Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
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 4BPSB
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 4BPSB

Solution:

1. Income statement –

Anara Construction
Income Statement
For the year Ended December, 2017
Revenues    
Professional fees earned 59,600  
Rent earned 4,500  
Dividends earned 1,000  
Interest Earned 1,320  
Total Revenues   66,420
     
Less: Expenses    
Depreciation expense - Building 2,000  
Depreciation expense - Equipment 1,000  
Wages Expense 18,500  
Interest Expense 1,550  
Insurance Expense 1,525  
Rent Expense 3,600  
Supplies Expense 1,000  
Postage Expense 410  
Property taxes Expense 4,825  
Repairs Expense 679  
Telephone Expense 521  
Utilities expense 1,920  
     
Total Expenses   37,530
     
Net Income   28,890

2. Statement of Owner’s Equity –

Anara Construction
Statement of Owner's Equity
For the year Ended December, 2017
Tybalt Capital, Beginning 92,800
Add: Net Income 28,890
Less: Tybalt, Withdrawals 8,000
   
Tybalt Capital, Ending 113,690

3. Classified Balance Sheet –

Anara Construction
Balance Sheet
For the year Ended December, 2017
Current Assets   Current Liabilities  
Cash 7,400 Accounts Payable 3,500
Short-term Investments 11,200 Interest Payable 1,750
Supplies 4,600 Rent Payable 400
Prepaid Insurance 1,000 Wages Payable 1,280
    Property Taxes Payable 3,330
Total current assets 24,200 Unearned professional fess 750
    Current portion of Long-term Notes payable 8,400
    Total current liabilities 19,410
Long-term assets      
Equipment 24,000 Long-term liabilities and Owner's Equity  
Less: Accumulated Depreciation 4,000 Long-term Liabilities  
  20000 Long-term notes payable 31,600
Building 100,000    
Less: Accumulated Depreciation 10,000 Owner's Equity 113,690
  90000    
Land 30,500    
       
Total Long-term assets 140,500 Total long-term liabilities and Owner's equity 1,45,290
       
Total Assets 164,700 Total liabilities and Owner's equity 164,700

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 = $ 59,600

• Rent earned = $ 4,500

• Dividends earned = $ 1,000

• Interest Earned = $ 1,320

• Depreciation expense – Building = $ 2,000

• Depreciation expense – Equipment = $ 1,000

• Wages Expense = $ 18,500

• Interest Expense = $ 1,550

• Insurance Expense = $ 1,525

• Rent Expense = $ 3,600

• Supplies Expense = $ 1,000

• Postage Expense = $ 410

• Property taxes Expense = $ 4,825

• Repairs Expense = $ 679

• Telephone Expense = $ 521

• Utilities expense = $ 1,920

Now, the total revenues will be calculated -

Total revenues = Professional fees earned + Rent earned + Dividends earned +Interest EarnedTotal revenues = $ 59,600 + $ 4,500 + $ 1,000 + $ 1,320Total revenues = $ 66,420

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 = ($ 2,000 + $ 1,000 + $ 18,500 + $ 1,550 + $ 1,525 + $ 3,600 + $ 1,000 + $ 410 + $ 679 + $ 4,825 + $ 521 + $ 1,920)Total Expenses = $ 37,530

Net income will be calculated as –

Net Income = Total Revenues  Total ExpensesNet Income = $ 66,420  $ 37,530Net Income = $ 28,890

Thus, the income statement has been prepared.

2. Statement of Owner’s equity –

Given,

• Anara Capital, Beginning = $ 92,800

• Net Income = $ 28,890

• Anara, Withdrawals = $ 8,000

Anara Capital, Ending = Anara Capital, Beginning + Net Income  Anara, WithdrawalsAnara Capital, Ending = $ 92,800 + $ 28,890  $ 8,000Anara Capital, Ending = $ 113,690

