Chapter 1, Problem 1.4BP

To determine

The missing amounts.

Answer to Problem 1.4BP

1. a) Revenues: $35,000.
2. b) Net Income: $5,000.
3. c) Issuance of stock: $3,000.
4. d) Dividends: $4,000.
5. e) Supplies: $5,900
6. f) Total assets: $29,000.
7. g) Common Stock: $17,000.
8. h) Retained earnings: $8,000.
9. i) Total liabilities and Stockholders ‘equity: $25,000.

Explanation of Solution

Financial statement: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements reports, and shows the financial status of the business. The financial statements consist of the balance sheet, income statement, statement of retained earnings, and the cash flow statement.

(b)

Given: Net income in the statement of statement of stockholders’ equity is stated as $5,000. Hence, the amount of net income is $5,000. (1)

(a)

Determine the amount of total expenses.

$\begin{array}{l}\text{Total expenses = Salary}+\text{Rent expense}+\text{Advertising expense}\\ \text{Total expenses}=\$13,000+\$7,000+5,000\\ \text{Total expenses}=\$25,000\\ \end{array}$ (2)

Determine the amount of revenues:

$\begin{array}{c}\text{Net Income}=\text{Total revenues}-\text{Total expenses}\\ \text{\$5,000 = Total revenues}-\$30,000\left(2\right)\\ \text{Total revenues = }\$30,000+\text{\$5,000 }\\ \text{Total revenues = }\$35,000\end{array}$

Hence, the amount of revenues earned during the year is $35,000.

(c)

Determine the amount of common stock issued.

$\begin{array}{c}\text{Balance at the end}=\text{Balance at the beginning}-\text{Issue of stock during the year}\\ \$17,000=\$14,000-\text{Issuance of stock}\\ \text{Issuance of stock = \$17,000}-\text{\$14,000}\\ \text{Issuance of stock = \$3,000}\end{array}$

Hence, the amount of common stock issued during the year is $3,000

(d) Determine the amount of dividends.

  $\begin{array}{c}\text{Balance at the end}=\left(\begin{array}{l}\text{Balance at }\\ \text{the beginning}\end{array}\right)+\text{Net income}-\text{Dividends paid }\\ \$8,000=\$7,000+\$5,000-\text{Dividends paid }\\ \text{Dividends paid = \$12,000}-\text{\$8,000}\\ \text{Dividends paid = \$4,000}\end{array}$

Hence, the amount of dividends paid during the year is $4,000.

 (g), (h) and (i)

Determine the amount of common stock, retained earnings and total stockholders’ equity.

Incorporation C
Statement of Stockholders Equity
For the year ended December, 31
Particulars	Common Stock	Retained earnings	Total Stockholders’ Equity
Balance at the Beginning	$14,000	$7,000	$21,000
Add:
Additions during the year	$3,000		$3,000
Net Income during the year		$5,000	$5,000
		$12,000	$24,000
Less:
Dividends Paid		($4,000)	($4,000)
Balance at the End	$17,000	$8,000	$25,000

Table (1)

Hence, the common stock issued is $17,000, retained earnings kept aside during the year are $8,000 and the total stockholders’ equity is $25,000. (3)

(f) Determine the amount of total assets.

$\begin{array}{c}\begin{array}{l}\text{Total liabilities and }\\ \text{stockholders' equity}\end{array}\}=\text{Total liabilities}+\text{Total stockholders' equity}\\ \begin{array}{l}\text{Total liabilities and }\\ \text{stockholders' equity}\end{array}\}=\text{Total liabilities (Accounts Payable)}+\text{Total stockholders' equity}\\ \begin{array}{l}\text{Total liabilities and }\\ \text{stockholders' equity}\end{array}\}=\$4,000+\$25,000\left(3\right)\\ \begin{array}{l}\text{Total liabilities and }\\ \text{stockholders' equity}\end{array}\}=\$29,000\end{array}$

According to accounting equation, total assets equals to total liabilities and stockholders’ equity.

$\begin{array}{l}\text{Assets}=\text{Liabilities}+\text{Stockholders' equity}\\ \end{array}$

Total liabilities and stockholders’ equity is $29,000, therefore, total assets is $29,000. (4)

Note: Accounts payable is treated as total liabilities.

(e) Determine the amount of supplies.

$\begin{array}{c}\text{Total assets}=\text{Cash}+\text{Supplies}+\text{Land}+\text{Building}\\ \text{\$29,000 }\left(4\right)\text{= }\$1,100+\text{Supplies}+\$6,000+\$16,000\\ \text{Supplies }=\$29,000-\$23,100\\ \text{Supplies }=\$5,900\end{array}$

Hence, the amount of supplies is $5,900.