Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 4, Problem 4APSA
To determine

Concept Introduction:

An Income statement:

An income statement can be defined as the statement explaining the company’s financial performance over a specific accounting period. The income or revenues are recorded on the income statement along with the expenses incurred for the period.

Statement of owner’s equity:

A statement of owner’s equity represents the changes in the capital of the owner of the business including the additions in form of net income and subtractions in the form of withdrawals.

Classified Balance sheet:

A balance sheets represents the financial position of a business in terms of its assets, liabilities and owner’s equity.

Post-trial balance after adjusting entries:

A post-trial balance after adjusting entries can be defined as the trial balance prepared after incorporating all the adjusting entries for the year.

Rate of Return on total assets:

Rate of Return on total assets can be defined as the ratio that measures a company’s earnings before interest and taxes (EBIT) against its total net assets or average total assets.

Rate of Return on total assets can be calculated as –

Rate of Return on Total Assets= Net IncomeAverage Total assets

Now, the average total assets are calculated as –

Average total assets=Beginning Total assets+Ending total assets2

Debt-ratio:

Debt-ratio is the solvency ratio that measures a firm’s total liabilities as a percentage of its total assets. Debt ratio shows, a company’s ability to pay off it liabilities with its assets.

Debt – ratio is calculated as under –

Debt-ratio = Total LiabilitiesTotal assets

Current ratio:

The current ratio can be defined as the ratio of total current assets to total current liabilities. A current ratio is a measures that a company’s ability to pay short-term and long-term obligations.

A current ratio is calculated as under –

Current ratio =Total current assetsTotal current liabilities

Requirement 1

To prepare:

1. Income statement

2. Statement of Owner’s equity

3. Classified balance sheet

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

1. Income statement –

Tybalt Construction
Income Statement
For the year Ended December, 2017
Revenues    
Professional fees earned 97,000  
Rent earned 14,000  
Dividends earned 2,000  
Interest Earned 2,100  
Total Revenues   1,15,100
     
Less: Expenses    
Depreciation expense - Building 11,000  
Depreciation expense - Equipment 6,000  
Wages Expense 32,000  
Interest Expense 5,100  
Insurance Expense 10,000  
Rent Expense 13,400  
Supplies Expense 7,400  
Postage Expense 4,200  
Property taxes Expense 5,000  
Repairs Expense 8,900  
Telephone Expense 3,200  
Utilities expense 4,600  
     
Total Expenses   1,10,800
     
Net Income   4,300

2. Statement of Owner’s Equity –

Tybalt Construction
Statement of Owner's Equity
For the year Ended December, 2017
Tybalt Capital, Beginning 1,26,400
Add: Net Income 4,300
Less: Tybalt, Withdrawals 13,000
   
Tybalt Capital, Ending 1,17,700

3. Classified Balance Sheet –

Tybalt Construction
Balance Sheet
For the year Ended December, 2017
Current Assets   Current Liabilities  
Cash 5,000 Accounts Payable 16,500
Short-term Investments 23,000 Interest Payable 2,500
Supplies 8,100 Rent Payable 3,500
Prepaid Insurance 7,000 Wages Payable 2,500
    Property Taxes Payable 900
Total current assets 43,100 Unearned professional fess 7,500
    Current portion of Long-term notes payable 7,000
    Total current liabilities 40,400
Long-term assets      
Equipment 40,000 Long-term liabilities and Owner's Equity  
Less: Accumulated Depreciation 20,000 Long-term Liabilities  
  20,000 Long-term notes payable 60,000
Building 150,000    
Less: Accumulated Depreciation 50,000 Owner's Equity 117,700
  100,000    
Land 55,000    
       
Total Long-term assets 175,000 Total long-term liabilities and Owner's equity 177,700
       
Total Assets 218,100 Total liabilities and Owner's equity 218,100

Explanation of Solution

The income statement, statement of Owner’s equity and balance sheet are prepared as under –

1. Income Statement –

Given,

• Professional fees earned = $ 97,000

• Rent earned = $ 14,000

• Dividends earned = $ 2,000

• Interest Earned = $ 2,100

• Depreciation expense – Building = $ 11,000

• Depreciation expense – Equipment = $ 6,000

• Wages Expense = $ 32,000

• Interest Expense = $ 5,100

• Insurance Expense = $ 10,000

• Rent Expense = $ 13,400

• Supplies Expense = $ 7,400

• Postage Expense = $ 4,200

• Property taxes Expense = $ 5,000

• Repairs Expense = $ 8,900

• Telephone Expense = $ 3,200

• Utilities expense = $ 4,600

Now, the total revenues will be calculated -

Total revenues = Professional fees earned + Rent earned + Dividends earned +Interest EarnedTotal revenues = $ 97,000 + $ 14,000 + $ 2,000 + $ 2,100Total revenues = $ 115,100

