Chapter 1, Problem 2PSA

Problem 1-2A Computing missing information using accounting knowledge A1 P1

The following financial statement information is from five separate companies.

Company

ACompany

BCompany

CCompany

DCompany

E December 21, 2016 Assets ……………………................ $55,000 $34,000 $24,000 $60,000 $119,000 Liabilities ………………………….. 24,500 21,500 9,000 40,000 ? December 31, 2017 Assets ……………………………… 58,000 40,000 ? 85,000 113,000 Liabilities ………………………….. ? 26,500 29,000 24,000 70,000 During year 2017 Stock issuances ……………………. 6,000 1,400 9,750 ? 6,500 Net income (loss)…………………... 8,500 ? 8,000 14,000 20,000 Cash dividends …………………….. 3,500 2,000 5m875 0 11,000

Required

1. Answer the following questions about Company A.
1. What is the amount of equity on December 31, 2016?
2. What is the amount of equity on December 31, 2017?
Check ( 1b) $41,500

3. What is the amount of liabilities on December 31, 2017?
2. Answer the following questions about Company B.
1. What is the amount of equity on December 31, 2016?
2. What is the amount of equity on December 31, 2017?
3. What is net income for year 2017?
( 2c) $1,600
3. Compute the amount of assets for Company C on December 31, 2017.
(3) $55,875

4. Compute the amount of stock issuances for Company D during year 2017.
5. Compute the amount of liabilities for Company E on December 31, 2016.

To determine

To compute: The amount of equity, of A Company as on December 31, 2016.

Explanation of Solution

Given,
The amount of assets is $55,000.
The amount of liabilities is $24,500.

Formula to calculate equity is,

$\text{Equity}=\text{Assets}-\text{liablities}$

Substitute$55,000 for assets and $24,500 for liabilities.

$\begin{array}{c}\text{Equity}=\$55,000-\$24,500\\ =\$30,500\end{array}$

Hence, the amount of equity of A Company as on December 31, 2016 is $30,500.

To determine

To compute: The amount of equity, of A Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of assets is $58,000.
The amount of equity is $30,500.
Stock issuance is $6,000.
Net income is $8,500.
Cash dividend is $3,500.

Formula to calculate equity is,

$\text{Equity at the end}=\left(\begin{array}{l}\text{Equity in the beginning}+\text{Issue of stock}\\ +\text{Net income}-\text{Dividend}\end{array}\right)$

Substitute $30,500 for equity in the beginning,, $6,000 for issue of stock, $8,500 for net income, $3,500 for dividend.

$\begin{array}{c}\text{Equity at the end}=\$30,500+\$6,000+\$8,500-\$3,500\\ =\$45,000-\$3,500\\ =\$41,500\end{array}$

Hence, the amount of equity of A company as on December 31, 2017 is $41,500.

To determine

To compute: The amount of liabilities, of A Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of assets is $58,000.
The amount of equity is $41,500.

Formula to calculate liabilities is,

$\text{Liabilities}=\text{Assets}-\text{Equity}$

Substitute $58,000 for assets and $41,500 for equity.

$\begin{array}{c}\text{Liabilities}=\$58,000-\$41,500\\ =\$16,500\end{array}$

Hence, the amount of liabilities of A company as on December 31, 2017 is $16,500.

To determine

To compute: The amount of equity, of B Company as on December 31, 2016.

Explanation of Solution

Given:
The amount of assets is $34,000.
The amount of liabilities is $21,500.

Formula to calculate equity is,

$\text{Equity}=\text{Assets}-\text{liablities}$

Substitute $34,000 for assets and $21,500 for liabilities.

$\begin{array}{c}\text{Equity}=\$34,000-\$21,500\\ =\$12,500\end{array}$

Hence, the amount of equity of B Company as on December 31, 2016 is $12,500.

To determine

To compute: The amount of equity, of B Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of assets is $40,000.
The amount of liabilities is $26,500.

Formula to calculate equity is,

$\text{Equity}=\text{Assets}-\text{liablities}$

Substitute$40,000 for assets and $26,500 for liabilities.

$\begin{array}{c}\text{Equity}=\$40,000-\$26,500\\ =\$13,500\end{array}$

Hence, the amount of equity of B Company as on December 31, 2017 is $13,500.

