Chapter 1, Problem 12BE

To determine

Calculate the missing amount in each column of the financial statements.

Answer to Problem 12BE

Calculate the missing amount in each column of the financial statements as follows:

Particulars	A	B	C	D
Beginning:
Assets (16)	42,000	18,000	42,000	39,000
Liabilities	27,900	7,500	28,500	13,500
Ending:
Assets	45,000	39,000	51,000	60,000
Liabilities (8)	25,950	27,000	22,500	28,500
During the year:
Sales (4)	22,200	35,250	36,000	36,000
Expense	12,750	31,500	16,500	25,500
Dividends (12)	4,500	2,250	4,500	4,500

Table (1)

Explanation of Solution

Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.

Working note:

• Compute the amount of sales revenue.

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$42,000-\$27,900\\ \text{Stockholders’ Equity}=\$14,100\end{array}$ (1)

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$45,000-\$25,950\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$19,050\end{array}$ (2)

Compute the net income:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{Beginning Stockholders' }\\ \text{Equity + Net Income}\end{array}\right)-\text{Dividends}\right]\\ \text{Net Income}=\left[\left(\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}+\text{Dividends}\end{array}\right)-\left(\begin{array}{l}\text{Beginning }\\ \text{Stockholders'}\\ \text{ Equity}\end{array}\right)\right]\\ \text{Net Income}=\left(\$19,050+\$4,500\right)-\$14,100\\ \text{Net Income}=\$9,450\end{array}$ (3)

Compute the amount of sales revenue:

$\begin{array}{c}\text{Net Income }=\text{ Sales revenue}-\text{Expenses}\\ \text{Sales revenue}=\text{Net Income}+\text{Expenses}\\ \text{Sales revenue}=\$9,450+\$12,750\\ \text{Sales revenue}=\$22,200\end{array}$ (4)

Therefore, the amount of sales revenue is $22,200.

• Compute the amount of ending liability:

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$18,000-\$7,500\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\$10,500\end{array}$ (5)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income}=\text{Sales revenue }-\text{Expenses}\\ =\$35,250-\$31,500\\ =\$3,750\end{array}$ (6)

Compute the amount of ending stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders' }\\ \text{Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ =\left(\$10,500+\$3,750\right)-\$2,250\\ =\$12,000\end{array}$ (7)

Compute the ending liabilities:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Liabilities}=\text{Assets}-\text{Stockholders’ Equity}\\ \text{Liabilities}=\$39,000-\$12,000\\ \begin{array}{l}\text{Liabilities}\\ \text{(Ending)}\end{array}\}=\$27,000\end{array}$ (8)

Therefore, the amount of ending liability is $27,000.

• Calculate the amount of dividends paid or declared during the year:

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$42,000-\$28,500\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\$13,500\end{array}$ (9)

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets}=\text{Liabilities}+\text{Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$51,000-\$22,500\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$28,500\end{array}$ (10)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income = Sales revenue }-\text{Expenses}\\ =\$36,000-\$16,500\\ =\$19,500\end{array}$ (11)

Compute the amount of dividend:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ \text{Dividends}=\left[\left(\begin{array}{l}\text{Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\left(\begin{array}{l}\text{Ending }\\ \text{Stockholders'}\\ \text{Equity}\end{array}\right)\right]\\ \text{Dividends }=\left(\$13,500+\$19,500\right)-\$28,500\\ \text{Dividends}=\$4,500\end{array}$ (12)

Therefore, the amount of dividend is $4,500.

• Compute the amount of beginning assets.

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$60,000-\$28,500\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$31,500\end{array}$ (13)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income}=\text{Sales revenue }-\text{Expenses}\\ =\$36,000-\$25,500\\ =\$10,500\end{array}$ (14)

Compute the amount of beginning stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders' }\\ \text{Equity }\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ \begin{array}{l}\text{Beginning Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{Ending Stockholders'}\\ \text{Equity}+\text{Dividends}\end{array}\right)-\text{Net Income}\right]\\ \text{Stockholders' Equity}=\left(\$31,500+\$4,500\right)-\$10,500\\ \text{Stockholders' Equity}=\$25,500\end{array}$ (15)

Compute the amount of beginning assets.

$\begin{array}{c}\text{Assets}=\text{Liabilities + Stockholders’ Equity}\\ =\$13,500+\$25,500\\ =\$39,000\end{array}$ (16)

Therefore, the amount of beginning assets is $39,000.