Loan ? Net Worth 113,000 Toshiro wants to find out how much he owes for his student loan. Determine his total liabilities. Assets Cash $6,000 Computer 4,000 Contents of Home 17,500 Car 20,000 House 137,500 Total Assets $185,000 Less Net Worth 113,000 Total Liabilities $72,000

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Chapter 1 Financial Statements: Personal Accounting 37 AP-11B LO 1-5 Lucia has total assets of $35,000 and total liabilities of $20,000. She owns a few pieces of gold jewellery that were originally purchased for $1,000 total. She recently purchased some additional jewellery for $3,000 cash. Which account balances will change from this transaction and by how much? Use the accounting equation to check your answer. Before the additional jewellery purchase (balanced) Assets = Liabilities + Net Worth $35,000 = $20,000 + $15,000 After the purchase, decrease cash by $3,000 and increase jewellery by $3,000 Assets = Liabilities + Net Worth $35,000 = $20,000 + $15,000 Net worth is not affected. Analysis Lucia wants to increase her net worth, so she decides to purchase a new car by getting a bank loan. Has her net worth changed as expected? Explain. Lucia’s net worth will not increase simply by purchasing an asset. When she borrows money to buy a car, she increases the asset and increases the liability, with no change in net worth. AP-12B LO 1-5 Archie always prepares an income statement and balance sheet each month, but he has fallen behind. Assume the opening net worth for November 2022 is $6,770. Luckily, he has kept track of his account balances as shown below. October 31, 2022 November 30, 2022 Cash $6,700 $9,700 Entertainment Expense 500 250 Food Expense 280 270 Gasoline Expense 140 130 Rent Expense 1,400 1,400 Salary 5,050 5,050 Unpaid Accounts 700 700 Car 3,500 3,500 Complete the table below. October 31, 2022 November 30, 2022 Opening Net Worth $6,770 $9,500 Surplus (Deficit) $2,730 $3,000 Closing Net Worth $9,500 $12,500

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Chapter 1 Financial Statements: Personal Accounting 38 AP-13B LO 1-5 Jess Day stored her personal accounting information in a file on her computer, but some of it was deleted by accident. Appliances $1,100 Cell Phone 500 Family Loan ? Jewellery 800 Net Worth 4,500 Unpaid Bills 350 Car 5,000 Required a) What are Jess’s total assets? Jess’s assets include appliances, jewellery, a cell phone and a car. Together, these assets total $7,400. b) What is the amount of Jess’s family loan? Remember that Assets = Liabilities + Net Worth, therefore Liabilities = Assets - Net Worth. Jess’s total assets are $7,400 and her net worth is $4,500. Therefore, her total liabilities are $2,900. Her liabilities include her unpaid bills and her family loan. Unpaid bills total $350, so she must owe $2,550 to her family. Analysis Jess works as a teacher. She has agreed to work as a substitute during one day next week for extra wages. According to accrual-based accounting, has Jess’s net worth increased? Why or why not? Accrual-based accounting states that net worth changes when activities occur, regardless of when cash is paid or received. In this case, Jess has not yet worked the extra day so her net worth has not changed. AP-14B LO 1-5 Dex had the following transactions during the month of May. 1. Purchased a new laptop for $1,200 cash 2. Put $1,600 of car repairs on his credit card 3. Spent $80 on a steak dinner with his sister and paid with his credit card 4. Paid his son’s nanny $850 cash for her services of April 5. Received a salary of $5,500 How have these transactions affected Dex’s net worth? Impact on Net Worth : +$5,500 - $1,600 - $80 - $850 = $2,970 The costs of the repairs, the dinner and the nanny represent expenses that have decreased net worth, while the salary has increased net worth. Net worth has changed for an overall increase of $2,970. The laptop purchase involves changes in assets and does not affect net worth.

