Chapter 1, Problem 1.2.2P

Missing amounts from financial statements Obj.4
The financial statements at the end of Paradise Reaky’s first month of operations are shown

2. By analyzing the interrelationships among the financial statements, determine the proper amounts for (a) through (o).

To determine

Introduction:

Financial Statements:

It is a set of records of all financial activities of a business entity prepared by the management that shows the ability of the business entity in utilizing the funds entrusted by the stockholders and lenders.

To calculate:

The wages expense and net income in income statement of company X, dividend and retained earnings closing balance in statement of stockholder's equity, balances of land, stock holder's equity and total liabilities and stockholder's equity as shown in balance sheet of company X. Also, to calculate cash received from customers, net cash flow from operating activities, net cash flow from financing activities, net increase in cash during month ended November 30, 20Y3 and cash as on November 30, 20Y3 as shown in statement of cash flows.

Answer to Problem 1.2.2P

Income Statement of company X

1. Wages expense - $29850
2. Net Income - $80000

Statement of stockholders' equity

3. Net Income- $80000
4. Dividends- $36000
5. Retained Earnings total = $44000

Balance Sheet

6. Land- $216000
7. Total assets- $321200
8. Common stock- $270000
9. Retained earnings- $44000
10. Total stockholder's equity- $314000
11. Total liabilities and stockholder's equity- $321200

Statement of cash flows

12. Cash received from customers- $149300
13. Net cash flow from operating activities- $81200
14. Net cash flow from financing activities- $234000
15. Net increase in cash during the month - $99200

cash as on November 30, 20Y3

Explanation of Solution

Calculation of missing amounts in financial statements of company X:

Income Statement of company X$\begin{array}{l}(a)\text{ Wages expense = Total operating expense - (rent expense + supplies expense + utility expense + }\\ \text{ miscellaneous expense)}\\ \text{ = \$69300 - ( \$14400 + \$12000 + \$8100 + \$4950)}\\ \text{ = \$ 29850}\text{.}\\ \text{(b) Net Income = Fees earned - Total operating expenses}\\ \text{ = \$149300 - \$69300}\\ \text{ = \$80000}\text{.}\end{array}$

Statement of stockholder's equity of company X$\begin{array}{l}(c)\text{ Net Income = Fees earned - Total operating expenses}\\ \text{ = \$149300 - \$69300}\\ \text{ = \$80000}\text{.}\\ \text{(d) Dividends = ( Total issuance of common stock + Total net income)- Total balance as on }\\ \text{ November 30, 20Y3}\\ \text{ = (\$270000 + \$80000) - \$314000}\\ \text{ = \$36000}\text{.}\\ \text{(e)Retained earnings balance =Retained earnings balance as on November 1, 20Y3 + Net Income + Dividends }\\ \text{ as on November 30, 20Y3}\\ \text{ = 0 + \$80000 - \$36000}\\ \text{ = \$44000}\text{. }\end{array}$

Balance Sheet:

$\begin{array}{l}(f)\text{ Closing balance of land = Total assets in balance sheet - ( Cash balanceas per balance sheet + Supplies }\\ \text{ balance as per balance sheet)}\\ \text{ = \$321200 - ( \$99200 + 6000)}\\ \text{ = \$216000}\\ \text{(g) Total assets = Total liabilities and stockholder's equity balance}\\ \text{ = \$393200}\\ (h)Common\text{ stock = Balance as on November 30, 20Y3 as per Statement of stockholder's equity}\\ \text{ = \$270000}\\ (i)\text{ Retained earnings = Balance as on November 30, 20Y3 as per Statement of stockholder's equity}\\ \text{ = \$44000 }\\ (j)\text{ Total stockholder's equity = Common stock balance as on November 30, 20Y3 as per }\\ \text{ Statement of stockholder's equity + retained earnings balance }\\ \text{ as on November 30, 20Y3 as per Statement of stockholder's equity}\\ \text{ = \$270000 + \$44000}\\ \text{ = \$314000}\\ (k)\text{ Total liabilities and stock holder's equity = Total stockholder's equity balance + total liabilities }\\ \text{ = \$314000 + 7200}\\ \text{ = \$ 321200 }\end{array}$

Statement of Cash flows$\begin{array}{l}(l)\text{ Cash received from customers = Fees earned as per income statement of company X}\\ \text{ = \$149300}\\ \text{(m) Net cash flow from operating activities = cash received from customers - cash paid for expenses}\\ \text{ and to creditors}\\ \text{ = \$149300 - \$68100}\\ \text{ = \$81200}\\ \text{(n) Net cash flow from financing activities = cash received from issuing stock - dividends paid}\\ \text{ = \$270000 - \$36000}\\ \text{ = \$234000}\\ \text{(o) Net increase in cash dusring month/ = cash flow from operating activities + Cash flow from investing }\\ \text{ Cash as oh November 30, 20Y3 activities + cash flow from financing activities}\\ \text{ = \$81200 + (216000) +234000}\\ \text{ = \$99200}\end{array}$