Chapter 11, Problem 22BP

a)

To determine

Prepare a Year 1 income statement, capital statement, balance sheet, and statement of cash flows for a Company B owned by Person JS.

Explanation of Solution

Income statement:

It is one of the financial statements that 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 Company B the year ended December 31, Year 1.

Company B
Income statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Revenues	80,000
Less: Expenses	(56,000)
Net income	24,000

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 Company B for the year ended December 31, Year 1.

Company B
Capital statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Beginning Capital Balance	0
Add: initial Capital  from owner	120,000
Add: Net Income	24,000
Less: Withdrawal by person C	(5,000)
Ending Capital Balance	139,000

Table (2)

Balance sheet:

Balance Sheet is one of the financial statements that 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 Company B as on December 31^st, year 1.

Company B
Balance sheet
As on December 31, Year 1
Particulars	Amount ($)
Assets
Cash	139,000
Total assets	139,000
Liabilities and Equity
Liabilities	0
Equity
JS’s Capital	139,000
Total Liabilities and Equity	139,000

Table (3)

Statement of cash flows:

This statement reports all the cash transactions that 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 Company B.

Company B
Cash Flow Statement
For the year ended  December 31, Year 1
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Receipts from Revenues	80,000
Paid for Expenses	(56,000)
Net Cash Flow from Operating Activities		24,000
Cash Flows From Investing Activities		0
Cash Flows From Financing Activities:
Proceeds from owners	120,000
Paid for Owner’s Withdrawals	(5,000)
Net Cash Flow from Financing Activities		115,000
Net Change in Cash		139,000
Add: Beginning Cash Balance		0
Ending Cash Balance		139,000

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:
BS’s contribution	72,000	60%
JS’s contribution	48,000	40%
Total capital contribution	120,000	100%
Adjustments to capital account
Revenues (add to capital)	80,000
Expenses (deduct from capital)	56,000
Withdrawals:
BS (deduct from capital)	3,500
JS (deduct from capital)	1,500

Table (5)

Income statement:

It is one of the financial statements that 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 B for the year ended December 31, Year 1.

Partnership B
Income statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Revenues	80,000
Less: Expenses	(56,000)
Net income	24,000

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 B for the year ended December 31, Year 1.

Partnership B
Capital statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Beginning Capital Balance	0
Add: initial Capital  from partners	120,000
Add: Net Income	24,000
Less: Withdrawal by partners	(5,000)
Ending Capital Balance	139,000

Table (7)

Balance sheet:

Balance Sheet is one of the financial statements that 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 B as on December 31^st, year 1.

Partnership B
Balance sheet
As on December 31, Year 1
Particulars	Amount ($)
Assets
Cash	139,000
Total assets	139,000
Liabilities and Equity
Liabilities	0
Equity
BS’s Capital (1)	78,100
JS’s Capital (1)	60,900
Total Liabilities and Equity	139,000

Table (8)

Statement of cash flows:

This statement reports all the cash transactions that 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 B.

Partnership B
Cash Flow Statement
For the year ended  December 31, Year 1
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Receipts from Revenues	80,000
Paid for Expenses	(56,000)
Net Cash Flow from Operating Activities		24,000
Cash Flows From Investing Activities		0
Cash Flows From Financing Activities:
Proceeds from Partners	120,000
Paid for partners’ Withdrawals	(5,000)
Net Cash Flow from Financing Activities		115,000
Net Change in Cash		139,000
Add: Beginning Cash Balance		0
Ending Cash Balance		139,000

Table (9)

Working note:

Calculate the ending balance of capital for each partner.

Particulars	BS	JS	Total
Beginning Capital Balance	$0	$0	$0
Investments	72,000	48,000	120,000
Add: Net Income			24,000
BS 40%	9,600
JS 60%		14,400
Less: Withdrawals	(3,500)	(1,500)	(5,000)
Ending Capital Balances	$78,100	$60,900	$139,000

…… (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 Company B.

Explanation of Solution

Income statement:

It is one of the financial statements that 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 Company B for the year ended December 31, Year 1.

Company B
Income statement
For the year ended December 31, Year 1
Particulars	Amount ($)
Revenues	80,000
Less: Expenses	(56,000)
Net income	24,000

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 Company B for the year ended December 31, Year 1.

Company B
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	120,000
Ending common stock	120,000
Beginning retained earnings	$0
Add: Net Income	24,000
Less: Dividends	(5,000)
Ending retained earnings	$19,000
Total stockholders’ equity	139,000

Table (12)

Balance sheet:

Balance Sheet is one of the financial statements that 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 Company B as on December 31^st, year 1.

Company B
Balance sheet
As on December 31, Year 1
Particulars	Amount ($)
Assets
Cash	139,000
Total assets	139,000
Liabilities and Equity
Liabilities	0
Equity
Common stock, $10 par value, 10,000 shares issued and outstanding	100,000
Paid-in capital in excess and outstanding	20,000
Total paid in capital	120,000
Retained earnings	19,000
Total Liabilities and Equity	139,000

Table (13)

Statement of cash flows:

This statement reports all the cash transactions that 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.

Company B
Cash Flow Statement
For the year ended  December 31, Year 1
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Receipts from Revenues	80,000
Paid for Expenses	(56,000)
Net Cash Flow from Operating Activities		24,000
Cash Flows From Investing Activities		0
Cash Flows From Financing Activities:
Proceeds from issue of stock	120,000
Paid for Dividends	(5,000)
Net Cash Flow from Financing Activities		115,000
Net Change in Cash		139,000
Add: Beginning Cash Balance		0
Ending Cash Balance		139,000

Table (14)