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Concept explainers
Missing amounts from financial statements
The financial statements at the end of Wolverine Realty’s first month of operations are as follows
Wolverine Realty Income Statement For the Month Ended April 30, 2018 | ||||
Fees earned | $ A | |||
Expenses: | ||||
Wages expense | 300,000 | |||
Rent expense | 100 | |||
Supplies expense | B | |||
Utilities expense | 20,000 | |||
Miscellaneous expense .. | 25,000 | |||
Total expenses | 475,000 | |||
Net income | $275,000 |
Wolverine Realty |
|||
Retained earnings, April 1,2018 | $ c | ||
Net income | $ D | ||
Dividends | (125,000) | ||
Change in retained earnings | E | ||
Retained earnings, April 30, 2018 | $ F |
Wolverine Realty |
||||
Assets | ||||
Cash | $462,500 | |||
Supplies | 12,500 | |||
Land | 150,000 | |||
Total assets | $ G | |||
Liabilities | ||||
Accounts payable | $100,000 | |||
Stockholders' Equity | ||||
Common stock | $375,000 | |||
Retained earnings | H | |||
Total stockholders' equity | I | |||
Total liabilities and stockholders' equity, | $ J |
Wolverine Realty Statement of |
||
Cash flows from operating activities: | ||
Cash received from customers | $ K | |
Cash payments for expenses and payments to creditors | (387,500) | |
Net cash flows from operating activities | $ L | |
Cash flows used for investing activities: | ||
Cash payments for acquisition of land | M | |
Cash flows from financing activities: | ||
Cash received from issuing common stock | $ N | |
Cash dividends | 0 | |
Net cash flows from financing activities | P | |
Net increase (decrease) in cash and April 30,2018, cash balance | $ Q |
Instructions
By analyzing the interrelationships among the four financial statements, determine the proper amounts for A through Q.
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Financial statements: Financial statements refer to those statements, which are prepared by the Company according to particular formats in accounting to show its financial position.
Financial statements include the following statements:
Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
To Determine: The missing amount in the given financial statement of Company WR.
Answer to Problem 1.6APR
The financial statement of Company WR for month ended April 30, 2018, is given below.
Company WR | ||
Income Statement | ||
For the month ended April 30 , 2018 | ||
Particulars | Amount ($) | Amount ($) |
Revenues | ||
Fees earned | (a) $750,000 | |
Expenses | ||
Wages expense | $300,000 | |
Rent expense | $100,000 | |
Supplies expense | (b) $30,000 | |
Utilities expense | $20,000 | |
Miscellaneous expense | $25,000 | |
Total expenses | $475,000 | |
Net income | $275,000 |
Table (1)
Hence the net income of Company WR for month ended April 30, 2018, is $275,000.
Company WR | ||
Statement of Retained Earnings | ||
For the month ended April 30, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Retained earnings, April 1, 2018 | (c) $0 | |
Net income for the month | (d) $275,000 | |
Deduct - Dividends | $125,000 | |
Changes in Retained earnings | (e) $150,000 | |
Retained earnings April 30, 2018 | (f) $150,000 |
Table (2)
Hence the DR Capital of Company WR for month ended April 30, 2018, is $525,000.
Company WR | ||
Balance Sheet | ||
April 30, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $462,500 | |
Supplies | $12,500 | |
Land | $150,000 | |
Total current assets | (g) $625,000 | |
Liabilities and Stockholders’ Equity | ||
Liabilities | ||
Accounts payable | $100,000 | |
Stockholder's equity | ||
Common Stock | $375,000 | |
Retained earnings | (h) $150,000 | |
Total stockholders’ equity | (i) $525,000 | |
Total liabilities and stockholders’ equity | (j) $625,000 |
Table (3)
Hence the financial statement of Company WR shows the same asset and total liabilities and stockholder's equity balance of $625,000 for month ended April 30, 2018.
Company WR | ||
Statement of Cash Flows | ||
For the month ended April 30 , 2018 | ||
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipts from customers | (k) $750,000 | |
Cash payments for expenses and creditors | $387,500 | |
Net cash flow used for operating activities | (l) $362,500 | |
Cash flows from investing activities: | ||
Cash payment for purchase of land | (m) $150,000 | |
Cash flows from financing activities: | ||
Cash received from issuing common stock | (n) $375,000 | |
Cash Dividends | (o) $125,000 | |
Net cash flow from financing activities | (p) $250,000 | |
Net Increase in cash, April 31,2018 cash balance | (q) $462,500 |
Table (4)
Hence the cash balance of Company WR on April 30, 2018, is $462,500.
Explanation of Solution
Working Notes:
- a) Fees Earned: Fees earned during the month of April is $750,000.
Calculate the fees earned.
- b) Supplies expense: Supplies expense during the month of April is $30,000.
Calculate the supplies expense.
- c) Retained earnings, April 1, 2018: As this is the first month of operation for Company WR, there will be no opening balance for the retained earnings. (c)
- d) Net income for April: Net income provided in the income statement, is transferred to the statement of owner's equity. (d)
- e) Change in retained earnings: Increase in retained earnings is $150,000.
Calculate the increase on owner's equity of Company WR.
- f) Retained earnings, April 30, 2019 The retained earnings on April 30, 2019 is the same as increase of retained earnings as there was no opening balance. The retained earnings on April 30, 2019 is $150,000 (f)
- g) Total Assets: The sum of total assets is $625,000.
Calculate the total assets.
- h) Retained earnings: Retained earnings is calculated in the statement of retained earnings and transferred to balance sheet. (h)
- i) Total stockholders’ equity: Total stockholder's equity is $525,000.
Calculate the total liabilities and owner's equity.
- j) Total liabilities and stockholders’ equity: Total liabilities and stockholder's equity is $625,000.
Calculate the total liabilities and owner's equity.
- k) Cash from customers: This includes all the income generated and received, in the form of cash in the month of April, is $750,000 and it is transferred from income statement. (k)
- l) Net cash flow used for operating activities: The cash flow used for operating activities in the month of April, is $362,500.
Calculate the cash flow used for operating activities.
- m) Cash payment for acquisition of land: The land was purchased for $150,000, and this amount is transferred from the balance sheet. (m)
- n) Cash received from issuing common stock: This refers to the investment made by the owner in April and this amount is transferred from the statement of owner's equity. Cash received from issuing common stock is $375,000. (n)
- o) Cash Dividends: This refers to the dividend paid to the owner in April and this amount is transferred from the statement of retained earnings. Cash dividends paid during April is $125,000. (o)
- p) Net cash flow from financing activities; the cash flow from financing activities in the month of April, is $250,000.
Calculate the net cash flow from financing activities.
- q) Net Increase in cash, April 30, 2018 cash balance is $462,500 and it is transferred from balance sheet. (q)
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