Chapter 2, Problem 2PSB

1.

To determine

Financial statement analysis:

Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. There are four financial statements that any company should produce to its users for analysis. These are income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The income statement of the company.

Explanation of Solution

Date	Particulars	Debit ($)	Credit ($)
a.	Cash Office equipment Computer equipment B.G., Capital (To record investment by owner in form of cash and office equipment.)	65,000 5,750 30,000	100,750
b.	Land Cash Notes payable (To record purchase of land by paying cash and issuing notes payable)	22,000	5,000 17,000
c.	Building Cash (To record purchase of building for cash.)	34,500	34,500
d.	Prepaid insurance Cash (To record payment made towards 2-year prepaid insurance.)	5,000	5,000
e.	Cash Fees Earned (To record cash received for services provided.)	4,600	4,600
f.	Computer equipment Cash Notes payable (To record purchase of computer equipment by paying cash and issuing notes payable)	4,500	800 3,700
g.	Accounts receivable Fees Earned (To record amount receivable for services provided.)	4,250	4,250
h.	Office equipment Accounts payable (To record purchase of office supplies on credit.)	950	950
i.	Accounts receivable Fees Earned (To record amount receivable for services provided.)	10,200	10,200
j.	Computer rental expense Accounts payable (To record computer rental expense incurred but is yet to be paid.)	580	580
k.	Cash Accounts receivable (To record partial payment received towards accounts receivable.)	5,100	5,100
l.	Wages expense Cash (To record cash paid towards wages expense.)	1,800	1,800
m.	Accounts payable Cash (To record payment pending towards accounts payable.)	950	950
n.	Repairs expense Cash (To record cash paid towards repairs expense.)	608	608
o.	B. G., Withdrawals Cash (To record cash withdrawal by owner.)	6,230	6,230
p.	Wages expense Cash (To record cash paid towards wages expense.)	1,800	1,800
q.	Advertising expense Cash (To record cash paid towards advertising expense.)	750	750

2.

To determine

Financial statement analysis:

Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. There are four financial statements that any company should produce to its users for analysis. These are income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The ledger accounts.

Explanation of Solution

           Cash (101)

S. No.	Particulars	Debit ($)	S. No.	Particulars	Credit ($)
a.	B.G., Capital	65,000	b.	Land	5,000
e.	Fees Earned	4,600	c.	Building	34,500
k.	Accounts receivable	5,100	D	Prepaid insurance	5,000
			f.	Computer equipment	800
			l.	Wages expense	1,800
			m.	Accounts payable	950
			n.	Repairs expense	608
			o.	B.G., Withdrawals	6,230
			p.	Wages expense	1,800
			q.	Advertising expense	750
				Balance c/d	17,262
		74,700			74,700

           Accounts receivable (106)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
g.	Fees Earned	4,250	k.	Cash	5,100
i.	Fees Earned	10,200		Balance c/d	9,350
		14,450			14,450

           Prepaid Insurance (108)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
d.	Cash	5,000		Balance c/d	5,000
		5,000			5,000

           Office equipment (163)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
a.	B.G., Capital	5,750		Balance c/d	6,700
h.	Accounts payable	950
		6,700			6,700

           Accounts payable (201)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
m.	Cash	950	j.	Computer rental expense	580
	Balance c/d	580	h.	Office equipment	950
		1,530			1,530

           B.G., Capital (301)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
30-Sep	Balance c/d	100,750	a.	Cash	65,000
			a.	Office equipment	5,750
			a.	Computer equipment	30,000
		100,750			100,750

           B.G., Withdrawals (302)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
o.	Cash	6,230		Balance c/d	6,230
		6,230			6,230

           Fees Earned (402)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
	Balance c/d	19,050	e.	Cash	4,600
			g.	Accounts receivable	4,250
			i.	Accounts receivable	10,200
		19,050			19,050

           Wages expense (601)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
l.	Cash	1,800		Balance c/d	3,600
p.	Cash	1,800
		3,600			3,600

           Advertising expense (603)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
q.	Cash	750		Balance c/d	750
		750			750

           Repairs expense (604)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
n.	Cash	608		Balance c/d	608
		608			608

           Notes payable (250)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
	Balance c/d	20,700	b.	Land	17,000
			f.	Computer equipment	3,700
		20,700			20,700

           Computer equipment (164)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
a.	B.G., Capital	30,000		Balance c/d	34,500
f.	Cash	800
f.	Notes payable	3,700
		34,500			34,500

           Land (172)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
b.	Cash	5,000		Balance c/d	22,000
b.	Notes payable	17,000
		22,000			22,000

           Computer rental expense (602)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
j.	Accounts payable	580		Balance c/d	580
		580			580

           Building (170)

S.No.	Particulars	Debit ($)	S.No.	Particulars	Credit ($)
c.	Cash	34,500		Balance c/d	34,500
		34,500			34,500

3.

To determine

Financial statement analysis:

Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. There are four financial statements that any company should produce to its users for analysis. These are income statement, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: The trial balance.

Explanation of Solution

Ledger No.	Particulars	Debit ($)	Credit ($)
101	Cash	17,262
106	Accounts receivable	9,350
108	Prepaid insurance	5,000
163	Office equipment	6,700
164	Computer equipment	34,500
170	Building	34,500
172	Land	22,000
201	Accounts payable		580
250	Notes payable		20,700
301	B.G., Capital		100,750
302	B.G., Withdrawals	6,230
402	Fees Earned		19,050
601	Wages expense	3,600
602	Computer rental expense	580
603	Advertising expense	750
604	Repairs expense	608
	Total	141,080	141,080