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Chapter 1 Financial Statements: Personal Accounting 39 Analysis Has Dex’s cash changed the same amount as his net worth? Why or why not? Impact on Cash : +$5,500 - $1,200 - $850 = $3,450 Dex’s cash has increased by $3,450, which is different from his increase in net worth. This is because there is not a direct relationship between cash and net worth. Some cash transactions affect net worth (if they involve expenses or revenue) and other cash transactions do not affect net worth (if they are matched with assets or liabilities). AP-15B LO 1-3, 5, 6 On June 1, 2022, Joey had $3,100 in cash (including his bank account). Required a) Using the following chart, indicate whether there would be an increase, decrease or no change to cash and net worth for the transactions provided. The first transaction has been completed for you. Cash Net Worth Transaction Increase Decrease No Change Increase Decrease No Change Returned groceries to the store for $50 cash X X Purchased a new laptop for $1,200 cash X X Bought a concert ticket for $90 cash X X Received wages of $3,200 for the month X X Spent $300 cash on food for the month X X Received monthly utility bills of $310, due July 21 X X Received interest on a savings account of $35 X X b) Based on the transactions listed in part a), what is the balance of cash on June 30? The opening cash balance is $3,100. INCREASE DECREASE + CASH - Opening: $3,100 1. 50 2. 1,200 4. 3,200 3. 90 7. 35 5. 300 Closing: $4,795

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Chapter 1 Financial Statements: Personal Accounting 40 c) Prepare a personal income statement for Joey for June. Personal Income Statement For the Month Ended June 30, 2022 Revenue Salary $3,200 Interest Earned 35 Total Revenue $3,235 Expenses Entertainment Expense 90 Food Expense 300 Utility Expense 310 Total Expenses 700 Surplus (Deficit) $2,535 Analysis Joey purchased his car using 0% financing. This means there is no interest on the loan. What is the effect on net worth after each car payment? Would the effect be any different if the loan had interest? Explain. With an interest-free loan, each payment reduces the loan by the full amount of the payment. Net worth is not affected because the payment is going directly toward the cost of the asset, not interest. If a loan has interest, then each payment reduces the loan by an amount smaller than the payment. The remainder is interest and is recorded as an expense, which reduces net worth. AP-16B LO 1-2, 5, 7 Corinna had the following personal balance sheet at the beginning of the month. Assets Liabilities Cash $26,500 Personal Loan from Parents $6,000 Investments 15,000 Unpaid Accounts 28,000 Car 26,000 Car Loan 4,000 House 225,000 Mortgage 162,000 Total Liabilities 200,000 Net Worth 92,500 Total Assets $292,500 Total Liabilities + Net Worth $292,500 Since Corinna has equity in her house, she decided to get a home equity loan to pay off as much as she could of her credit card debt (unpaid accounts). The interest on the home equity loan is 4%, while the credit card is charging 21%. During the month, Corinna had the following selected transactions. • Took out a $15,000 home equity loan, used $10,000 to pay off credit card debt and put the remainder into her investment account • Borrowed an additional $5,000 from her parents and paid the entire amount against her credit card debt • Used a total of $8,000 cash to pay off her car loan and make a reduction to her credit card debt

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Chapter 1 Financial Statements: Personal Accounting 41 Required a) Based on the above information, prepare an updated balance sheet for Corinna at the end of the month. Assets Liabilities Cash $18,500 Personal Loan from Parents $11,000 Investments 20,000 Unpaid Accounts 9,000 Car 26,000 Home Equity Loan 15,000 House 225,000 Car Loan - Mortgage 162,000 Total Liabilities 197,000 Net Worth 92,500 Total Assets $289,500 Total Liabilities + Net Worth $289,500 b) Comment on the change in Corinna’s financial position. Although Corinna paid off some debt, in most cases her old debt was financed with new debt. That did not change her net worth. Then, she used some of her assets to pay off debt. Net worth is not changed at the end of the period. AP-17B LO 1-2, 5, 7, 8 Taylor is a recent college graduate and has the following balance sheet. Assets Liabilities Cash $6,000 Unpaid Accounts $1,000 Investments 500 Student Loan 2,000 Total Liabilities 3,000 Net Worth 3,500 Total Assets $6,500 Total Liabilities + Net Worth $6,500 Taylor purchased a vehicle for $10,000. He put $1,000 down and financed the remaining amount. Based on this information, prepare Taylor’s updated balance sheet after the purchase of the vehicle. Assets Liabilities Cash $5,000 Unpaid Accounts $1,000 Investments 500 Student Loan 2,000 Vehicle 10,000 Vehicle Loan 9,000 Total Liabilities 12,000 Net Worth 3,500 Total Assets $15,500 Total Liabilities + Net Worth $15,500

