Chapter 1, Problem 2PSB

1.

a.

To determine

To compute: The amount of equity, of V Company as on December 31, 2016.

Explanation of Solution

Given,
The amount of assets is $54,000.
The amount of liabilities is $25,000.

Formula to calculate equity is,

$\text{Equity}=\text{Assets}-\text{liabilities}$

Substitute$54,000 for assets and $25,000 for liabilities.

$\begin{array}{c}\text{Equity}=\$54,000-\$25,000\\ =\$29,000\end{array}$

Hence, the amount of equity of V Company as on December 31, 2016 is $29,000.

b.

To determine

To compute: The amount of equity, of V Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of assets is $59,000.
The amount of liabilities is $36,000.

Formula to calculate equity is,

$\text{Equity}=\text{Assets}-\text{liabilities}$

Substitute$59,000 for assets and $36,000 for liabilities.

$\begin{array}{c}\text{Equity}=\$59,000-\$36,000\\ =\$23,000\end{array}$

Hence, the amount of equity of V Company as on December 31, 2017 is $23,000.

c.

To determine

To compute: The amount of net income or loss of V Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of equity is $29,000 of December 31, 2016.
The amount of equity is $23,000 of December 31, 2017.
Stock issuance is $5,000.
Cash dividend is $5,500.

Formula to calculate net income is,

$\text{Net Income}=\left(\begin{array}{l}\text{Equity at the end}-\text{Equity in the beginning}\\ -\text{Issue of stock}+\text{Dividend}\end{array}\right)$

Substitute $29,000 for equity in the beginning, $5,000 for issue of stock, $23,000 for equity at the end, $5,500 for dividend.

$\begin{array}{c}\text{Net Income}=\$23,000-\$29,000-\$5,000+\$5,500\\ =\$28,500-\$34,000\\ =(\$5,500)\end{array}$

Hence, the net loss of V Company as on December 31, 2017 is $5,500.

2.

a.

To determine

To compute: The amount of equity, of W Company as on December 31, 2016.

Explanation of Solution

Given,
The amount of assets is $80,000.
The amount of liabilities is $60,000.

Formula to calculate equity is,

$\text{Equity}=\text{Assets}-\text{liablities}$

Substitute$80,000 for assets and $60,000 for liabilities.

$\begin{array}{c}\text{Equity}=\$80,000-\$60,000\\ =\$20,000\end{array}$

Hence, the amount of equity of W Company as on December 31, 2016 is $20,000.

b.

To determine

To compute: The amount of equity, of W Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of assets is $100,000.
The amount of equity is $20,000.
Stock issuance is $20,000.
Net income is $40,000.
Cash dividend is $2,000.

Formula to calculate equity is,

$\text{Equity at the end}=\left(\begin{array}{l}\text{Equity in the beginning}+\text{Issue of stock}\\ +\text{Net income}-\text{Dividend}\end{array}\right)$

Substitute $20,000 for equity in the beginning,, $20,000 for issue of stock, $40,00 for net income, $2,000 for dividend.

$\begin{array}{c}\text{Equity at the end}=\$20,000+\$20,000+\$40,000-\$2,000\\ =\$80,000-\$2,000\\ =\$78,000\end{array}$

Hence, the amount of equity of W Company as on December 31, 2017 is $78,000.

c.

To determine

To compute: The amount of liabilities, of A Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of assets is $100,000.
The amount of equity is $78,000.

Formula to calculate liabilities is,

$\text{Liabilities}=\text{Assets}-\text{Equity}$

Substitute$100,000 for assets and $78,000 for equity.

$\begin{array}{c}\text{Liabilities}=\$100,000-\$78,000\\ =\$22,000\end{array}$

Hence, the amount of liabilities of W Company as on December 31, 2017 is $22,000.

3.

To determine

To compute: The amount of stock issuance, of X Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of equity is $73,000 of December 31, 2016.
The amount of equity is $120,700 of December 31, 2017.
Net income is $18,500.

Formula to calculate stock issuance is,

$\text{Stock Issuances}=\text{Equity at the end}-\text{Equity in the beginning}-\text{Net Income}$

Substitute $73,000 for equity in the beginning, $18,500 for net income, $120,700 for equity at the end.

$\begin{array}{c}\text{Stock Issuances}=\$120,700-\$73,000-\$18,500\\ =\$29,200\end{array}$

Working Notes:

Calculation of the amount of equity as on December 31, 2016,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{Liablities}\\ =\$141,500-\$68,500\\ =\$73,000\end{array}$

Calculation of the amount of equity as on December 31, 2017,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{Liablities}\\ =\$186,500-\$65,800\\ =\$120,700\end{array}$

Hence, the amount of stock issuances of X Company as on December 31, 2017 is $29,200.

4.

To determine

To compute: The amount of assets, of Y Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of liabilities is $42,000 as on December 31, 2017.
The amount of equity is $93,100 as on December 31, 2017

Formula to calculate assets is,

$\text{Assets}=\text{Liablities}+\text{Equity}$

Substitute$42,000 for liabilities and $93,100 for equity.

$\begin{array}{c}\text{Assets}=\$42,000+\$93,100\\ =\$135,100\end{array}$

Working notes:

Calculation of the amount of equity as on December 31, 2016,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{liablities}\\ =\$92,500-\$51,500\\ =\$41,000\end{array}$

Calculation of the amount of equity as on December 31, 2017,

$\begin{array}{c}\text{Equity at the end}=\left(\begin{array}{l}\text{Equity in the beginning}+\text{Issue of stock}\\ +\text{Net income}-\text{Dividend}\end{array}\right)\\ =\$41,000+\$48,100+\$24,000-\$20,000\\ =\$113,100-\$20,000\\ =\$93,100\end{array}$

Hence, the amount of asset of Y Company as on December 31, 2017 is $135,100.

5.

To determine

To compute: The amount of liabilities, of Z Company as on December 31, 2016.

Explanation of Solution

Given,
The amount of assets is $114,000 as on December 31, 2016.
The amount of equity is $44,000 as on December 31, 2016.

Formula to calculate equity is,

$\text{Liabilities}=\text{Assets}-\text{Equity}$

Substitute$119,000 for assets and $27,500 for equity.

$\begin{array}{c}\text{Liabilities}=\$114,000-\$44,000\\ =\$70,000\end{array}$

Working Notes:

Calculation of the amount of equity as on December 31, 2017,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{Liablities}\\ =\$170,000-\$42,000\\ =\$128,000\end{array}$

Calculation of the amount of equity as on December 31, 2016,

$\begin{array}{c}\text{Equity in the beginning}=\left(\begin{array}{l}\text{Equity at the end}+\text{Dividend}\\ -\text{Issuance of Stock}-\text{Net income}\end{array}\right)\\ =\$128,000+\$8,000-\$60,000-\$32,000\\ =\$136,000-\$92,000\\ =\$44,000\end{array}$

Hence, the amount of liabilities of Z Company as on December 31, 2016 is $70,000.