Chapter II – Financial position and financial statements – Exercises

Chapter II – Financial Position and Financial Statements – Exercises

Exercise 1: Missing Amounts from Accounting Equations

• Determine the missing values in the equation: Assets = Liabilities + Owner’s Equity

  • Assets: $100,000 ; Liabilities + Owner’s Equity: ?

  • Assets: $140,000 ; Liabilities + Owner’s Equity: ?

  • Assets: $312,000 ; Liabilities + Owner’s Equity: ?

  • Assets: $168,000 ; Liabilities + Owner’s Equity: ?

  • Assets: $584,000 ; Liabilities + Owner’s Equity: ?

  • Assets: $384,000 ; Liabilities + Owner’s Equity: ?

Exercise 2: Calculation Problems

1. Ambria Company

   • Assets = $240,000

   • Liabilities = $90,000

   • Owner’s Equity = Assets - Liabilities = $240,000 - $90,000 = $150,000

2. Dao Company

   • Let Total Assets = x, Liabilities = 1/5 * x gives us: 1/5x + Owner’s Equity = x

   • Owner’s Equity = $40,000

   • Liabilities = x/5 = total assets - Owner's equity = (x - 40,000)/5
     Let's solve for total assets (x):

   x - 40,000 = 1/5x

   • multiply all terms by 5:

   5x - 200,000 = x

   4x = 200,000x = 50,000

   Liabilities = x/5 = 10,000

Exercise 3: Owner’s Equity Calculation

1. Palette Company

   • Beginning Assets: $90,000

   • Beginning Owner’s Equity: $50,000

   • Increase in Assets: $30,000

   • Increase in Liabilities: $5,000

   • End Owner’s Equity = (Beginning Assets + Increase in Assets) - (Beginning Liabilities + Increase in Liabilities)

   • End Owner’s Equity = ($90,000 + $30,000) - ($40,000 + $5,000) = $75,000

2. Carmines Company

   • Beginning Liabilities: $100,000

   • Beginning Owner’s Equity: $96,000

   • Increase in Assets: $40,000

   • Decrease in Liabilities: -$30,000

   • End Owner’s Equity = (Beginning Assets + Increase) - (New Liabilities)

   • New Liabilities = $100,000 - $30,000 = $70,000

   • Owner’s Equity End = ($96,000 - Beginning equity) + $40,000 - $70,000 = $66,000

Exercise 4: Calculate Net Income

• Vivaldi Company

  • Beginning Assets: $280,000

  • Beginning Liabilities: $120,000

  • End Assets: $400,000

  • End Liabilities: $140,000

  • Owner Investment: $40,000

  • Withdrawals: $48,000

  • Owner’s Equity Change = Ending Assets - Ending Liabilities = 400,000 - 140,000 = 260,000

  • Initial Equity = Starting Equity + Investments - Withdrawals = 280,000 + 40,000 - 48,000 = 272,000

  • Net Income = Ending Equity - Initial equity = 260,000 - 272,000 = -$12,000 (Loss)

Exercise 5: Accounting Equation Application

1. Oshkosh Company

   • Assets = $400,000, Owner’s Equity = $155,000

   • Liabilities = Assets - Owner’s Equity = 400,000 - 155,000 = $245,000

2. Salvatore Company

   • Liabilities = $72,000, Owner’s Equity = $79,500

   • Assets = Liabilities + Owner’s Equity = 72,000 + 79,500 = $151,500

3. Radisson Company

   • Owner’s Equity = $160,000

   • Liabilities = 1/3 of Assets; Assets = Liabilities + Owner’s Equity

   • If Liabilities = 1/3 of Assets, then the equation is 3Liabilities = Owner’s Equity + Liabilities

   • Solve: \ Liabilities = 160,000 / (1-1/3) = 160,000 / 2/3 = $240,000

Exercise 6: Owner’s Equity and Net Income Analysis

• Daiichi Company

  • Beginning Assets: $175,000 ; Beginning Liabilities: $68,750

  • Ending Assets: $275,000 ; Ending Liabilities: $162,500

  • Case Analysis

  1. No investments or withdrawals

  • Net Income = End Assets - End Liabilities - (Beg Assets - Beg Liabilities)