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Chapter 1 Financial Statements: Personal Accounting 42 AP-18B LO 1-5, 9 Indicate whether assets, liabilities or net worth will increase or decrease and by how much, based on each transaction. The first one has been done for you. Always ensure the accounting equation is balanced. Provide an explanation only if net worth is affected. Assets Liabilities Net Worth Explanation 1. Purchased a new television for $700 on credit + 700 + 700 2. Won $700 in a lottery + 700 + 700 Recorded winnings as capital 3. Deposited $2,800 in salary + 2,800 + 2,800 Recorded salary earned as revenue 4. Purchased furniture for $400 in cash - 400 + 400 5. Transferred $500 from a chequing account to a savings account - 500 + 500 6. Paid $150 for concert tickets with a credit card + 150 - 150 Recorded expense for purchasing tickets 7. Paid $200 cash for utilities - 200 - 200 Paid for utility expense incurred 8. Paid $1,500 toward the mortgage - 1,500 - 1,500 9. Paid $1,100 toward unpaid bills - 1,100 - 1,100 AP-19B LO 1-5, 9 Indicate whether the account balances will increase or decrease and by how much, based on each transaction. The first one has been done for you. Always ensure the accounting equation is balanced. Provide an explanation only if net worth is affected. Transaction Assets Liabilities Net Worth Explanation 1. Purchased a new television for $700 on credit + 700 + 700 2. Purchased $100 worth of gas on credit + 100 − 100 Purchased gas 3. Made an $850 car loan payment − 850 − 850 4. Purchased a chandelier for $200 cash + 200 − 200 5. Received $400 cash in exchange for some jewellery you sold + 400 − 400 6. Received a cash gift of $500 + 500 + 500 Received cash gift 7. Paid $1,100 for one month of rent on apartment − 1,100 − 1,100 Paid monthly rent on apartment 8. Paid interest of $50, in cash, on the car loan − 50 − 50 Paid interest on car loan 9. Received a phone bill for $110 to be paid next month + 110 − 110 Received phone bill = + = +

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Chapter 1 Financial Statements: Personal Accounting 43 Analysis The net worth account is updated only at the end of an accounting period. Revenue and expense accounts, and the net worth account, track changes in net worth during the period. For each transaction affecting net worth, determine whether revenue, expense or net worth (directly) is used to track the change. 2. expense 6. net worth 7. expense 8. expense 9. expense AP-20B LO 1-2, 9 Steven has the following personal balance sheet. Assets Liabilities Cash $3,000 Unpaid Accounts $3,200 Investments 6,000 Student Loan — Total Liabilities 3,200 Net Worth 5,800 Total Assets $9,000 Total Liabilities + Net Worth $9,000 Steven’s parents gave him a gift of $15,000 cash when he turned 25. Based on this information, prepare Steven’s updated balance sheet. Assets Liabilities Cash $18,000 Unpaid Accounts $3,200 Investments 6,000 Student Loan — Total Liabilities 3,200 Net Worth 20,800 Total Assets $24,000 Total Liabilities + Net Worth $24,000

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Chapter 1 Financial Statements: Personal Accounting 44 AP-21B LO 1-10 Alan Marshall is preparing his balance sheet and income statement for the month ended July 31, 2022. The following information was available for the accounts as at July 1, 2022. Cash $4,400 Contents of Home 2,800 Car 4,800 House 287,900 Unpaid Accounts 8,500 Mortgage 239,300 Net Worth 52,100 The following transactions occurred during the month of July. 1. Deposited $4,700 of salary earned during June 2. Purchased a $1,600 high-definition television using a credit card 3. Paid a telephone bill of $640 for the month of July using a credit card 4. Paid a credit card bill with cash for $3,300 5. Purchased $1,010 of groceries using cash 6. Paid July’s utilities of $1,100 with cash 7. Made a principal payment of $1,100 for the mortgage 8. Earned $60 interest on a savings account Using the information provided, first record the opening balances in the T-accounts. Then record the transactions for the month of July in the T-accounts and complete the calculations at the bottom of the table.

