Chapter 2, Problem 2.5P

Missing amounts from Financial statements
The financial statements at the end of Network Realty, Inc.’s first month of operations are shown below. 11y analyzing the interrelationships among the financial statements, fill in the proper amounts for (a) through (s).

To determine

Concept Introduction:

Income statement is a part of financial statements of a company which provides a true and fair view of the working of the company's earnings and growth. It gives the net income or profit after adjustments of all expenses.

The statement of stockholder's equity belongs to balance sheet. It is a statement about owner's equity, i.e., contribution made by the owner in the business which shows the changes in the holder's equity after giving the effect of retained earnings and dividend on the contribution of the owner.

Balance sheet is a part of financial statements of a company which provides an overall view of assets and liabilities along with equity of the company. This statement is prepared on a specified date containing all the ending balances of the financial accounts in regard to assets, liabilities, and equity.

To Find out:

The missing amounts in income statement, statement of stockholder's equity, balance sheet, and cash flow statement for the month ended $\text{December,}2014$.

Answer to Problem 2.5P

Total Revenue (Fees earned) is $\$1,25,000$

Utility Expenseis $\$10,620$

Net Income is $\$57,500$

Beginning Balance of Retained Earnings is $\$0$

Dividend Paid to Stockholders is $\$12,000$

Balance of Retained Earning at the end of the month is $\$45,500$

Balance of Stockholder's equity fund

at the end of the month is $\$1,20,500$

Cash Balance at the end of the month is $\$50,500$

Balance of common stock at the end of the month is $\$75,000$

Balance of Retained Earning at the end of the month is $\$45,500$

Balance of Total Stockholder's Equity the end of the month is $\$1,20,500$

Total Liabilities and Stockholder's Equity is $\$2,25,500$

Net Cash Flows from Operating Expenses is $\$57,500$

Cash Received from issuing notes payable is $\$1,05,000$

Net Cash Flows from financing activities is $\$1,68,000$

Explanation of Solution

Network Reality, Inc

Income Statement

for the month endedDecember, $2014$

Particulars	$\left(\$\right)$	Amount   $\left(\$\right)$
Revenues
Fees Earned	$1,25,000$
Total Revenue		$1,25,000$
Less: Expenses
Wages Expenses	$33,120$
Rent Expense	$18,000$
Utility Expense	$10,620$
Interest Expense	$1,800$
Miscellaneous Expense	$3,960$
Total Operating Expenses		$\left(67,500\right)$
Net Income		$57,500$

(c) Net Income was given in the Statement of the Stockholder's Equity for the month of December, $2014$ which is $\$57,500$.

  $\begin{array}{c}\left(\text{a}\right)\text{ Total Revenue}=\text{Net Income + Total Operating Expense}\\ =\$57,500+\$67,500\\ =\$1,25,000\end{array}$

  $\begin{array}{c}\left(\text{b}\right)\text{ Utility Expense = Total Operating Expenses – All Other Expenses}\\ =\$67,500-\$(33,120+18,000+1,800+3,960)\\ =\$67,500-\$56,880\\ =\$10,620\end{array}$

(d) Balance of Retained Earnings on beginning of the month is $\$0$ because Total Balance is $\$0$.

(e) Dividend Paid to Stockholders is $\$12,000$ as per Cash Flow Statement.

Network Reality, Inc

Statement of Stockholder's Equity

for the month endedDecember, $2014$

Particulars	Common Stock	Retained Earnings	Total
Balance on 1 Dec 2014	$\$0$	$\$0$	$\$0$
Issued Common Stock	$\$75,000$	$\$0$	$\$75,000$
Net Income	$\$0$	$\$57,500$	$\$57,500$
Dividends	$\$0$	$\$12,000$	$\$12,000$
The balance on 1 Dec 2014	$\$75,000$	$\left(\text{f}\right)\$45,500$	$\left(\text{g}\right)\$1,20,500$

Network Reality, Inc

Balance Sheet

for the month endedDecember, $2014$

ASSETS	AMOUNT   $\left(\$\right)$	AMOUNT   $\left(\$\right)$
Cash		$50,500$
Land		$1,75,000$
Total Assets		$2,25,000$
LIABILITIES
Notes Payable		$1,05,000$
Stakeholder's Equity
Common Stock	$\left(\text{i}\right)75,000$
Retained Earnings	$\left(\text{j}\right)45,500$	$\left(\text{k}\right)\text{ \$1,20,500}$
Total Liabilities		$2,25,000$

Cash Balance will be balancing figure of Total Assets and Land.

  $\begin{array}{c}\left(\text{h}\right)\text{ Cash}=\$2,25,500-\$1,75,000\\ =\$50,500\end{array}$

Balance of Retained Earnings and Common stock will be taken from Statement of Stakeholder's Equity Statement.

Network Reality, Inc

Cash Flow Statement

for the month endedDecember, $2014$

Particulars		Amount   $\left(\$\right)$
Cash flow from operating activity
Cash received from customers	$1,25,000$
Cash Paid for Expenses	$\left(67,500\right)$
Net Cash Flows from Operating Activity		$\left(\text{m}\right)57,500$
Cash flow from Investment activity
Cash paid for purchase of Land		$\left(1,75,000\right)$
Cash Flows From financing activity
Cash received from issuing	$75,000$
Cash received from issuing notes payable	$\left(\text{n}\right)1,05,000$
Cash Dividend Paid to Stakeholder's	$\left(12,000\right)$
Net cash flows from Financing Activities		$\left(\text{o}\right)1,68,000$
Net Increase in Cash		$\left(\text{p}\right)50,500$
December 01, 2014, cash balance		$\left(\text{q}\right)0$
December 31, 2014, cash balance		$\left(\text{r}\right)50,500$

Cash Balance at the beginning of the month of December is $\$0$ because Stockholder's Equity Statement balance is NIL at the beginning of the month.

Cash Received from issuing notes payable was issued in this current month taken from the balance sheet. $$