Chapter 2, Problem 5PA

The financial statements for Daniels’ Custom Haircuts for the month of October follow.

Required

Solve for the missing information.

To determine

Solve the missing information.

Answer to Problem 5PA

(a) For the year ended October 31

(b) 5,250.

(c) Company D.

(d) For the year ended October 31.

(e) 10,000.

 (f) 19,750.

(g) 25,750.

(h) For the year ended October 31.

(i) 36,400.

(j) 25,750.

(k)36,400.

Explanation of Solution

Financial statement:

Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making. The financial statements reports, and shows the financial status of the business. The financial statements consist of the balance sheet, income statement, statement of retained earnings, and the cash flow statement.

Missing information (a):

In this case, information regarding “Period of time” (For the year ended October 31) is missing in the income statement.

Company D

Income Statement

(a) For the year ended October 31

Table (1)

Missing information (b):

The amount of total expense is missing in the income statement and it is calculated by adding all expenses:

Company D
Income Statement
(a) For the year ended October 31
Particulars	Amount ($)	Amount ($)
Revenue:
Professional Fees		25,000
Expenses:
Salary Expense	1,200
Rent Expense	3,000
Utilities Expense	600
Miscellaneous Expense	450
Total Expenses		(b)5,250
Net income		19,750

Table (2)

Therefore, the amount of total expenses is (b) 5,250.

Missing information (c):

In this case, “Name of the Company “(Company D) is missing in the statement of owners’ equity.

(c) Company D

Statement of Owners' equity

(d) For the year ended October 31

Table (3)

Missing information (d):

In this case, information regarding “Period of time” (For the year ended October 31) is missing in the statement of owners’ equity.

(c) Company D

Statement of Owners' equity

(d) For the year ended October 31

Table (4)

Missing information (e):

In this case, the amount of investments made during the month of October is missing and it is calculated as follows:

(c) Company D
Statement of Owners' equity
(d) For the year ended October 31
Particulars	Amount($)	Amount($)
Person Capital, October 1
Investments during October (1)	(e) 10,000
Net income for October	(f) 19,750
Subtotal		29,750

Table (5)

Therefore, the amount of investments during October is (e) $10,000.

Working note:

(1) Calculate the amount of investment made during October:

$\begin{array}{c}\text{Investments}\text{during}\text{April}\text{=}\text{Subtotal}-\text{(f)Net}\text{income}\text{for}\text{October}\\ \text{=}\text{\$29,750}-\text{\$19,750}\\ \text{=\$10,000}\end{array}$

Missing information (f):

In this case, the net income mentioned in the income statement is recorded in the statement of owners’ equity. Therefore, amount of net income is $19,750.

(c) Company D
Statement of Owners' equity
(d) For the year ended October 31
Particulars	Amount($)	Amount($)
Person Capital, October 1
Investments during October (1)	(e) 10,000
Net income for October	(f) 19,750
Subtotal		29,750

Table (6)

Note:

The net income or net loss computed in the income statement is reported in the statement of owners’ equity for ascertaining the amount of ending capital balance. Then, the balance of ending capital is reported in the balance sheet (owners’ equity section). Therefore, any transaction affecting the income statement eventually, affects the balance sheet through the balance of owners’ equity.

Missing information (g):

In this case, the amount of increase in capital is (g) $25,750 and it is same as the Ending capital of Person Q as on October 31, since the amount of beginning capital is given as zero. Suppose, If the amount of beginning capital is given, then the increase in capital is computed by deducting the ending capital from the beginning capital.

(c ) Company D
Statement of Owners' equity
(d) For the year ended October 31
Particulars	Amount($)	Amount($)
Person Capital, October 1
Investments during October	(e) 10,000
Net income for October	(f) 19,750
Subtotal	29,750
Less: Withdrawals for October	4,000
Increase in capital		(g)25,750
Person Q, Capital, October 31		25,750

Table (7)

Missing information (h):

In this case, information regarding “Period of time” (For the year ended October 31) is missing in the balance sheet.

Company D

Balance Sheet

(h) For the year ended October 31

Table (8)

Missing information (i):

In this case, the amount of total assets is missing and it is calculated as follows;

Company D
Balance Sheet
(h) For the year ended October 31
Assets	Amount ($)	Amount ($)
Cash	16,000
Accounts receivable	2,400
office Equipment	10,000
Office Furniture	8,000
Total Assets		(i) 36,400

Table (9)

Therefore, the amount of total assets is (i) 36,400.

Missing information (j):

In this case, the amount of Person Q, Capital is (j) $25,750 and it is the same as the amount of ending capital of Person Q that is calculated in the statement of owners’ equity.

Company D
Balance Sheet
(h) For the year ended October 31
Assets	Amount ($)	Amount ($)
Cash	16,000
Accounts receivable	2,400
office Equipment	10,000
Office Furniture	8,000
Total Assets		(i) 36,400
Liabilities
Accounts Payable		10,650
Owners' Equity
Person Q, Capital		(j) 25,750

Table (10)

Note:

The net income or net loss computed in the income statement is reported in the statement of owners’ equity for ascertaining the amount of ending capital balance. Then, the balance of ending capital is reported in the balance sheet (owners’ equity section). Therefore, any transaction affecting the income statement eventually, affects the balance sheet through the balance of owners’ equity.

Missing information (k):

In this case, the amount of total liabilities and owners’ equity is same as the amount of total assets ($36,400) and it is calculated as follows:

Company D
Balance Sheet
(h) For the year ended October 31
Assets	Amount ($)	Amount ($)
Cash	16,000
Accounts receivable	2,400
office Equipment	10,000
Office Furniture	8,000
Total Assets		(i) 36,400
Liabilities
Accounts Payable		10,650
Owners' Equity
Person Q, Capital		(j) 25,750
Total liabilities and owners’ equity (2)		(k)36,400

Table (11)

Therefore, the total amount of liabilities and owners’ equity is (k) $36,400.

Working note:

(2) Calculate the amount of total liabilities and owners’ equity:

$\begin{array}{c}\begin{array}{l}\text{Total}\text{liabilities}\text{and}\\ \text{owners'}\text{equity}\end{array}\}\text{=}\text{Accounts}\text{payable}\text{+}\text{Person}\text{Q,capital}\\ \text{=}\text{\$10,650+\$25,750}\\ \text{=}\text{\$36,400}\end{array}$