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

3. Classified Balance Sheet –

For Assets Section –

Given,

• Cash = $ 7,400

• Short-term Investments = $ 11,200

• Supplies = $ 4,600

• Prepaid Insurance = $ 1,000

• Equipment = $ 24,000

• Accumulated Depreciation – Equipment = $ 4,000

• Building = $ 100,000

• Accumulated Depreciation – Building = $ 10,000

• Land = $ 30,500

Total Current assets = Cash + Shortterm Investments + Supplies + Prepaid InsuranceTotal Current assets = $ 7,400 + $ 11,200 + $ 4,600 + $ 1,000Total Current assets = $ 24,200Total Longterm assets = (Equipment  Accumulated Depreciation) + (Building  Accumulated Depreciation ) + LandTotal Longterm assets = ($ 24,000  $ 4,000) + ($100,000  $ 10,000) + 30,500Total Longterm assets = $ 140,500Total assets = Total Current assets + Total Longterm assetsTotal assets = $ 24,200 + $ 140,500Total assets = $ 164,700

For Liabilities and Owner’s Equity Section –

• Accounts Payable = $ 3,500

• Interest Payable = $ 1,750

• Rent Payable = $ 400

• Wages Payable = $ 1,280

• Property Taxes Payable = $ 3,330

• Unearned professional fess = $ 750

• Current portion of Long-term notes payable = $ 8,400

• Long-term notes payable = $ 31,600 (i.e. $ 40,000 - $ 8,400)

• Owner's Equity = $ 113,690

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 = ($ 3,500 + $ 1,750 + $ 400 + $ 1,280 + $ 3,330 + $ 750+$8,400)Total current Liabilities = $ 19,410Total liabilities and Owner's equity = (Total current Liabilities + Longterm notes payable + Owner's Equity)Total liabilities and Owner's equity = $ 19,410 + $ 31,600 + $ 113,690Total liabilities and Owner's equity = $ 164,700

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 4BPSB

Solution:

Date Accounts Titles and Descriptions Debit Credit
Dec-31 a. Professional fees earned 59,600  
  Rent earned 4,500  
  Dividends earned 1,000  
  Interest Earned 1,320  
  Income Summary   66,420
  (Being the revenues transferred to Income summary)    
       
Dec-31 b. Income Summary 37,530  
  Depreciation expense - Building   2,000
  Depreciation expense - Equipment   1,000
  Wages Expense   18,500
  Interest Expense   1,550
  Insurance Expense   1,525
  Rent Expense   3,600
  Supplies Expense   1,000
  Postage Expense   410
  Property taxes Expense   4,825
  Repairs Expense   679
  Telephone Expense   521
  Utilities expense   1,920
  (Being all expenses transferred to Income summary)    
       
Dec-31 c. Income Summary 28,890  
  Anara, Capital   28,890
  (To close the income summary)    
       
Dec-31 d. Anara, Capital 8,000  
  Anara, Withdrawals   8,000
  (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 Anara.

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

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 4BPSB

Solution:

The answers are –

a. Return on total assets = 0.178

b. Debt ratio = 0.310

c. Profit Margin ratio = 0.435

d. Current Ratio = 1.248

Explanation of Solution

The above answers are calculated as under –

a. Return on Total assets –

Given,

• Net Income = $ 28,890

• Beginning total assets = $ 160,000

• Ending total assets = $ 164,700

Average total assets=Beginning Total assets+Ending total assets2

Average total assets=$160,000+$164,7002Average total assets=$162,350

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

= $28,890$162,350= 0.178 

b. Debt Ratio –

Given information –

• Total Liabilities = $ 51,010 (i.e. $ 19,410 + $ 31,600)

• Total assets = $ 164,700

Debt – ratio is –

Debt-ratio = Total LiabilitiesTotal assetsDebt-ratio = $51,010$164,700 Debt-ratio = 0.310

c. Net profit Ratio –

Given,

• Net Income = $ 28,890

• Total revenues = $ 66,420

Net Profit Margin = Net Income Total Revenues Net Profit Margin = $ 28,890 $ 66,420 Net Profit Margin = 0.435

d. Current Ratio –

Given,

• Total current assets = $ 24,200

• Total current liabilities = $ 19,410

Current ratio =Total current assetsTotal current liabilities

Current Ratio = $ 24,200  $ 19,410Current Ratio = 1.248

Conclusion

Thus, all the required ratios have been calculated.

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Chapter 4 Solutions

Loose Leaf for 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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