  • = $275,000 - $162,500 - ($175,000 - $68,750) = $0

  2. No investments, withdrew $27,500

  • Net Income = $275,000 - $162,500 - ($175,000 - $68,750) + $27,500 = $27,500

  3. Invested $16,250, no withdrawals

  • Net Income = $275,000 - $162,500 - ($175,000 - $68,750) - $16,250 = $16,250

  4. Invested $12,500, withdrew $27,500

  • Net Income = $275,000 - $162,500 - ($175,000 - $68,750) + $12,500 - $27,500 = $12,500 Loss

Exercise 7: Prepare a Balance Sheet

• For Manteno Company at June 30, 2014:

  • Accounts Receivable: $3,200

  • Building: $44,000

  • Wages Payable: $1,400

  • Cash: ?

  • Owner’s Capital: $57,400

Exercise 8: Prepare Financial Statements

• For Randall Company:

  • Service Revenue: $4,800

  • Expenses: $2,450

  • Withdrawals: $410

  • Year-end Cash: $1,890; Other Assets: $1,000; Accounts Payable: $450; Owner’s capital: $2,440

  • Prepare Income Statement, Statement of Owner’s Equity, Balance Sheet ensuring balancing in accounts

Exercise 9: Identify Accounts

1. Classify Accounts:

   • Building - Asset (A)

   • Salaries Payable - Liability (L)

   • Accounts Receivable - Asset (A)

   • Owner’s Capital - Owner’s Equity (OE)

   • Cash - Asset (A)

   • Accounts Payable - Liability (L)

   • Equipment - Asset (A)

2. Account Classifications:

   • Commissions Earned - Income Statement (IS)

   • Automobile - Balance Sheet (BS)

   • Utilities Expense - Income Statement (IS)

   • Land - Balance Sheet (BS)

   • Supplies Expense - Income Statement (IS)

   • Accounts Payable - Balance Sheet (BS)

   • Withdrawals - Statement of Owner’s Equity (OE)

Exercise 10: Prepare Balance Sheet for Oxford Services Company

• Account Balances as of December 31, 2014:

  • Accounts Payable: $50,000

  • Accounts Receivable: $62,500

  • Building: $112,500

  • Cash: $25,000

  • J. Oxford, Capital: $212,500

  • Equipment: $50,000

  • Supplies: $12,500

Exercise 11: Preparation of Financial Statements for Dukakis Company

• Accounts and Balances:

  • Service Revenue: $13,200

  • Rent Expense: $1,200

  • Wages Expense: $8,340

  • Advertising Expense: $1,350

  • Utilities Expense: $900

  • Withdrawals: $700

  • Prepare Income Statement, Statement of Owner’s Equity, and Balance Sheet (assumed year-end December 31, 2014)

Exercise 12: Prepare Statement of Cash Flows

• For Arlington Service Company:

  • Year start Cash: $55,900

  • Net Income: $32,500

  • Withdrawals: $19,500

  • Borrowed: $78,000

  • Equipment Purchased: $117,000

  • Accounts Receivable increase: $7,800

  • Accounts Payable increase: $11,700

  • Prepare statement of cash flows to determine year-end cash on hand

Exercise 13: Statement of Owner’s Equity

• Information from Mrs. Shah’s Cookies:

  • Withdrawals: $0

  • Net Income: ?

  • Owner’s equity, Jan 31, 2014: $159,490

  • Owner’s equity, Jan 31, 2013: $102,403

  • Prepare statement of owner’s equity and determine net income

Exercise 14: Financial Statements Completion

• Complete the financial statements:

  • Income Statement:

    • Revenues: $11,100

    • Expenses (a)

    • Net Income: (b)

    • Statement of Owner’s Equity:

      • Beginning Balance: $29,000

      • Net Income: (c)

      • Less Withdrawals: $2,000

      • Ending Balance: $30,000

    • Balance Sheet:

      • Total Assets: (d)

      • Total Liabilities: $16,000

      • Owner’s Equity (T. Proviso, Capital): (e)

      • Total Liabilities and Owner’s Equity: (f)