Total expenses –

Total Expenses = (Depreciation expense  Building + Depreciation expense  Equipment + Wages Expense + Interest Expense + Insurance Expense + Rent Expense + Supplies Expense + Postage Expense + Property taxes Expense + Repairs Expense + Telephone Expenses + Utilities expense)Total Expenses = ($ 11,000 + $ 6,000 + $ 32,000 + $ 5,100 + $ 10,000 + $ 13,400 + $ 7,400 + $ 4,200 + $ 5,000 + $ 8,900 + $ 3,200 + $ 4,600)Total Expenses = $ 110,800

Net income will be calculated as –

Net Income = Total Revenues  Total ExpensesNet Income = $ 115,100  $ 110,800Net Income = $ 4,300

Thus, the income statement has been prepared.

2. Statement of Owner’s equity –

Given,

• Tybalt Capital, Beginning = $ 126,400

• Net Income = $ 4,300

• Tybalt, Withdrawals = $ 13,000

Tybalt Capital, Ending = Tybalt Capital, Beginning + Net Income  WithdrawalsTybalt Capital, Ending = $ 126,400 + 4,300  $ 13,000Tybalt Capital, Ending = $ 117,700

Thus, the statements of owner’s equity has been prepared.

3. Classified Balance Sheet –

For Assets Section –

Given,

• Cash = $ 5,000

• Short-term Investments = $ 23,000

• Supplies = $ 8,100

• Prepaid Insurance = $ 7,000

• Equipment = $ 40,000

• Accumulated Depreciation – Equipment = $ 20,000

• Building = $ 150,000

• Accumulated Depreciation – Building = $ 50,000

• Land = $ 55,000

Total Current assets = Cash + Shortterm Investments + Supplies + Prepaid InsuranceTotal Current assets = $ 5,000 + $ 23,000 + $ 8,100 + $ 7,000Total Current assets = $ 43,100Total Longterm assets = (Equipment  Accumulated Depreciation) + (Building  Accumulated Depreciation ) + LandTotal Longterm assets = ($ 40,000  $ 20,000) + ($150,000  $ 50,000) + 55,000Total Longterm assets = $ 175,000Total assets = Total Current assets + Total Longterm assetsTotal assets = $ 43,100 + $ 175,000Total assets = $ 218,100

For Liabilities and Owner’s Equity Section –

• Accounts Payable = $ 16,500

• Interest Payable = $ 2,500

• Rent Payable = $ 3,500

• Wages Payable = $ 2,500

• Property Taxes Payable = $ 900

• Unearned professional fess = $ 7,500

• Current portion of Long-term notes payable = $ 7,000

• Long-term notes payable = $ 60,000 (i.e. $ 67,000 - $ 7,000)

• Owner's Equity = $ 117,700

Total current Liabilities = (Accounts Payable + Interest Payable + Rent Payable + Wages Payable + Property Taxes Payable + Unearned professional fees+Current portion of Longterm notes payable)Total current Liabilities = ($ 16,500 + $ 2,500 + $ 3,500 + $ 2,500 + $ 900 + $ 7,500+$7,000)Total current Liabilities = $ 40,400Total liabilities and Owner's equity = (Total current Liabilities + Longterm notes payable + Owner's Equity)Total liabilities and Owner's equity = $ 40,400 + $ 60,000 + $ 117,700Total liabilities and Owner's equity = $ 218,100

Thus, the classified balance sheet has been prepared.

Conclusion

Thus, the income statement, the statement of owner’s equity and the classified balance sheet has been prepared.

To determine

Requirement 2

To prepare:

Necessary Closing entries at December 31, 2017

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

Date Accounts Titles and Descriptions Debit Credit
Dec-31 a. Professional fees earned 97000  
  Rent earned 14000  
  Dividends earned 2000  
  Interest Earned 2100  
  Income Summary   115100
  (Being the revenues transferred to Income summary)    
       
Dec-31 b. Income Summary 110800  
  Depreciation expense - Building   11000
  Depreciation expense - Equipment   6000
  Wages Expense   32000
  Interest Expense   5100
  Insurance Expense   10000
  Rent Expense   13400
  Supplies Expense   7400
  Postage Expense   4200
  Property taxes Expense   5000
  Repairs Expense   8900
  Telephone Expense   3200
  Utilities expense   4600
  (Being all expenses transferred to Income summary)    
       
Dec-31 c. Income Summary 4300  
  Tybalt, Capital   4300
  (To close the income summary)    
       
Dec-31 d. Tybalt, Capital 13,000  
  Tybalt, Withdrawals   13,000
  (To close withdrawals account)    

Explanation of Solution

The above journal entries can be explained as under –

All the entries are made on December 31, 2017.

a. In this entry, all the revenues are transferred to income summary account, thus, the revenues are debited and income summary is credited.

b. In this entry, all the expenses are transferred to income summary, thus, the, expenses are credited and income summary is debited.

c. In this entry, the net income is transferred to the capital account of Tybalt.

d. In this entry, the drawings account of Tybalt has been closed by transferring it to to capital account of Tybalt.

