Accounting: What the Numbers Mean
Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
Question
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Chapter 2, Problem 2.22P
To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 1:

We have toprepare a statement showing impact of each transaction on total assets, total liabilities and equity.

Expert Solution
Check Mark

Answer to Problem 2.22P

    DateParticularsAsset ($)=Liabilities($)+Equity($)
    1 August 2016
    Totals
    700000
    550,000
    150,000
    August 3
    Borrowed $24000 in cash from the bank
    24000
    24000
    New totals
    724,000
    574,000
    150,000
    August 7
    Bought merchandise inventory valued at $38000on account
    38,000
    38,000
    New totals
    762000
    612,000
    August 10
    Paid $14000 cash for operating expenses
    (14000)
    (14000)
    New totals
    748,000
    612000
    136,000
    August 14
    Received $100000 in cash from sales of merchandise that had cost $66000
    34000
    34000
    New totals
    782,000
    612,000
    170,000
    August 17
    Paid $28000owed on accounts payable
    (28000)
    (28000)
    New totals
    754,000
    584,000
    170,000
    August 21
    Collected $34000 of accounts receivable
    Nil
    Nil
    Nil
    New totals
    754,000
    584,000
    170,000
    August 24
    Repaid $20000 to bank plus $400 interest
    (20400)
    (20000)
    (400)
    New totals
    733,600
    564,000
    169,600
    August 29
    Paid stacy Ann Kelly a cash dividend of $ 10000
    (10000)
    (10000)
    New Totals
    723,600
    564,000
    159,600

Explanation of Solution

We have explained each item and its impact on assets, liability and equity. The total balance of total assets, liabilities and equity have been shown and impact of each transaction has been adjusted.

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 2:

We have todetermine the total amount of revenue and expenses, and net income during August month.

Expert Solution
Check Mark

Answer to Problem 2.22P

    Particulars
    Amount
    Total revenue
    100,000
    Total expenses
    80,400
    Net income
    19,600

Explanation of Solution

    DateNatureAmount
    August 14
    Revenue
    100,000
    Total revenue
    100,000
    August 14
    Cost of goods sold
    66,000
    August 10
    Operating expense
    14000
    August 24
    Interest expense
    400
    Total expense
    80,400
    Net income
    19,600
To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 3:

We have todetermine the net changes in total assets, total liabilities and equity.

Expert Solution
Check Mark

Answer to Problem 2.22P

    ParticularsAssetLiabilityEquity
    Net changes
    23,600
    14,000
    9,600

Explanation of Solution

Calculation of net changes:

    ParticularsAssetLiabilityEquity
    Total amount at beginning
    700,000
    550,000
    150,000
    Total amount at closing
    723,600
    564,000
    159,600
    Net changes
    23,600
    14,000
    9,600
To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 4

We have to determine that which transactions have caused impact on statement of change in equity.

Expert Solution
Check Mark

Answer to Problem 2.22P

The net income and dividend paid has caused to change in statement of change in equity.

Explanation of Solution

    ParticularsAmount
    Net income
    19,600
    Dividend income
    (10,000)
    Net changes in stockholder equity
    9,600
To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 5

We have toexplain that why the dividend income is not an expense and why interest is an expense item.

Expert Solution
Check Mark

Answer to Problem 2.22P

Dividend paid is the distribution of profits and is the amount payable to shareholders as return on their invested amount whereas interest is an expense item and is reported as an expense in income statement because interest is paid to outsider and is a liability/ obligation for a corporation.

Explanation of Solution

Dividend paid are not an expense and not reported in income statement. Dividend paid is the distribution of profits and is the amount payable to shareholders as return on their invested amount whereas interest is an expense item and is reported as an expense in income statement because interest is paid to outsider and is a liability/ obligation for a corporation. Dividend is an attribution of profits to its owners whereas interest is an obligation and charge off against revenue earned as an expense.

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 6

We have to explain that why net income has not increased due to increase in borrowings.

Expert Solution
Check Mark

Answer to Problem 2.22P

The money borrowed will increase the asset and liability side and it will not impact the income statement because the entity has to repay the debt obligations on its maturity. The net impact of inflows and outflows will be nil.

Explanation of Solution

The money borrowed will not be reflected in income statement because due to borrowings on one side the assets will be increased due to receipt of cash amount and on other side liability will be increased because money borrowed is obligation for a corporation not an expense which the corporation has to repay on maturity.

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 7

We have to explain that why net income will not impact due to payment to accounts payables and collection from customers.

Expert Solution
Check Mark

Answer to Problem 2.22P

There will be nil impact because the accounts receivable collection and accounts payable will impact only change in assets and liabilities.

Explanation of Solution

Paying off amount to payables and amount collected from customers will not impact income statement because both are reflecting changes in assets or liabilities. The corporation has already booked expense against the accounts payables and income against sale to customers. Now on collection and payment, only there will be change or movement in assets and liabilities only.

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