Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th
Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th
15th Edition
ISBN: 9781337272353
Author: WARREN, Carl; Reeve, James M.; Duchac, Jonathan
Publisher: Cengage Learning
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Chapter 1, Problem 6PB

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

Chapter 1, Problem 6PB, The financial statements at the end of Atlas Realtys first month of operations follow: Instructions , example  1

Chapter 1, Problem 6PB, The financial statements at the end of Atlas Realtys first month of operations follow: Instructions , example  2

Chapter 1, Problem 6PB, The financial statements at the end of Atlas Realtys first month of operations follow: Instructions , example  3

Chapter 1, Problem 6PB, The financial statements at the end of Atlas Realtys first month of operations follow: Instructions , example  4

Instructions

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

Expert Solution & Answer
Check Mark
To determine

Calculate 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 owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ 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, 2019, is given below.

Company AR
Income Statement
For the month ended May 31 , 2019
ParticularsAmount ($)Amount ($)
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, 2019, is $112,000.

Company AR
Statement of Owner's Equity
For the month ended May 31 , 2019
ParticularsAmount ($)Amount ($)
LM Capital, May 1, 2019 (c)   $0
Investment on May 1,2019(d)   $160,000 
Net income for the month(e)   $112,000 
Deduct - Withdrawals(f)   $64,000 
Increase in Owner's equity (g)   $208,000
LM Capital, May 31 , 2019 (h)   $208,000

 Table (2)

Hence the LM Capital of Company AR for month ended May 31, 2019, is $208,000.

Company AR
Balance Sheet
May 31, 2019
ParticularsAmount ($)Amount ($)
Assets
 Current Assets  
 Cash$123,200 
 Supplies$12,800 
 Land(i)   $120,000 
 Total current assets (j)   $256,000
Liabilities and Stockholders’ Equity
 Liabilities  
 Accounts payable$48,000 
 Owner's equity 
 LM Capital(k)   $208,000 
 Total liabilities and stockholders’ equity (l)   $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, 2019.

Company AR
Statement of Cash Flows
For the month ended May 31 , 2019
ParticularsAmount ($)Amount ($)
Cash flows from operating activities:  
Cash receipts from customers(m)   $400,000
Cash payments for expenses and creditors$252,800 
Net cash flow used for operating activities (n)   $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 (o)   $96,000
Net Increase in cash, May 31,2019 cash balance (p)   $123,200

 Table (4)

Hence the cash balance of Company AR on May 31, 2019, is $123,200.

Working Notes:

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

Calculate the supplies expense.

Expenses = [(WageExpense)+(RentExpense)+(SuppliesExpense)+(UtilitesExpense)+(MiscellaneousExpense)]$288,000=(WagesExpense)+$48,000+$17,600+$14,400+$4,800$288,000=$84,800+(Supplies Expense)Supplies Expense=$288,000$84,800=$203,200

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

    Calculate the net income.

    Net Income  =  Revenue  Expense=  $400,000  $288,000=  $112,000

  2. c) LM Capital, May 1, 2019:  As this is the first month of operation for Company AR, there will be having no opening balance for the Capital account.
  3. d) Investment on May 1, 2019: The investment received from the owner is shown in the statement of cash flow and transferred from there. The investment received from the owner is $160,000.
  4. e) 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.
  5. f) Withdrawals: Withdrawals of $64,000, shown in the statement of cash flow is transferred to the statement of owner's equity.
  6. g) Increase in Owner's equity: Increase in owner's equity during May is $208,000.

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

    Increase inOwner's Equity} = [(Investment)+(Net Income)(Withdrawals)]=$160,000+$112,000$64,000=$272,000$64,000=$208,000

  7. h) LM Capital, May 31, 2019: The LM Capital on May 31, 2019 is the same as increase of Owner's equity as there was no opening balance. The LM Capital on May 31, 2019 is $208,000
  8. i) Land: Land of $120,000, shown in the statement of cash flow is transferred to the balance sheet.
  9. j) Total Assets: The sum of total assets is $256,000.

    Calculate the total assets.

    Total assets   = Cash +Supplies + Land=  $123,200 + $12,8000+$120,000=$256,000

  10. k) LM Capital:  LM Capital of $208,000, calculated in the statement of owner's equity is transferred to the balance sheet.
  11. l) Total liabilities and stockholders’ equity: the total liabilities and stockholder's equity is $256,000.

    Calculate the total liabilities and owner's equity.

    Total liabilities andstockholder's equity}   = Total Liabilities +Total stockholder equity=  $48,000 + $208,000=$256,000

  12. m) 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.
  13. n) Net cash flow used for operating activities: The cash flow used for operating activities in the month of May, is $362,500.

Calculate the cash flow used for operating activities.

Cash flow used foroperating activities}   = [(Cash receiptsfrom customers)(Cash payments forexpenses and creditors)]=  $400,000  $252,800=  $147,200

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

Calculate the net cash flow from financing activities.

Net cash flow fromfinancing activities}   = [(Cash receipt ofowner investment)(Cash Withdrawals)]=  $160,000  $64,000=  $96,000

  1. p) Net Increase in cash, May 31, 2019 cash balance is $123,200 and it is transferred from balance sheet.

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Chapter 1 Solutions

Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th

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