Chapter 1, Problem 1.6BPR

Missing amounts from financial statements

The financial statements at the end of Atlas Realty’s first month of operations follow:

Instructions

By analyzing the interrelationships among the four financial statements, determine the proper amounts for (a) through (r).

To determine

To Determine:  The missing amount in the given financial statement of Company AR.

Explanation of Solution

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 Stockholders’ Equity: The financial statement, which shows the changes in the equity capital, due to contributions and net income for a given period, is known as statement of stockholders’ equity.

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.

The financial statement of Company AR or month ended May 31, 20Y6, is given below.

Company AR
Income Statement
For the month ended May 31 , 20Y6
Particulars	Amount ($)	Amount ($)
Revenues
Fees earned		$400,000
Expenses
Wages expense	(a)   $203,200
Rent expense	$48,000
Supplies expense	$17,600
Utilities expense	$14,400
Miscellaneous expense	$4,800
Total expenses		$288,000
Net income		(b)   $112,000

Table (1)

Hence the net income of Company AR for month ended May 31, 20Y6, is $112,000.

Company AR
Statement of Stockholders’ Equity
For the month ended May 31 , 20Y6
Particulars	Amount ($)	Amount ($)
Balance, May 1, 20Y6		(c)   $0
Net income for the month	(d)   $112,000
Deduct - Dividends	(e)   $64,000
Changes in Retained earnings		(f)   $48,000
Retained earnings May 31 , 20Y6		(g)   $48,000

 Table (2)

Hence the retained earnings of Company AR for month ended May 31, 20Y6, are $48,000.

Company AR
Balance Sheet
May 31, 20Y6
Particulars	Amount ($)	Amount ($)
Assets
Current Assets
Cash	$123,200
Supplies	$12,800
Land	(h)   $120,000
Total current assets		(i)   $256,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable		$48,000
Stockholder's equity
Common Stock	(j)   $160,000
Retained earnings	(k)   $48,000
Total stockholders’ equity		(l)   208,000
Total liabilities and stockholders’ equity		(m)   $256,000

 Table (3)

Hence the financial statement of Company AR shows the same asset and total liabilities and stockholder's equity balance of $256,000 for month ended May 31, 20Y6.

Company AR
Statement of Cash Flows
For the month ended May 31 , 20Y6
Particulars	Amount ($)	Amount ($)
Cash flows from operating activities:
Cash receipts from customers		(n)   $400,000
Cash payments for expenses and creditors	$252,800
Net cash flow provided by operating activities		(o)   $147,200
Cash flows from investing activities:
Cash payment for purchase of land		$120,000
Cash flows from financing activities:
Cash receipt of owner’s investment	$160,000
Cash Withdrawals	$64,000
Net cash flow from financing activities		(p)   $96,000
Net Increase in cash, May 31,20Y6 cash balance		(q)   $123,200
Cash balance, April 1, 20Y6		$123,200
Cash balance, April 30, 20Y6		(r)   $246,400

 Table (4)

Hence the cash balance of Company AR on May 31, 20Y6, is $246.400.

Working Notes:

1. a) Wages expense: Wages expense during the month of May is $203,200.

Calculate the supplies expense.

$\begin{array}{c}\text{Expenses = }\left[\begin{array}{l}\left(\begin{array}{l}\text{Wage}\\ \text{Expense}\end{array}\right)\text{+}\left(\begin{array}{l}\text{Rent}\\ \text{Expense}\end{array}\right)\text{+}\left(\begin{array}{l}\text{Supplies}\\ \text{Expense}\end{array}\right)+\\ \left(\begin{array}{l}\text{Utilites}\\ \text{Expense}\end{array}\right)\text{+}\left(\begin{array}{l}\text{Miscellaneous}\\ \text{Expense}\end{array}\right)\end{array}\right]\\ \$288,000=\left(\begin{array}{l}\text{Wages}\\ \text{Expense}\end{array}\right)+\$48,000+\$17,600+\$14,400+\$4,800\\ \$288,000=\$84,800\text{+}\left(\text{Supplies Expense}\right)\\ \text{Supplies Expense}=\$288,000-\$84,800\\ =\$203,200\end{array}$

(a)

1. b) Net income: Net income during the month of May is $112,000.

   Calculate the net income.