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Chapter 1 Financial Statements: Personal Accounting 45 PERSONAL BALANCE SHEET As at July 31, 2022 PERSONAL INCOME STATEMENT For the Month Ended July 31, 2022 ASSETS LIABILITIES DECREASE INCREASE INCREASE DECREASE DECREASE INCREASE − REVENUE + + CASH − − UNPAID ACCOUNTS + 1. 4,700 Opening $4,400 $8,500 Opening 8. 60 1. 4,700 2. 1,600 $4,760 4. 3,300 3. 640 5. 1,010 4. 3,300 6. 1,100 7. 1,100 LESS EXPENSES 8 60 INCREASE DECREASE + CLOTHING EXPENSE − $2,650 $7,440 INCREASE DECREASE DECREASE INCREASE + CONTENTS OF HOME − − MORTGAGE + INCREASE DECREASE Opening $2,800 $239,300 Opening + FOOD EXPENSE − 2. 1,600 7. 1,100 5. 1,010 $1,010 INCREASE DECREASE $4,400 $238,200 + TELEPHONE EXPENSE − 3. 640 INCREASE DECREASE + CAR − $640 Opening $4,800 INCREASE DECREASE + UTILITIES EXPENSE − 6. 1,100 $1,100 $4,800 NET WORTH INCREASE DECREASE DECREASE INCREASE + HOUSE − − NET WORTH + Opening $287,900 $52,100 Opening $287,900 $52,100 Total Assets $299,750 Total Revenue $4,760 Total Liabilities 245,640 $299,750 Less Total Expenses 2,750 Net Worth 54,110 Surplus (Deficit) $2,010 }

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Chapter 1 Financial Statements: Personal Accounting 46 AP-22B LO 1-9, 10 The following information is available from Elaine Georgiu’s financial records as at February 1, 2022. Cash $34,000 Electronics 3,500 Car 45,000 Boat 81,000 Unpaid Accounts 21,000 Car Loan 25,000 Net Worth 117,500 The following transactions took place during the month of February. 1. Purchased gas for the boat with $85 cash 2. Earned $1,250 in wages and deposited it in a bank account 3. Purchased $420 of groceries on a credit card 4. Won $200 cash from a lottery 5. Paid $3,600 cash for credit card bills due 6. Paid $360 interest on credit card bill with cash 7. Booked a flight on credit for $900 8. Paid $350 cash for movie and concert tickets Using the information provided, first record the opening balances in the T-accounts. Then record the transactions in the T-accounts and complete the calculations at the bottom of the table.

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Chapter 1 Financial Statements: Personal Accounting 47 PERSONAL BALANCE SHEET As at February 28, 2022 INCOME STATEMENT For the Month Ended February 28, 2022 ASSETS LIABILITIES DECREASE INCREASE INCREASE DECREASE DECREASE INCREASE − REVENUE + + CASH − − UNPAID ACCOUNTS + 2. 1,250 Opening $34,000 $21,000 Opening 1. 85 3. 420 $1,250 2. 1,250 5. 3,600 4. 200 7. 900 5. 3,600 6. 360 8. 350 LESS EXPENSES INCREASE DECREASE + ENTERTAINMENT EXPENSE − $31,055 $18,720 8. 350 INCREASE DECREASE DECREASE INCREASE + ELECTRONICS − − CAR LOAN + INCREASE DECREASE Opening $3,500 $25,000 Opening + FOOD EXPENSE − 3. 420 $420 INCREASE DECREASE $3,500 $25,000 + FUEL EXPENSE − 1. 85 INCREASE DECREASE + CAR − $85 Opening $45,000 INCREASE DECREASE + INTEREST EXPENSE − 6. 360 $360 $45,000 NET WORTH INCREASE DECREASE + TRAVEL EXPENSE − INCREASE DECREASE DECREASE INCREASE 7. 900 + BOAT − − NET WORTH + Opening $81,000 $117,500 Opening $900 4. 200 $81,000 $117,700 Total Assets $160,555 Total Revenue $1,250 Total Liabilities 43,720 $160,555 Less Total Expenses 2,115 Net Worth 116,835 Surplus (Deficit) ($865) }

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Chapter 1 Financial Statements: Personal Accounting 48 AP-23B LO 1-10 The following information is available from Anna Edison’s financial records as at June 1, 2022. Cash $18,000 Furniture 3,100 Jewellery & Electronics 3,200 House 255,000 Student Loans 39,000 Family Loan 2,000 Mortgage 100,000 Net Worth 138,300 The following transactions took place during the month of June. 1. $350 was taken from the bank account for a car lease payment 2. Paid $1,000 cash against the student loans, which includes $140 of interest 3. Won a laptop worth $800 as a raffle prize 4. Made a mortgage payment of $2,000 with cash, which includes $400 of interest 5. Salary earned of $4,800 was directly deposited to the bank account 6. A family member accepted $2,000 worth of jewellery as repayment of the family loan Required a) Using the information provided, first record the opening balances in the T-accounts. Then record the transactions for the month of June in the T-accounts and complete the calculations at the bottom of the table.

