Chapter 2, Problem 2.22P

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 1:

We have toprepare a statement showing impact of each transaction on total assets, total liabilities and equity.

Answer to Problem 2.22P

Date	Particulars	Asset ($)	=	Liabilities($)	+	Equity($)
1 August 2016	Totals	700000		550,000		150,000
August 3	Borrowed $24000 in cash from the bank	24000		24000
	New totals	724,000		574,000		150,000
August 7	Bought merchandise inventory valued at $38000on account	38,000		38,000
	New totals	762000		612,000
August 10	Paid $14000 cash for operating expenses	(14000)				(14000)
	New totals	748,000		612000		136,000
August 14	Received $100000 in cash from sales of merchandise that had cost $66000	34000				34000
	New totals	782,000		612,000		170,000
August 17	Paid $28000owed on accounts payable	(28000)		(28000)
	New totals	754,000		584,000		170,000
August 21	Collected $34000 of accounts receivable	Nil		Nil		Nil
	New totals	754,000		584,000		170,000
August 24	Repaid $20000 to bank plus $400 interest	(20400)		(20000)		(400)
	New totals	733,600		564,000		169,600
August 29	Paid stacy Ann Kelly a cash dividend of $ 10000	(10000)				(10000)
	New Totals	723,600		564,000		159,600

Explanation of Solution

We have explained each item and its impact on assets, liability and equity. The total balance of total assets, liabilities and equity have been shown and impact of each transaction has been adjusted.

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 2:

We have todetermine the total amount of revenue and expenses, and net income during August month.

Answer to Problem 2.22P

Particulars	Amount
Total revenue	100,000
Total expenses	80,400
Net income	19,600

Explanation of Solution

Date	Nature	Amount
August 14	Revenue	100,000
Total revenue		100,000
August 14	Cost of goods sold	66,000
August 10	Operating expense	14000
August 24	Interest expense	400
Total expense		80,400
Net income		19,600

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 3:

We have todetermine the net changes in total assets, total liabilities and equity.

Answer to Problem 2.22P

Particulars	Asset	Liability	Equity
Net changes	23,600	14,000	9,600

Explanation of Solution

Calculation of net changes:

Particulars	Asset	Liability	Equity
Total amount at beginning	700,000	550,000	150,000
Total amount at closing	723,600	564,000	159,600
Net changes	23,600	14,000	9,600

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 4

We have to determine that which transactions have caused impact on statement of change in equity.

Answer to Problem 2.22P

The net income and dividend paid has caused to change in statement of change in equity.

Explanation of Solution

Particulars	Amount
Net income	19,600
Dividend income	(10,000)
Net changes in stockholder equity	9,600

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 5

We have toexplain that why the dividend income is not an expense and why interest is an expense item.

Answer to Problem 2.22P

Dividend paid is the distribution of profits and is the amount payable to shareholders as return on their invested amount whereas interest is an expense item and is reported as an expense in income statement because interest is paid to outsider and is a liability/ obligation for a corporation.

Explanation of Solution

Dividend paid are not an expense and not reported in income statement. Dividend paid is the distribution of profits and is the amount payable to shareholders as return on their invested amount whereas interest is an expense item and is reported as an expense in income statement because interest is paid to outsider and is a liability/ obligation for a corporation. Dividend is an attribution of profits to its owners whereas interest is an obligation and charge off against revenue earned as an expense.

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 6

We have to explain that why net income has not increased due to increase in borrowings.

Answer to Problem 2.22P

The money borrowed will increase the asset and liability side and it will not impact the income statement because the entity has to repay the debt obligations on its maturity. The net impact of inflows and outflows will be nil.

Explanation of Solution

The money borrowed will not be reflected in income statement because due to borrowings on one side the assets will be increased due to receipt of cash amount and on other side liability will be increased because money borrowed is obligation for a corporation not an expense which the corporation has to repay on maturity.

To determine

Concept Introduction:

Financial statements are the statements which shows the financial performance and financial position of an entity. Financial statements include balance sheet, statement of profit and loss, statement of change in equity, statement of other comprehensive income and notes to financial statements.

Requirement 7

We have to explain that why net income will not impact due to payment to accounts payables and collection from customers.

Answer to Problem 2.22P

There will be nil impact because the accounts receivable collection and accounts payable will impact only change in assets and liabilities.

Explanation of Solution

Paying off amount to payables and amount collected from customers will not impact income statement because both are reflecting changes in assets or liabilities. The corporation has already booked expense against the accounts payables and income against sale to customers. Now on collection and payment, only there will be change or movement in assets and liabilities only.