Chapter 1, Problem 1.5.3P

Financial statements, including statement of cash flows
Pendray Systems Corporation began operations on January 1, 20Y5 as an online retailer of computer software and hardware. The following financial statement data were taken from Pendrays records at the end of its first year of operations. December 31, 20Y5.

Instructions

Prepare a balance sheet as of December 31. 20Y5.

To determine

Balance sheet- It records the company's assets, stockholder's equity and liabilities at a point in time. The balance sheet also known as statement of financial condition is expressed in the accounting equation as:

  $\text{Assets = Liabilities + Stockholder's equity}$

The balance sheet is prepared using accounting equation in vertical form. Also, the balance on assets side must be equal to sum of balances of liabilities and stockholder's equity.

To prepare:

The balance sheet of company A as of December 31, 20Y5.

Answer to Problem 1.5.3P

The balance sheet of Company A reports total assets of $500000 is equal to the sum of total liabilities of $135000 and stockholder's equity of $365000.

Explanation of Solution

  $\begin{array}{l}\text{ Company A}\\ \text{ Balance Sheet}\\ \text{ December 31, 20Y5}\\ \text{ (Amount in dollars)}\\ \begin{array}{l}\text{ Assets }\hfill \\ \begin{array}{l}\text{Cash 36000}\\ \text{Inventories 111000}\\ \text{Property, Plant and Equipment 265000}\\ \text{Accounts receivable 88000 }\\ \text{Total assets 500000}\end{array}\hfill \\ \text{ Liabilities}\hfill \\ \begin{array}{l}\text{Accounts payable 40000}\\ \text{Income tax payable 15000}\\ \text{Notes payable(due in ten years) 80000}\\ \text{Total liabilities 135000}\end{array}\hfill \\ \text{ Stockholder's Equity}\hfill \\ \begin{array}{l}\text{Common Stock 120000}\\ \text{Retained Earnings 245000}\\ \text{Total stockholder's equity 365000}\end{array}\hfill \\ \text{Total liabilities and stockholder's equity 500000}\hfill \end{array}\end{array}$

Computation details

  $\begin{array}{l}Cash=NetcashflowattheendofDecember31,20Y5\\ \text{ = Net cash flow from operating activities+Net cash flow from investing activities}\\ \text{ +Net cash flow from financing activities}\\ \text{ = \$191000 + (\$265000) + 110000}\\ \text{ = \$36000}\\ \text{Retained Earnings = Net Income - Dividends paid}\\ \text{ = \$335000 - \$90000}\\ \text{ = \$245000}\end{array}$