To determine

To compute: The net income, of A Company as on December 31, 2017.

Explanation of Solution

Given:
The amount of equity is $12,500 of December 31, 2016.
The amount of equity is $13,500 of December 31, 2017.
Stock issuance is $1,400
Cash dividend is $2,000

Formula to calculate net income is,

$\text{Net Income}=\left(\begin{array}{l}\text{Equity at the end}-\text{Equity in the beginning}\\ -\text{Issue of stock}+\text{Dividend}\end{array}\right)$

Substitute $12,500 for equity in the beginning, $1,400 for issue of stock,$13,500 for equity at the end, $2,000 for dividend.

$\begin{array}{c}\text{Net Income}=\$13,500-\$12,500-\$1,400+\$2,000\\ =\$15,500-\$13,900\\ =\$1,600\end{array}$

Hence, the net income of B Company as on December 31, 2017 is $1,600.

To determine

To compute: The amount of assets, of C Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of liabilities is $29,000 as on December 31, 2017.
The amount of equity is $26,875 as on December 31, 2017.

Formula to calculate asset is,

$\text{Assets}=\text{Liablities}+\text{Equity}$

Substitute$29,000 for liabilities and $26,875 for equity.

$\begin{array}{c}\text{Assets}=\$29,000+\$26,875\\ =\$55,875\end{array}$

Working notes:

Calculation of the amount of equity as on December 31, 2016,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{liablities}\\ =\$24,000-\$9,000\\ =\$15,000\end{array}$

Calculation of the amount of equity as on December 31, 2017,

$\begin{array}{c}\text{Equity at the end}=\left(\begin{array}{l}\text{Equity in the beginning}+\text{Issue of stock}\\ +\text{Net income}-\text{Dividend}\end{array}\right)\\ =\$15,000+\$9,750+\$8,000-\$5,875\\ =\$32,750-\$5,875\\ =\$26,875\end{array}$

Hence, the amount of asset of C Company as on December 31, 2017 is $55,875.

To determine

To compute: The amount of stock issuance, of D Company as on December 31, 2017.

Explanation of Solution

Given,
The amount of equity is $20,000 of December 31, 2016.
The amount of equity is $61,000 of December 31, 2017.
Net income is $14,000.

Formula to calculate stock issuance is,

$\text{Stock Issuances}=\text{Equity at the end}-\text{Equity in the beginning}-\text{Net Income}$

Substitute $20,000 for equity in the beginning, $14,000 for net income, $61,000 for equity at the end.

$\begin{array}{c}\text{Stock Issuances}=\$61,000-\$20,000-\$14,000\\ =\$27,000\end{array}$

Working notes:

Calculation of the amount of equity as on December 31, 2016,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{liablities}\\ =\$60,000-\$40,000\\ =\$20,000\end{array}$

Calculation of the amount of equity as on December 31, 2017,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{liablities}\\ =\$85,000-\$24,000\\ =\$61,000\end{array}$

Hence, the amount of stock issuances of D company as on December 31, 2017 is $27,000.

To determine

To compute: The amount of liabilities of E Company as on December 31, 2016.

Explanation of Solution

Given,
The amount of assets is $119,000 as on December 31, 2016.
The amount of equity is $27,500 as on December 31, 2016.

Formula to calculate equity is,

$\text{Liabilities}=\text{Assets}-\text{Equity}$

Substitute $119,000 for assets and $27,500 for equity.

$\begin{array}{c}\text{Liabilities}=\$119,000-\$27,500\\ =\$91,500\end{array}$

Working notes:

Calculation of the amount of equity as on December 31, 2017,

$\begin{array}{c}\text{Equity}=\text{Assets}-\text{liablities}\\ =\$113,000-\$70,000\\ =\$43,000\end{array}$

Calculation of the amount of equity as on December 31, 2016,

$\begin{array}{c}\text{Equity in the beginning}=\left(\begin{array}{l}\text{Equity at the end}+\text{Dividend}\\ -\text{Issuance of Stock}-\text{Net income}\end{array}\right)\\ =\$43,000+\$11,000-\$6,500-\$20,000\\ =\$54,000-\$26,500\\ =\$27,500\end{array}$

Hence, the amount of liabilities of E company as on December 31, 2016 is $91,500.