   $\begin{array}{c}\text{Net Income = Revenue }-\text{ Expense}\\ \text{= \$400,000 }-\text{ \$288,000}\\ \text{= \$112,000}\end{array}$

(b)

1. c) Retained earnings, May 1, 20Y6:  As this is the first month of operation for Company AR, there will be no opening balance for the retained earnings.

   (c)

2. d) Net income for May: Net income provided in the income statement is transferred to the statement of owner's equity. Net income during the month of May is $112,000.

   (d)

3. e) Dividends: Dividends of $64,000, provided in the statement of cash flow is transferred to the statement of retained earnings.

   (e)

4. f) Change in retained earnings: Increase in retained earnings is $48,000.

   Calculate the increase on owner's equity of Company AR.

   $\begin{array}{c}\begin{array}{l}\text{Increase in}\\ \text{Retained earnings}\end{array}\}\text{ = }\left[\left(\text{Net Income}\right)-\left(\text{Dividends}\right)\right]\\ =\$112,000-\$64,000\\ =\$48,000\end{array}$ (f)

5. g) Retained earnings, May 31, 20Y6: The retained earnings on May 31, 20Y6 is the same as increase of retained earnings as there was no opening balance. The retained earnings on May 31, 20Y6 is $48,000

(g)

1. h) Land: Land of $120,000, shown in the statement of cash flow is transferred to the balance sheet.

   (h)

2. i) Total Assets: The sum of total assets is $256,000.

   Calculate the total assets.

   $\begin{array}{c}\text{Total assets = Cash +Supplies + Land}\\ \text{= }\$123,200\text{ + }\$12,800+\$120,000\\ =\$256,000\end{array}$

(i)

1. j) Common Stock: Common Stock of $160,000, shown in the statement of cash flow is transferred to balance sheet.

   (j)

2. k) Retained earnings:  Retained earnings of $48,000, calculated in the statement of retained earnings are transferred to the balance sheet.

   (k)

3. l) Total stockholders’ equity: Total stockholder's equity is $208,000.

Calculate the total liabilities and owner's equity.

$\begin{array}{c}\text{Total stockholder's equity}\}\text{ = Common Stock +}\text{}\text{Retained Earnings}\\ \text{= }\$160,000\text{ + \$48,000}\\ =\$208,000\end{array}$

(l)

1. m) Total liabilities and stockholders’ equity: the total liabilities and stockholder's equity is $256,000.

   Calculate the total liabilities and owner's equity.

   $\begin{array}{c}\begin{array}{l}\text{Total liabilities and}\\ \text{stockholder's equity}\end{array}\}\text{ = Total Liabilities +}\text{}\text{Total stockholder equity}\\ \text{= }\$48,000\text{ + \$208,000}\\ =\$256,000\end{array}$

(m)

1. n) Cash receipts from customers: This includes all the income generated and received in the form of cash in the month of May, is $400,000 and it is transferred from income statement.

   (n)

2. o) Net cash flow used for operating activities: The cash flow used for operating activities in the month of May, is $147,200.

Calculate the cash flow used for operating activities.

$\begin{array}{c}\begin{array}{l}\text{Cash flow used for}\\ \text{operating activities}\end{array}\}\text{ = }\left[\left(\begin{array}{l}\text{Cash receipts}\\ \text{from customers}\end{array}\right)-\left(\begin{array}{l}\text{Cash payments for}\\ \text{expenses and creditors}\end{array}\right)\right]\\ \text{= \$400,000 }-\text{ \$252,800}\\ \text{= \$147,200}\end{array}$

(o)

1. p) Net cash flow from financing activities; the cash flow from financing activities in the month of April, is $96,000.

Calculate the net cash flow from financing activities.

$\begin{array}{c}\begin{array}{l}\text{Net cash flow from}\\ \text{financing activities}\end{array}\}\text{ = }\left[\left(\begin{array}{l}\text{Cash received from}\\ \text{issuing common stock}\end{array}\right)-\left(\text{Cash Dividends}\right)\right]\\ \text{= \$160,000 }-\text{ \$64,000}\\ \text{= \$96,000}\end{array}$

(p)

1. q) Net Increase in cash, May 31, 20Y6 cash balance is $123,200 and it is transferred from balance sheet.

   (q)

2. r) Cash balance, May 1, 20Y6 is calculated by adding the net increasing cash with beginning cash balance. Hence, the cash balance, May 31, 20Y6 is $246,200.

   (r)