Chapter 1, Problem 6PB

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

Calculate the amount of (a) through (r), analyzing the financial statements.

Explanation of Solution

Financial statements: Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.

Calculate the amount of (a) through (r), analyzing the financial statements:

The financial statements of Company AR or month ended May 31, 20Y6, are 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 Stockholder's Equity
For the month ended May 31, 20Y6
Particulars	Common Stock	Retained Earnings	Total
Balances, May 1, 20Y6	$0	$0	$0
Issued common stock	(c)   $160,000		(c)   $160,000
Net income		(d)   $112,000	(d)   $112,000
Dividends		(e)   ($64,000)	(e)  ($64,000)
Balances, May 31, 20Y6	(c)  $ 160,000	(f)   $ 48,000	(g)  $ 208,000

Table (2)

Hence the stockholder's equity of Company AR for month ended May 31, 20Y6, is $208,000.

Company AR
Balance Sheet
As on 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 used for 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 (decrease) in cash		(q)   $123,200
Cash balance, May 1, 20Y6		$0
Cash balance, May 31, 20Y6		(r)   $123,200

 Table (4)

Hence the cash balance of Company AR on May 31, 20Y6, is $123,200.

Working Notes:

1. a) Wages expense:

Calculate the wages expense.

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

Wages expense during the month of May is $203,200.

1. b) Net income:

Calculate the net income.

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

Net income during the month of May is $112,000.

1. c) Common Stock:

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

1. d) Net income for May:

Net income is provided in the income statement is transferred to the statement of stockholder’s equity. Net income during the month of May is $112,000.

1. e) Dividends:

  Dividends of $64,000, provided in the statement of cash flow are transferred to the statement of retained earnings.

1. f) Retained earnings, May 31, 20Y6:

Calculate increase in the retained earnings of Company AR.

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

The retained earnings on May 31, 20Y6 are $48,000.

1. g) Stockholder's equity:

The Stockholder's equity of Company AR is $208,000.

1. h) Land:

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

1. i) Total Assets:

Calculate the total assets.

$\begin{array}{c}\text{Total assets = Cash +Supplies + Land}\\ \text{= }\$123,200\text{ + }\$12,8000+\$120,000\\ =\$256,000\end{array}$

The sum of total assets is $256,000.

1. j) Common Stock:

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

1. k) Retained earnings: 

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

1. l) Total stockholders’ equity:

Calculate the total stockholder’s equity.

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

Total stockholder's equity is $208,000.

1. m) Total liabilities and stockholders’ equity:

Calculate the total liabilities and stockholder’s equity.

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

The total liabilities and stockholder's equity is $256,000.

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.

1. o) Net cash flow used for operating activities:

Calculate the cash flow used for operating activities.

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

The cash flow used for operating activities in the month of May, is $147,200.

1. p) Net cash flow from financing activities:

Calculate the net cash flow from financing activities.

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

The cash flow from financing activities in the month of May is $96,000.

1. q) Net Increase in cash:

The net increase in cash balance is $123,200 and it is transferred from balance sheet.

1. r) Cash balance, May 31, 20Y6:

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