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Chapter 1 Financial Statements: Personal Accounting 49 PERSONAL BALANCE SHEET As at June 30, 2022 INCOME STATEMENT For the Month Ended June 30, 2022 ASSETS LIABILITIES DECREASE INCREASE INCREASE DECREASE DECREASE INCREASE − REVENUE + + CASH − − STUDENT LOANS + 5. 4,800 Opening $18,000 $39,000 Opening 1. 350 2. 860 $4,800 2. 1,000 4. 2,000 5. 4,800 $19,450 $38,140 LESS EXPENSES INCREASE DECREASE INCREASE DECREASE DECREASE INCREASE + CAR EXPENSE − + FURNITURE − − FAMILY LOAN + 1. 350 Opening $3,100 $2,000 Opening 6. 2,000 $350 INCREASE DECREASE $0 + ENTERTAINMENT EXPENSE − $3,100 DECREASE INCREASE INCREASE DECREASE − MORTGAGE + + JEWELLERY & ELECTRONICS − $100,000 Opening Opening $3,200 4. 1,600 INCREASE DECREASE 3. 800 + FOOD EXPENSE − 6. 2,000 $98,400 $2,000 NET WORTH INCREASE DECREASE INCREASE DECREASE DECREASE INCREASE + INTEREST EXPENSE − + HOUSE − − NET WORTH + 2. 140 Opening $255,000 $138,300 Opening 4. 400 $540 3. 800 INCREASE DECREASE + TRAVEL EXPENSE − $255,000 $139,100 Total Assets $279,550 Total Revenue $4,800 Total Liabilities 136,540 $279,550 Less Total Expenses 890 Net Worth 143,010 Surplus (Deficit) $3,910 }

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Chapter 1 Financial Statements: Personal Accounting 50 b) Complete the income statement for the month of June. Income Statement For the Month Ended June 30, 2022 Revenue $4,800 Expenses Car Expense $350 Interest Expense 540 Total Expenses 890 Surplus (Deficit) $3,910 c) Complete the personal balance sheet as at June 30, 2022. Personal Balance Sheet As at June 30, 2022 Assets Liabilities Cash $19,450 Student Loans $38,140 Jewellery & Electronics 2,000 Mortgage 98,400 Furniture 3,100 Total Liabilities 136,540 House 255,000 Net Worth 143,010 Total Assets $279,550 Total Liabilities + Net Worth $279,550

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Chapter 1 Financial Statements: Personal Accounting 51 Case Study CS–1 LO 1-10 After taking the first part of this financial accounting course, you excitedly tell your friend Jordan what you have learned. You tell him about assets, liabilities and net worth and how they increase and decrease in value with every financial transaction. Jordan decides to start getting organized and apply accounting principles to his personal finances. He compiles everything that he thinks is important and calculates his net worth. He then asks you to look over what he has done to make sure it is correct. His important financial items are listed below, along with his version of the T-account records. 1. He had $1,000 in his bank account at the beginning of the month. 2. He had a $2,300 balance on his credit card at the beginning of the month. 3. He estimates that he had about $2,000 worth of “stuff” in his apartment at the beginning of the month (TV, sound system, computer and furniture). 4. He deposited his salary of $2,500. 5. He paid his rent for the month with $1,400 cash. 6. He paid $1,300 to pay off a portion of the credit card bill. 7. He purchased a new video game system for $550 with his credit card. 8. He bought $90 worth of food with cash. 9. He got hired at a second job. He will start next month and will earn $1,000 per month. 10. He spent $300 cash on movies, stage plays and other entertainment. + CASH − − UNPAID ACCOUNTS + 1. 1,000 5. 1,400 6. 1,300 2. 2,300 4. 2,500 6. 1,300 7. 550 8. 90 10. 300 Total $410 Total $1,550 − NET WORTH + 5. 1,400 3. 2,000 8. 90 4. 2,500 10. 300 7. 550 9. 1,000 Total $4,260 Required a) What are some immediate problems that you see with what Jordan has prepared? There are not enough accounts to track all of the assets. He has not prepared an income statement; instead he combined everything into net worth. The accounting equation does not balance. There are some items in net worth that are not part of net worth.

