Chapter 1, Problem 2PSB

1.

Summary Introduction

Introduction: Asset of the company is the source of income for the company which can be controlled by the board of directors. Asset helps to generate income for various purposes like for dividend and interest distribution to shareholders and debenture holders. Whereas Liabilities are obligations for the company that are needed to pay off or write off accordingly. In a simple way, liabilities are credit for the company which needs to be fulfilled.

To calculate: The net income, asset and liabilities of five different companies are required.

Answer to Problem 2PSB

The Equity and Liabilities of the company are computed and net income and loss of the company too are computed.

Explanation of Solution

Company V

1. Amount of Equity on Dec 31, 2017

  $\text{Asset= Liabilities+}Equity$

  $\$54,000=\$25,000+\$29,000$

2. Amount of Equity on Dec 31, 2018

  $\text{Asset= Liabilities+}Equity$

  $\$59,000=\$36,000+\$23,000$

3. Statement of shareholder’s equity

Particulars	Amount
Equity, December 31, 2017	$\$29,000$
Stock issuance	$\$5,000$
	$\$34,000$
Net Loss	$(\$5,500)$
Cash dividends	$\$5,500$
Equity, December 31, 2018	$\$23,000$

2.

Summary Introduction

Introduction: Asset of the company is the source of income for the company which can be controlled by the board of directors. Asset helps to generate income for various purposes like for dividend and interest distribution to shareholders and debenture holders. Whereas Liabilities are obligations for the company that are needed to pay off or write off accordingly. In a simple way, liabilities are credit for the company which needs to be fulfilled.

To calculate: The net income, asset and liabilities of five different companies are required.

Answer to Problem 2PSB

The Equity and Liabilities of the company are computed and net income and loss of the company too are computed.

Explanation of Solution

Company W

1. Amount of Equity on Dec 31, 2017

  $\text{Asset= Liabilities+}Equity$

  $\$80,000=\$60,000+\$20,000$

2. Amount of Equity on Dec 31, 2018

  $\text{Asset= Liabilities+}Equity$

  $\$100,000=\$28,000+\$72,000$

Statement of shareholder’s equity

Particulars	Amount
Equity, December 31, 2017	$\$20,000$
Stock issuance	$\$20,000$
Net income	$\$40,000$
	$\$80,000$
Cash dividends	$\$2,000$
Equity, December 31, 2018	$\$72,000$

3. Amount of Equity on Dec 31, 2018

  $\text{Asset= }Liabilities\text{+Equity}$

  $\$100,000=\$28,000+\$72,000$

3.

Summary Introduction

Introduction: Asset of the company is the source of income for the company which can be controlled by the board of directors. Asset helps to generate income for various purposes like for dividend and interest distribution to shareholders and debenture holders. Whereas Liabilities are obligations for the company that are needed to pay off or write off accordingly. In a simple way, liabilities are credit for the company which needs to be fulfilled.

To calculate: The net income, asset and liabilities of five different companies are required.

Answer to Problem 2PSB

The Equity and Liabilities of the company are computed and net income and loss of the company too are computed.

Explanation of Solution

Company X

Statement of shareholder’s equity

Particulars	Amount
Equity, December 31, 2017	$\$73,000$
Stock issuance	$\$29,200$
Net income	$\$18,500$
	$\$120,700$
Cash dividends	$0$
Equity, December 31, 2018	$\$120,700$

Summary Introduction

Introduction: Asset of the company is the source of income for the company which can be controlled by the board of directors. Asset helps to generate income for various purposes like for dividend and interest distribution to shareholders and debenture holders. Whereas Liabilities are obligations for the company that are needed to pay off or write off accordingly. In a simple way, liabilities are credit for the company which needs to be fulfilled.

To calculate: The net income, asset and liabilities of five different companies are required.

Answer to Problem 2PSB

The Equity and Liabilities of the company are computed and net income and loss of the company too are computed.

Explanation of Solution

Company Y

Statement of shareholder’s equity

Particulars	Amount
Equity, December 31, 2017	$\$41,000$
Stock issuance	$\$48,100$
Net income	$\$24,000$
	$\$113,100$
Cash dividends	$\$20,000$
Equity, December 31, 2018	$\$93,100$

Amount of Equity on Dec 31, 2018

  $Asset\text{= Liabilities+Equity}$

  $\$135,100=\$42,000+\$93,100$

Summary Introduction

Introduction: Asset of the company is the source of income for the company which can be controlled by the board of directors. Asset helps to generate income for various purposes like for dividend and interest distribution to shareholders and debenture holders. Whereas Liabilities are obligations for the company that are needed to pay off or write off accordingly. In a simple way, liabilities are credit for the company which needs to be fulfilled.

To calculate: The net income, asset and liabilities of five different companies are required.

Answer to Problem 2PSB

The Equity and Liabilities of the company are computed and net income and loss of the company too are computed.

Explanation of Solution

Company Z

Statement of shareholder’s equity

Particulars	Amount
Equity, December 31, 2017	$\$44,000$
Stock issuance	$\$60,000$
Net income	$\$32,000$
	$\$136,000$
Cash dividends	$\$8,000$
Equity, December 31, 2018	$\$128,000$

Amount of Equity on Dec 31, 2018

  $\text{Asset= }Liabilities\text{+Equity}$

  $\$144,000=\$100,000+\$44,000$