Conclusion

Thus, the necessary closing entries have been recorded.

To determine

Requirement 3

To compute:

a. Return on total assets

b. Debt ratio

c. Profit Margin ratio

d. Current Ratio

Expert Solution
Check Mark

Answer to Problem 4APSA

Solution:

The answers are –

a. Return on total assets = 0.021

b. Debt ratio = 0.460

c. Profit Margin ratio = 0.0374

d. Current Ratio = 1.067

Explanation of Solution

The above answers are calculated as under –

a. Return on Total assets –

Given,

• Net Income = $ 4,300

• Beginning total assets = $ 200,000

• Ending total assets = $ 218,100

Average total assets=Beginning Total assets+Ending total assets2

Average total assets=$200,000+$218,1002Average total assets=$209,050

Rate of Return on Total Assets= Net Income Average Total assets

= $4,300$209,050= 0.021 

b. Debt Ratio –

Given information –

• Total Liabilities = $ 100,400 (i.e. $ 33,400 + $ 67,000)

• Total assets = $ 218,100

Debt – ratio is –

Debt-ratio = Total LiabilitiesTotal assetsDebt-ratio = $100,400$218,100 Debt-ratio = 0.460

c. Net profit Ratio –

Given,

• Net Income = $ 4,300

• Total revenues = $ 115,100

Net Profit Margin = Net Income Total Revenues Net Profit Margin = $ 4,300 $ 115,100 Net Profit Margin = 0.0374

d. Current Ratio –

Given,

• Total current assets = $ 43,100

• Total current liabilities = $ 40,400

Current ratio =Total current assetsTotal current liabilities

Current Ratio = $ 43,100  $ 40,400Current Ratio = 1.067

Conclusion

Thus, all the required ratios have been calculated.

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Chapter 4 Solutions

Fundamental Accounting Principles

Ch. 4 - Prob. 11DQCh. 4 - 12. How do reversing entries simplify...Ch. 4 - If a company recorded accrued salaries expense of...Ch. 4 - Prob. 14DQCh. 4 - Prob. 15DQCh. 4 - Prob. 16DQCh. 4 - Prob. 17DQCh. 4 - Prob. 1QSCh. 4 - Prob. 2QSCh. 4 - Prob. 3QSCh. 4 - Prob. 4QSCh. 4 - Prob. 5QSCh. 4 - Prob. 6QSCh. 4 - Prob. 7QSCh. 4 - Prob. 8QSCh. 4 - Prob. 9QSCh. 4 - Prob. 10QSCh. 4 - Prob. 11QSCh. 4 - Prob. 12QSCh. 4 - Exercise 4-1 Extending adjusted account balances...Ch. 4 - Prob. 2ECh. 4 - Prob. 3ECh. 4 - Exercise 4-4 Completing a work sheet Pl The...Ch. 4 - Exercise 4-5 Determining effects of closing...Ch. 4 - Prob. 6ECh. 4 - Exercise 4-7 Preparing a work sheet and recording...Ch. 4 - Prob. 8ECh. 4 - Prob. 9ECh. 4 - Prob. 10ECh. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Exercise 4-13 Computing the current ratio A1 Use...Ch. 4 - Prob. 14ECh. 4 - Prob. 15ECh. 4 - Prob. 16ECh. 4 - Prob. 17ECh. 4 - Problem 4-1A Applying the accounting cycle C1 C2...Ch. 4 - Prob. 2APSACh. 4 - Prob. 3APSACh. 4 - Prob. 4APSACh. 4 - Problem 4-5A Preparing trial balances, closing...Ch. 4 - Prob. 6APSACh. 4 - Prob. 1BPSBCh. 4 - Prob. 2BPSBCh. 4 - Prob. 3BPSBCh. 4 - Prob. 4BPSBCh. 4 - Prob. 5BPSBCh. 4 - Prob. 6BPSBCh. 4 - Business Solutions P2 P3 (This serial problem...Ch. 4 - Prob. 1GLPCh. 4 - Prob. 2GLPCh. 4 - Prob. 3GLPCh. 4 - Prob. 4GLPCh. 4 - Prob. 5GLPCh. 4 - Prob. 1BTNCh. 4 - Prob. 2BTNCh. 4 - Prob. 3BTNCh. 4 - Prob. 4BTNCh. 4 - Prob. 5BTNCh. 4 - Prob. 6BTNCh. 4 - Prob. 7BTNCh. 4 - Prob. 8BTNCh. 4 - Prob. 9BTN
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