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Chapter 1 Financial Statements: Personal Accounting 52 b) With all the problems you see, Jordan asks you to show him what the correct records should look like. Use the templates below to record the transactions. PERSONAL BALANCE SHEET ASSETS LIABILITIES INCREASE DECREASE DECREASE INCREASE + − − + CASH UNPAID ACCOUNTS Opening: 1. $1,000 Opening: 2. $2,300 4. 2,500 5. 1,400 6. $1,300 7. 550 6. 1,300 8. 90 10. 300 $410 $1,550 INCREASE DECREASE DECREASE INCREASE + − − + CONTENTS OF HOME Opening: 3. $2,000 Opening: 7. 550 $2,550 INCREASE DECREASE DECREASE INCREASE + − − + NET WORTH Opening: Opening: $700 $700 Total Assets $2,960 Total Liabilities 1,550 Net Worth $1,410

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Chapter 1 Financial Statements: Personal Accounting 53 PERSONAL INCOME STATEMENT DECREASE − REVENUE INCREASE + 4. 2,500 $2,500 LESS EXPENSES INCREASE + DECREASE − INCREASE + DECREASE − ENTERTAINMENT EXPENSE FOOD EXPENSE 10. 300 8. 90 $300 $90 INCREASE + DECREASE − INCREASE + DECREASE − RENT EXPENSE 5. 1,400 $1,400 INCREASE + DECREASE − INCREASE + DECREASE − Total Revenue $2,500 Less Total Expenses 1,790 Surplus (Deficit) $710 After you show Jordan the corrected version, he asks a number of questions. c) Why did you use all of these accounts when I only used three (Cash, Unpaid Accounts and Net Worth)? The balance sheet provides a snapshot of what you own (assets), what you owe (liabilities) and your net worth. By keeping details about everything you own and owe, it is easier to see the value of your assets and liabilities. The income statement tracks what you earn (revenue) and all of your everyday costs (expenses). By keeping it separate, it is easier to see the details of the transactions. Net worth then gets updated when the income statement is updated.

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Chapter 1 Financial Statements: Personal Accounting 54 d) Why is the $2,000 worth of “stuff” not considered net worth? The $2,000 worth of “stuff” is comprised of items such as electronics and furniture. These items are considered assets because they are owned and provide benefits now and in the future. Net worth is what you would have left if you sold everything and paid off all your debts. If you sold your stuff, you would get $2,000 cash to add to what you already have ($1,000). You would still have to pay your credit card debt, which reduces your net worth by $2,300. Thus, your net worth is really $700. e) I was having trouble figuring out how to record my second job which I start next month. They are going to be paying me $1,000 a month! I figured it will increase my net worth, but I didn’t know where else to put it. I knew it couldn’t be cash, because they haven’t paid me yet. What did you do with it and why? The salary from next month does not get recorded anywhere right now. It is true that it will increase your net worth, but that will only happen once you have earned it and been paid. Since you have not started the job and have not received any money, it cannot be recorded anywhere. f) I forgot to tell you that the $1,300 credit card payment included $100 of interest. I didn’t think it mattered since the total payment amount is the same. This won’t change anything, right? It will change how the payment is applied, and a T-account for interest expense should have been added too. It this case, you only reduced your debt by $1,200, not $1,300. The $100 of interest is actually recorded as an expense on the income statement, which will decrease your net worth. g) You may have noticed that I am running low on cash. Any suggestions on how I can raise more cash? The second job that you will start next month is an ideal way to raise more cash because it is through day-to- day activities and will increase net worth. Another way to raise cash is to sell some of your investments or assets. This is not ideal because you will lose any benefits those assets provided. All of the contents of home account appear to be somewhat essential, so selling them is not an option. A third way to raise cash is to borrow money through a loan. This does not increase your net worth because eventually the money must be repaid. If interest is being charged on the loan, net worth will decrease as you make interest payments. h) This is very useful and I would like to do this more often. I can do it this weekend, then two weeks from now once I finish my exams, then probably not for another month after that. I’m going on a well- deserved vacation after my exams, so I won’t be around to look after it. Do you think this will work out well? Actually, you should do this on a regular basis. If you do the financial analysis in a haphazard manner, you will not be able to properly compare one income statement to the next. You should do this once a month. This will give you an opportunity to compare one month of revenues and expenses to another. It will also allow you to monitor the value of your assets, liabilities and net worth. By performing these steps on a regular basis, you can estimate what your surplus will be each month and plan for larger purchases, such as a car or a vacation.

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Workbook Ch1

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