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)	38,000	$22,000	38,000	41,000
Liabilities	28,000	15,000	29,000	19,000
Ending:
Assets	40,000	36,000	44,000	50,000
Liabilities (8)	22,000	28,000	20,000	24,000
During the year:
Sales (4)	26,000	26,000	31,000	27,000
Expense	12,000	22,000	12,000	19,000
Dividends (12)	2,000	3,000	4,000	4,000

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:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$38,000-\$28,000\\ \text{Stockholders’ Equity}=\$10,000\end{array}$ (1)

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$40,000-\$22,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$22,000\end{array}$ (2)

Compute the net income:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{Beginning Stockholders' }\\ \text{Equity + Net Income}\end{array}\right)-\text{Dividends}\right]\\ \text{Net Income}=\left[\left(\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}+\text{Dividends}\end{array}\right)-\left(\begin{array}{l}\text{Beginning }\\ \text{Stockholders'}\\ \text{ Equity}\end{array}\right)\right]\\ \text{Net Income}=\left(\$22,000+\$2,000\right)-\$10,000\\ \text{Net Income}=\$14,000\end{array}$ (3)

Compute the amount of sales revenue:

$\begin{array}{c}\text{Net Income }=\text{ Sales revenue}-\text{Expenses}\\ \text{Sales revenue}=\text{Net Income}+\text{Expenses}\\ \text{Sales revenue}=\$14,000+\$12,000\\ \text{Sales revenue}=\$26,000\end{array}$ (4)

Therefore, the amount of sales revenue is $26,000.

• Compute the amount of ending liability:

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$22,000-\$15,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\$7,000\end{array}$ (5)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income}=\text{Sales revenue }-\text{Expenses}\\ =\$26,000-\$22,000\\ =\$4,000\end{array}$ (6)

Compute the amount of ending stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders' }\\ \text{Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ =\left(\$7,000+\$4,000\right)-\$3,000\\ =\$8,000\end{array}$ (7)

Compute the ending liabilities:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Liabilities}=\text{Assets}-\text{Stockholders’ Equity}\\ \text{Liabilities}=\$36,000-\$8,000\\ \begin{array}{l}\text{Liabilities}\\ \text{(Ending)}\end{array}\}=\$28,000\end{array}$ (8)

Therefore, the amount of ending liability is $28,000.

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

Compute the beginning stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$38,000-\$29,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Beginning)}\end{array}\}=\$9,000\end{array}$ (9)

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets}=\text{Liabilities}+\text{Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$44,000-\$20,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$24,000\end{array}$ (10)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income = Sales revenue }-\text{Expenses}\\ =\$31,000-\$12,000\\ =\$19,000\end{array}$ (11)

Compute the amount of dividend:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ \text{Dividends}=\left[\left(\begin{array}{l}\text{Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\left(\begin{array}{l}\text{Ending }\\ \text{Stockholders'}\\ \text{Equity}\end{array}\right)\right]\\ \text{Dividends }=\left(\$9,000+\$19,000\right)-\$24,000\\ \text{Dividends}=\$4,000\end{array}$ (12)

Therefore, the amount of dividend is $4,000.

• Compute the amount of beginning assets.

Compute the ending stockholders’ equity:

$\begin{array}{c}\text{Assets = Liabilities + Stockholders’ Equity}\\ \text{Stockholders’ Equity}=\text{Assets}-\text{Liabilities}\\ \text{Stockholders’ Equity}=\$50,000-\$24,000\\ \begin{array}{l}\text{Stockholders’ Equity}\\ \text{(Ending)}\end{array}\}=\$26,000\end{array}$ (13)

Compute the amount of net income:

$\begin{array}{c}\text{Net Income}=\text{Sales revenue }-\text{Expenses}\\ =\$27,000-\$19,000\\ =\$8,000\end{array}$ (14)

Compute the amount of beginning stockholders’ equity:

$\begin{array}{c}\begin{array}{l}\text{Ending Stockholders' }\\ \text{Equity }\end{array}\}=\left[\left(\begin{array}{l}\text{ Beginning Stockholders'}\\ \text{Equity}+\text{Net Income}\end{array}\right)-\text{Dividends}\right]\\ \begin{array}{l}\text{Beginning Stockholders'}\\ \text{ Equity}\end{array}\}=\left[\left(\begin{array}{l}\text{Ending Stockholders'}\\ \text{Equity}+\text{Dividends}\end{array}\right)-\text{Net Income}\right]\\ \text{Stockholders' Equity}=\left(\$26,000+\$4,000\right)-\$8,000\\ \text{Stockholders' Equity}=\$22,000\end{array}$ (15)

Compute the amount of beginning assets.

$\begin{array}{c}\text{Assets}=\text{Liabilities + Stockholders’ Equity}\\ =\$19,000+\$22,000\\ =\$41,000\end{array}$ (16)

Therefore, the amount of beginning assets is $41,000.