Chapter 11, Problem 22AP

a)

To determine

Prepare a Year 1 income statement, capital statement, balance sheet, and statement of cash flows for a sole proprietorship owned by Person C.

Explanation of Solution

Income statement:

It is one of the financial statements which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the income statement of for C’s sole proprietorship the year ended December 31, Year 1.

C’s sole proprietorship
Income statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Revenues	35,000
Less: Expenses	(18,100)
Net income	16,900

Table (1)

Statement of owner's’ equity:

This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Prepare the capital account of C’s sole proprietorship for the year ended December 31, Year 1.

C’s sole proprietorship
Capital statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Beginning Capital Balance	0
Add: initial Capital  from partners	60,000
Add: Net Income	16,900
Less: Withdrawal by person C	(4,000)
Ending Capital Balance	72,900

Table (2)

Balance sheet:

Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the balance sheet of C’s sole proprietorship as on December 31^st, year 1.

C’s sole proprietorship
Balance sheet
As on December 31, Year 1
Particulars	Amount ($)
Assets
Cash	72,900
Total assets	72,900
Liabilities and Equity
Liabilities	0
Equity
C’s Capital	72,900
Total Liabilities and Equity	72,900

Table (3)

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.

Prepare statement of cash flows for year ended December 31^st, Year 1 of C’s sole proprietorship.

C’s sole proprietorship
Cash Flow Statement
For the year ended  December 31, Year 1
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Receipts from Revenues	35,000
Paid for Expenses	(18,100)
Net Cash Flow from Operating Activities		16,900
Cash Flows From Investing Activities		0
Cash Flows From Financing Activities:
Proceeds from owners	60,000
Paid for Owner’s Withdrawals	(4,000)
Net Cash Flow from Financing Activities		56,000
Net Change in Cash		72,900
Add: Beginning Cash Balance		0
Ending Cash Balance		72,900

Table (4)

b)

To determine

Prepare a Year 1 income statement, capital statement, balance sheet, and statement of cash flows for a partnership C.

Explanation of Solution

Calculate the capital contributions and determine the adjustments to the capital account.

Particulars	Amount ($)	Percentage (%)
Capital contributions:
CC’s contribution	24,000	40%
JC’s contribution	36,000	60%
Total capital contribution	60,000	100%
Adjustments to capital account
Revenues (add to capital)	35,000
Expenses (deduct from capital)	18,100
Withdrawals:
CC (deduct from capital)	1,600
BC (deduct from capital)	2,400

Table (5)

Income statement:

It is one of the financial statements which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the income statement of a partnership C for the year ended December 31, Year 1.

Partnership C
Income statement
for the year ended December 31, Year 1
Particulars	Amount ($)
Revenues	35,000
Less: Expenses	(18,100)
Net income	16,900

Table (6)

Statement of owner's’ equity:

This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Prepare the capital account of Partnership C for the year ended December 31, Year 1.

Partnership C
Capital statement
for the year ended December 31, Year 1
Particulars	Amount ($)
Beginning Capital Balance	0
Add: initial Capital  from partners	60,000
Add: Net Income	16,900
Less: Withdrawal by partners	(4,000)
Ending Capital Balance	72,900

Table (7)

Balance sheet:

Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the balance sheet of Partnership C as on December 31^st, year 1.

Partnership C
Balance sheet
as on December 31, Year 1
Particulars	Amount ($)
Assets
Cash	72,900
Total assets	72,900
Liabilities and Equity
Liabilities	0
Equity
CC’s Capital (1)	29,160
BC’s Capital (1)	43,740
Total Liabilities and Equity	72,900

Table (8)

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.

Prepare statement of cash flows for year ended December 31^st, Year 1 of Partnership C.

Partnership C
Cash Flow Statement
For the year ended  December 31, Year 1
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Receipts from Revenues	35,000
Paid for Expenses	(18,100)
Net Cash Flow from Operating Activities		16,900
Cash Flows From Investing Activities		0
Cash Flows From Financing Activities:
Proceeds from Partners	60,000
Paid for partners’ Withdrawals	(4,000)
Net Cash Flow from Financing Activities		54,000
Net Change in Cash		72,900
Add: Beginning Cash Balance		0
Ending Cash Balance		72,900

Table (9)

Working note:

Calculate the ending balance of capital for each partner.

Particulars	CC	BC	Total
Beginning Capital Balance	$0	$0	$0
Investments	24,000	36,000	60,000
Add: Net Income			16,900
CC 40%	6,760
BC 60%		10,140
Less: Withdrawals	(1,600)	(2,400)	(4,000)
Ending Capital Balances	$29,160	$43,740	$72,900

…… (1)

Table (10)

c)

To determine

Prepare a Year 1 income statement, statement of changes in stockholders equity, balance sheet, and statement of cash flows for Corporation C.

Explanation of Solution

Income statement:

It is one of the financial statements which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare the income statement of Corporation C for the year ended December 31, Year 1.

Corporation C
Income statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Revenues	35,000
Less: Expenses	(18,100)
Net income	16,900

Table (11)

Statement of owner's’ equity:

This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.

Prepare the capital account of Corporation C for the year ended December 31, Year 1.

Corporation C
Statement of changes in stockholders’ equity
For the year ended December 31, Year 1
Particulars	Amount ($)
Beginning Capital Balance	0
Add: issuance of common stock	60,000
Ending common stock	60,000
Beginning retained earnings	$0
Add: Net Income	16,900
Less: Dividends	(4,000)
Ending retained earnings	$12,900
Total stockholders’ equity	72,900

Table (12)

Balance sheet:

Balance Sheet is one of the financial statements which summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the balance sheet of Corporation C as on December 31^st, year 1.

Corporation C
Balance sheet
As on December 31, Year 1
Particulars	Amount ($)
Assets
Cash	72,900
Total assets	72,900
Liabilities and Equity
Liabilities	0
Equity
Common stock, $5 par value, 5000 shares issued and outstanding	25,000
Paid-in capital in excess and outstanding	35,000
Total paid in capital	60,000
Retained earnings	12,900
Total Liabilities and Equity	72,900

Table (13)

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.

Prepare statement of cash flows for year ended December 31^st, Year 1 of Corporation C.

Corporation C
Cash Flow Statement
For the year ended  December 31, Year 1
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Receipts from Revenues	35,000
Paid for Expenses	(18,100)
Net Cash Flow from Operating Activities		16,900
Cash Flows From Investing Activities		0
Cash Flows From Financing Activities:
Proceeds from issue of stock	60,000
Paid for Dividends	(4,000)
Net Cash Flow from Financing Activities		54,000
Net Change in Cash		72,900
Add: Beginning Cash Balance		0
Ending Cash Balance		72,900

Table (14)