B6001 – Accounting 1 – Financial Accounting
SOLUTION TO PROBLEM SET 1
QUESTION 1:
a. Using the accounting equation:
Assets ($196,485) = Liabilities ($91,453) + Equity (?)
Thus: $105,032 = Equity
High-tech companies must contend with a substantial amount of risk relating to
changing technology. Future cash flows are, therefore, not as certain and cannot
support high levels of debt. Thus, the company uses equity financing, 53.5% (=
105,032/196,485) in the case of Intel.
b. Using the accounting equation at the beginning of the year:
Assets ($13,853) = Liabilities (?) + Equity ($3,337)
Thus: Beginning Liabilities = $10,516
Using the accounting equation at the end of the year:
Assets ($13,853+ $2,988) = Liabilities ($10,516 + $3,684) + Equity (?)
Thus: Ending Equity = $2,641
Alternative approach to solving part (b):
Assets ($2,988) = Liabilities ($3,684) + Equity (?)
where “” refers to “change in.”
Thus: Ending Equity = $2,988 - $3,684 = - $696 and
Ending equity = $3,684 - $696 = $2,988
c. Retained Earnings is the balance sheet account that provides the link between the
balance sheet and the income statement. For each accounting period, Retained Earnings
is updated by the net income (loss) reported for that period (and is reduced by any
dividends that are paid to shareholders). The balance sheet and the income statement
are, therefore, linked by this balance sheet account.
This study source was downloaded by 100000900629999 from CourseHero.com on 10-31-2025 04:58:19 GMT -05:00
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SOLUTION TO PROBLEM SET 1
QUESTION 1:
a. Using the accounting equation:
Assets ($196,485) = Liabilities ($91,453) + Equity (?)
Thus: $105,032 = Equity
High-tech companies must contend with a substantial amount of risk relating to
changing technology. Future cash flows are, therefore, not as certain and cannot
support high levels of debt. Thus, the company uses equity financing, 53.5% (=
105,032/196,485) in the case of Intel.
b. Using the accounting equation at the beginning of the year:
Assets ($13,853) = Liabilities (?) + Equity ($3,337)
Thus: Beginning Liabilities = $10,516
Using the accounting equation at the end of the year:
Assets ($13,853+ $2,988) = Liabilities ($10,516 + $3,684) + Equity (?)
Thus: Ending Equity = $2,641
Alternative approach to solving part (b):
Assets ($2,988) = Liabilities ($3,684) + Equity (?)
where “” refers to “change in.”
Thus: Ending Equity = $2,988 - $3,684 = - $696 and
Ending equity = $3,684 - $696 = $2,988
c. Retained Earnings is the balance sheet account that provides the link between the
balance sheet and the income statement. For each accounting period, Retained Earnings
is updated by the net income (loss) reported for that period (and is reduced by any
dividends that are paid to shareholders). The balance sheet and the income statement
are, therefore, linked by this balance sheet account.
This study source was downloaded by 100000900629999 from CourseHero.com on 10-31-2025 04:58:19 GMT -05:00
You may only share these materials with current term students.
https://www.coursehero.com/file/252486472/Problem-Set-1-Solutionpdf/
