Chapter 1, Problem 2BPSB

To determine

Concept Introduction:

Financial Statements: Financial statements are reports of the financial condition of a company or entity. In the financial statements, the management presents the financial performance and position of the company at a point in time. Financial statements disclose the financial effects of business transactions. Financial statements include a balance sheet, income statement, statement of cash flows and statement of change in equity.

Balance Sheet: Balance sheet provides details of firm’s assets, liabilities and owner’s equity for a given date. The Balance sheet gives a snapshot of what the company owns and owes as well as the amount invested in equity. The Balance sheet follow the below rule

Assets = Liabilities + equity

Income Statement: It is also called profit & loss statement. Income statement provides a snapshot of revenue, expenses and net income of the organization for a given period.

Statement of Cash Flows: It is a financial statement that shows the movements of cash and Bank balance during a period. It describes the amount of cash generated by the company during a period and the use of the cash.

1.

To determine: The following about company V.

a. Amount of equity as on December 31, 2016.

b. Amount of equity as on December 31, 2017.

c. Net income or loss for the year 2017.

Explanation of Solution

The amount of equity and net income or loss, about company V is as below:

a. Amount of equity as on December 31, 2016 = $29,000

$Equity=Assets-Liabilities=\$54,000-\$25,000=\$29,000$

b. Amount of equity as on December 31, 2017=$23,000

$Equity=Assets-Liabilities=\$59,000-\$36,000=\$23,000$

c. Net income or loss for the year 2017 is the loss of $5,500.

$Netincome/loss=Closingequity+Cashwithdrawals-Ownerinvestments–openingequity$

$\begin{array}{l}=\$23,000+\$5,500-\$5,000\$-\$29,000\hfill \\ =-\$5,500\hfill \end{array}$

2.

To determine

The following about company W.

a. Amount of equity as on December 31, 2016.

b. Amount of equity as on December 31, 2017.

c. Amount of liabilities as on December 31, 2017.

Explanation of Solution

The amount of equity and liabilities, about company W is as below:

a. Amount of equity as on December 31, 2016 = $20,000

$Equity=Assets-Liabilities=\$80,000-\$60,000=\$20,000$

b. Amount of equity as on December 31, 2017=$78,000

$Closingequity=Openingequity+Ownerinvestment-Cashwithdrawals+Netincome/loss$

$=\$20,000+\$20,000-\$2,000+\$40,000$

c. Amount of liabilities as on December 31, 2017 is $22,000

$Liabilities=Assets–Equity$

$=\$100,000-\$78,000=\$22,000$

3.

To determine

To Compute: The amount of owner investment for company X during 2017.

Explanation of Solution

The amount of owner investment for company X during 2017 is $29,200

Calculations:

Amount of equity on December 2016 = Assets - Liabilities

$=\$141,500-\$68,500=\$73,000$

Amount of equity on December 2017 = Assets - Liabilities

$=\$186,500-\$65,800=\$120,700$

Owner investment = Closing equity $–$ opening equity $–$ Net income $–$ cash withdrawals

$\begin{array}{l}=\$120,700-\$73,000-\$18,500–0\hfill \\ =\$29,200\hfill \end{array}$

4.

To determine

To Compute: The amount of assets for company Y on December 31, 2017.

Explanation of Solution

The amount of assets for company Y on December 31, 2017, is $135,100

Calculations:

Amount of equity on December 2016 = Assets - Liabilities

$=\$92,500-\$51,500=\$41,000$

Amount of equity on December 2017 =

$Openingequity+Ownerinvestment-Cashwithdrawals+Netincome/loss$

$=\$41,000+\$48,100-\$20,000+\$24,000=\$93,100$

Assets on December 31, 2017 $=Liabilities+Equity$

$=\$42,000+\$93,100=\$135,100$

5.

To determine

To Compute: The amount of liabilities for company Z on December 31, 2016.

Explanation of Solution

The amount of liabilities for company Z on December 31, 2016, is $100,000.

Calculations:

Amount of equity on December 2017 $=Assets-Liabilities$

$=\$170,000-\$42,000=\$128,000$

Amount of equity on December 2016 =

$Closingequity-Ownerinvestment+Cashwithdrawals-Netincome/loss$

$=\$128,000-\$60,000+\$8,000-\$32,000=\$44,000$

Liabilities on December 31, 2016 $=Assets-Equity$

$=\$144,000-\$44,000=\$100,000$