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Introduction:
Assets: These are resources which the company owns and will generate future economic benefits. The assets are categorized into fixed asset which will help in generating revenues for long period of time and examples is plant and machinery, building, equipments etc and current assets are resources which will be converted into cash within one year examples are
Liabilities: These are amounts which the company has to pay to external stakeholders like creditors for credit purchases, banks for loans taken.
Owner equity: The amount contributed by owner to the company by way capital infusion, the purchase of equity shares by shareholders, the net profits are part of owners equity.
Assets = Liabilities + Equity
The accounting equation can be more detailed if equity component is detailed and can be shown as follows.
Assets = Liabilities + Equity(owner capital - owners withdrawal + revenues - expenses)
To Prepare:
Requirement I
Calculate for Company A amount of equity as on December 2014 and December 2015 and liabilities amount as on December 31, 2015.
Answer to Problem 2APSA
Solution:
The amount of equity as on December 31, 2014 is $30,500.
The amount of equity as on December 31, 2015 is $41,500.
The amount of liabilities as on December 31, 2015 is $16,500.
Explanation of Solution
The amount of equity as on December 31, 2014 is calculated as below by using
Assets = Liabilities + Equity
Putting values in formula for December 31, 2014 balances.
$55,000 = $24,500 + Equity
Equity = $55,000 - $24,500
Equity = $30,500
The closing balance of equity as on December 31, 2014 is $30,500 which will become opening balance of equity balance for December 2015.
To calculate the closing balance of equity as on December 31, 2015 the following accounting equation will be used.
Closing balance of Equity = opening balance of equity + owners investment + net profit - Owner cash withdrawal.
putting the values of 2015 in the formula,
Closing balance of Equity = $30,500 + $6,000 + $8,500 - $3,500
Closing balance of Equity = $41,500
To calculate the liabilities as on December 31, 2015 the following accounting equation will be used.
Assets = Liabilities + Equity
Putting the balances in the formula of December,2015.
$58,000 = Liabilities + $41,500
Liabilities = $58,000 - $41,500
Liabilities = $16,500.
To Prepare:
Requirement II
To calculate for Company B amount of equity as on December 2014 and December 2015 and net profit amount in 2015.
Answer to Problem 2APSA
Solution:
The amount of equity as on December 31, 2014 is $12,500.
The amount of equity as on December 31, 2015 is $13,500.
The amount of Net profit as on December 31, 2015 is $1,600.
Explanation of Solution
The amount of equity as on December 31, 2014 is calculated as below by using accounting equation.
Assets = Liabilities + Equity
Putting values in formula for December 31, 2014 balances.
$34,000 = $21,500 + Equity
Equity = $34,000 - $21,500
Equity = $12,500
The closing balance of equity as on December 31, 2014 is $12,500 which will become opening balance of equity balance for December 2015.
To calculate the Equity as on December 31, 2015 the following accounting equation will be used.
Assets = Liabilities + Equity
Putting the balances in the formula of December,2015.
$40,000 = $26,500 + Equity
Equity = $40,000 - $26,500
Equity = $13,500.
To calculate the net profit of equity as on December 31, 2015 the following accounting equation will be used.
Closing balance of Equity = opening balance of equity + owners investment + net profit - Owner cash withdrawal putting the values of 2015 in the formula
$13,500 = $12,500 + $1,400 + Net profit - $2,000
Net profit = $13,500 + $2,000 - $12,500 - $1,400
Net profit = $1,600.
To Prepare:
Requirement III
To calculate for Company C amount of assets as on December 2015.
Answer to Problem 2APSA
Solution:
The amount of assets as on December 2015 is $55,875.
Explanation of Solution
The amount of equity as on December 31, 2014 is calculated as below by using accounting equation.
Assets = Liabilities + Equity
Putting values in formula for December 31, 2014 balances.
$24,000 = $9,000 + Equity
Equity = $24,000 - $9,000
Equity = $15,000.
The closing balance of equity as on December 31, 2014 is $15,000 which will become opening balance of equity balance for December 2015.
To calculate the closing balance of equity as on December 31, 2015 the following accounting equation will be used.
Closing balance of Equity = opening balance of equity + owners investment + net profit - Owner cash withdrawal putting the values of 2015 in the formula
Closing balance of Equity = $15,000 + $9,750 + $8,000 - $5,875
Closing balance of Equity = $26,875
To calculate the Assets as on December 31, 2015 the following accounting equation will be used.
Assets = Liabilities + Equity
Putting the balances in the formula of December,2015.
Assets = $29,000 + $26,875
Assets = $55,875.
To Prepare:
Requirement IV
To calculate for Company D amount of owner investment as on December 2015.
Answer to Problem 2APSA
Solution:
The amount of owner investment as on December 2015 is $27,000.
Explanation of Solution
The amount of equity as on December 31, 2014 is calculated as below by using accounting equation.
Assets = Liabilities + Equity
Putting values in formula for December 31, 2014 balances.
$60,000 = $40,000 + Equity
Equity = $60,000 - $40,000
Equity = $20,000
The closing balance of equity as on December 31, 2014 is $20,000 which will become opening balance of equity balance for December 2015.
To calculate the Equity as on December 31, 2015 the following accounting equation will be used.
Assets = Liabilities + Equity
Putting the balances in the formula of December,2015.
$85,000 = $24,000 + Equity
Equity = $85,000 - $24,000
Equity = $61,000
To calculate the net owner investment of equity as on December 31, 2015 the following accounting equation will be used.
Closing balance of Equity = opening balance of equity + owners investment + net profit - Owner cash withdrawal.
putting the values of 2015 in the formula$61,000 = $20,000 + owners investment + $14,000 - $0
Owners Investment = $61,000 - $20,000 - $14,000 - $0
Owners Investment = $27,000.
To Prepare:
Requirement V
To calculate for Company E amount of liabilities as on December 2014.
Answer to Problem 2APSA
Solution:
The amount of liabilities as on December 2014 is $91,500.
Explanation of Solution
To calculate the Equity as on December 31, 2015 the following accounting equation will be used.
Assets = Liabilities + Equity
Putting the balances in the formula of December,2015. $113,000 = $70,000 + Equity Equity = $113,000 - $70,000 Equity = $43,000.The amount of opening balance of equity as on December 31, 2014 is calculated as below by using accounting equation.
Closing balance of Equity = opening balance of equity + owners investment + net profit - Owner cash withdrawal
putting the values of 2015 in the formula.
$43,000 = opening balance of equity + $6,500 + $20,000 - $11,000
Opening balance of Equity = $43,000 + $11,000 - $6,500 - $20,000
Opening balance of equity = $27,500
The opening balance of equity as on December 31,2015 is Closing balance of equity in December 31,2014.
The calculation of liabilities as on December 31, 2014 will be calculated using following accounting equation.
Assets = Liabilities + Equity
Putting values in formula for December 31, 2014 balances.
$119,000 = Liabilities + $27,500
Liabilities = $119,000 - $27,500
Equity = $91,500.
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Chapter 1 Solutions
Fundamental Accounting Principles -Hardcover
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