Chapter 1, Problem 12AE

To determine

Calculate the missing amount in each column of the financial statements.

Answer to Problem 12AE

Calculate the missing amount in each column of the financial statements as follows:

Particulars	A	B	C	D
Beginning:
Assets (16)	28,000	12,000	28,000	26,000
Liabilities	18,600	5,000	19,000	9,000
Ending:
Assets	30,000	26,000	34,000	40,000
Liabilities (8)	17,300	18,000	15,000	19,000
During the year:
Sales (4)	14,800	23,500	28,000	24,000
Expense	8,500	21,000	11,000	17,000
Dividends (12)	3,000	1,500	7,000	3,000

Table (1)

Explanation of Solution

Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.

Working note:

• Compute the amount of sales revenue.

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$28,000-\$18,600\\ \text{Stockholders’ Equity}=\$9,400\end{array}$ (1)

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$30,000-\$17,300\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$12,700\end{array}$ (2)

Compute the net income:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{Beginning Stockholders' }\\ \text{Equity + Net Income}\end{array}\right)-\text{Dividends}\right]\\ \text{Net Income}=\left[\left(\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}+\text{Dividends}\end{array}\right)-\left(\begin{array}{l}\text{Beginning }\\ \text{Stockholders'}\\ \text{ Equity}\end{array}\right)\right]\\ \text{Net Income}=\left(\$12,700+\$3,000\right)-\$9,400\\ \text{Net Income}=\$6,300\end{array}$ (3)

Compute the amount of sales revenue:

$\begin{array}{c}\text{Net Income }=\text{ Sales revenue}-\text{Expenses}\\ \text{Sales revenue}=\text{Net Income}+\text{Expenses}\\ \text{Sales revenue}=\$6,300+\$8,500\\ \text{Sales revenue}=14,800\end{array}$ (4)

Therefore, the amount of sales revenue is $14,800.

• Compute the amount of ending liability:

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$12,000-\$5,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\$7,000\end{array}$ (5)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income = Sales revenue }-\text{Expenses}\\ =\$23,500-\$21,000\\ =\$2,500\end{array}$ (6)

Compute the amount of ending stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders' }\\ \text{Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ =\left(\$7,000+\$2,500\right)-\$1,500\\ =\$8,000\end{array}$ (7)

Compute the ending liabilities:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Liabilities}=\text{Assets}-\text{Stockholders’ Equity}\\ \text{Liabilities}=\$26,000-\$8,000\\ \begin{array}{l}\text{Liabilities}\\ \text{(Ending)}\end{array}\}=\$18,000\end{array}$ (8)

Therefore, the amount of ending liability is $18,000.

• Calculate the amount of dividends paid or declared during the year:

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$28,000-\$19,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\$9,000\end{array}$ (9)

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets}=\text{Liabilities}+\text{Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$34,000-\$15,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$19,000\end{array}$ (10)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income = Sales revenue }-\text{Expenses}\\ =\$28,000-\$11,000\\ =\$17,000\end{array}$ (11)

Compute the amount of dividend:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ \text{Dividends}=\left[\left(\begin{array}{l}\text{Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\left(\begin{array}{l}\text{Ending }\\ \text{Stockholders'}\\ \text{Equity}\end{array}\right)\right]\\ \text{Dividends }=\left(\$9,000+\$17,000\right)-\$19,000\\ \text{Dividends}=\$7,000\end{array}$ (12)

Therefore, the amount of dividend is $7,000.

• Compute the amount of beginning assets.

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$40,000-\$19,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$21,000\end{array}$ (13)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income = Sales revenue }-\text{Expenses}\\ =\$24,000-\$17,000\\ =\$7,000\end{array}$ (14)

Compute the amount of beginning stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders' }\\ \text{Equity }\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ \begin{array}{l}\text{Beginning Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{Ending Stockholders'}\\ \text{Equity}+\text{Dividends}\end{array}\right)-\text{Net Income}\right]\\ \text{Stockholders' Equity}=\left(\$21,000+\$3,000\right)-\$7,000\\ \text{Stockholders' Equity}=\$17,000\end{array}$ (15)

Compute the amount of beginning assets.

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ =\$9,000+\$17,000\\ =\$26,000\end{array}$ (16)

Therefore, the amount of beginning assets is $26,000.