Chapter 1, Problem 2PSA

1.

Summary Introduction

Introduction:Balance sheet is a financial statement which is prepared at the end of an accounting year to show the balance of assets, liabilities and the equity of the company. The assets of the company are equal to the amount of liabilities plus equity.

To calculate:

(a) The amount of equity for company A on December 31, 2015.

(b) The amount of equity for company A on December 31, 2016

(c) The amount of liabilities for company A on December 31, 2016.

Explanation of Solution

(a)

December 31, 2015:

Assets: $55,000

Liabilities: $24,500

  $\begin{array}{c}\text{Equity}=\text{assets}-\text{liabilities}\\ =\$55,000-\$24,500\\ =\$30,500\end{array}$

Therefore, the amount of beginning equity is $30,500.

(b)

December 31, 2016:

Particular	Amount ($)
Beginning balance of equity	30,500
Add: stock insurance	6,000
Add: net income	8,500
Less: Cash dividend	(3,500)
Ending balance of equity	41,500

Therefore, the amount of ending equity is $41,500.

(c)

Liabilities on December 31, 2016:

Assets: $58,000

Equity: $41,500

  $\begin{array}{c}\text{Liabilites}=\text{assets}-\text{equity}\\ =\$58,000-\$41,500\\ =\$16,500\end{array}$

Therefore, the amount of liabilities is $16,500.

2.

Summary Introduction

Introduction:Balance sheet is a financial statement which is prepared at the end of an accounting year to show the balance of assets, liabilities and the equity of the company. The assets of the company are equal to the amount of liabilities plus equity.

To calculate: (a) The amount of equity for company B on December 31, 2015. (b) The amount of equity for company B on December 31, 2016 (c) The net income of company B for the year ending on December 31, 2016.

Explanation of Solution

(a)

December 31, 2015:

Assets: $34,000

Liabilities: $21,500

  $\begin{array}{c}\text{Equity}=\text{assets}-\text{liabilities}\\ =\$34,000-\$21,500\\ =\$12,500\end{array}$

Therefore, the amount of beginning equity is $12,500.

(b)

December 31, 2015:

Assets: $40,000

Liabilities: $26,500

  $\begin{array}{c}\text{Equity}=\text{assets}-\text{liabilities}\\ =\$40,000-\$26,500\\ =\$13,500\end{array}$

Therefore, the amount of ending equity is $13,500.

(c)

The amount of net income for year 2016:

Particular	Amount ($)
Ending balance of equity	13,500
less: beginning balance of equity	(12,500)
Less: stock insurance	(1,400)
Add: Cash dividend	2,000
Net income	1,600

Therefore, net income for the year 2016 is $1,600.

3.

Summary Introduction

Introduction:Balance sheet is a financial statement which is prepared at the end of an accounting year to show the balance of assets, liabilities and the equity of the company. The assets of the company are equal to the amount of liabilities plus equity.

To calculate: The amount of assets for company C on December 31, 2016.

Explanation of Solution

The amount of assets on December 31, 2016:

Beginning equity is calculated as:

Assets: $24,000

Liabilities: $9,000

  $\begin{array}{c}\text{Beginning}\text{equity}=\text{assets}-\text{liabilities}\\ =\$24,000-\$9,000\\ =\$15,000\end{array}$

Therefore, the amount of beginning equity is $15,000.

Ending equity is calculated as:

Particular	Amount ($)
Beginning balance of equity	15,000
Add: stock insurance	9,750
Add: net income	8,000
Less: Cash dividend	(5,875)
Ending balance of equity	26,875

Therefore, the amount of ending equity is $26,875.

Assets on December 31, 2016:

Liabilities: $29,000

Ending equity: $26,875

  $\begin{array}{c}\text{Asets}=\text{liability}+\text{equity}\\ =\$29,000+\$26,875\\ =\$55,875\end{array}$

Therefore, amount of assets is $55,875.

4.

Summary Introduction

Introduction:Balance sheet is a financial statement which is prepared at the end of an accounting year to show the balance of assets, liabilities and the equity of the company. The assets of the company are equal to the amount of liabilities plus equity.

To calculate: The amount of stock insurance for company D on December 31, 2016.

Explanation of Solution

The amount of stock insurance on December 31, 2016:

Beginning equity is calculated as:

Assets: $60,000

Liabilities: $40,000

  $\begin{array}{c}\text{Beginning}\text{equity}=\text{assets}-\text{liabilities}\\ =\$60,000-\$40,000\\ =\$20,000\end{array}$

Therefore, the amount of beginning equity is $20,000.

Ending equity is calculated as:

Assets: $85,000

Liabilities: $24,000

  $\begin{array}{c}\text{Ending}\text{equity}=\text{assets}-\text{liabilities}\\ =\$85,000-\$24,000\\ =\$61,000\end{array}$

Therefore, the amount of ending equity is $61,000.

Stock insurance is calculated as:

Particular	Amount ($)
Ending balance of equity	61,000
less: beginning balance of equity	(20,000)
Less: net income	(14,000)
Add: Cash dividend	0
Stock insurance	27,000

Therefore, the amount of stock insurance is $27,000.

5.

Summary Introduction

Introduction:Balance sheet is a financial statement which is prepared at the end of an accounting year to show the balance of assets, liabilities and the equity of the company. The assets of the company are equal to the amount of liabilities plus equity.

To calculate: The amount of liabilities for company E on December 31, 2015.

Explanation of Solution

The amount of liabilities on December 31, 2015:

Ending equity is calculated as:

Assets: $113,000

Liabilities: $70,000

  $\begin{array}{c}\text{Ending}\text{equity}=\text{assets}-\text{liabilities}\\ =\$113,000-\$70,000\\ =\$43,000\end{array}$

Therefore, the amount of ending equity is $43,000.

Beginning equity is calculated as:

Particular	Amount ($)
Ending balance of equity	43,000
Add: cash dividend	11,000
Less: net income	(20,000)
Less: stock insurance	(6,500)
Beginning balance of equity	27,500

Therefore, the amount of beginning equity is $27,500.

Liabilities on December 31, 2015:

Assets: $119,000

Beginning equity: $27,500

  $\begin{array}{c}\text{Liabilities}=\text{assets}-\text{equity}\\ =\$119,000+\$27,500\\ =\$91,500\end{array}$

Therefore, amount of liabilities is $91,500.