Chapter 2, Problem 5PB

The financial statements for Baker Custom Catering for the month of April are presented below.

Required

Solve for the missing information.

To determine

Solve the missing information.

Answer to Problem 5PB

(a) For the year ended April 30.

(b) $2,440.

(c) Company B

(d) For the year ended April 30

(e) 5,000.

(f) 9,560.

(g) 13,560.

(h) For the year ended April 30.

(i) 14,800.

(j) 13,560.

(k) 14,800.

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 April 30) is missing in the income statement.

Company B

Income Statement

(a) For the year ended April 30

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 B
Income Statement
(a) For the year ended April 30
Particulars	Amount ($)	Amount ($)
Revenue:
Professional Fees		12,000
Expenses:
Salary Expense	800
Rent Expense	1,200
Utilities Expense	360
Miscellaneous Expense	80
Total Expenses		(b) 2,440
Net income		9,560

Table (2)

Therefore, the amount of total expenses is (b) $2,440.

Missing information (c):

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

(c) Company B

Statement of Owners' equity

(d) For the year ended April 30

Table (3)

Missing information (d):

In this case, information regarding “Period of time” (For the year ended April 30) is missing in the statement of owners’ equity.

(c) Company B

Statement of Owners' equity

(d) For the year ended April 30

Table (4)

Missing information (e):

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

(c) Company B
Statement of Owners' equity
(d) For the year ended April 30
Particulars	Amount($)	Amount($)
Person Capital, April 1
Investments during April (1)	(e) 5,000
Net income for April	(f) 9,560
Subtotal		14,560

Table (5)

Therefore, the amount of investments during April are (e) $5,000.

Working note:

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

$\begin{array}{c}\text{Investments}\text{during}\text{April}\text{=}\text{Subtotal}-\text{(f)Net}\text{income}\text{for}\text{April}\\ \text{=}\text{\$14,560}-\text{\$9,560}\\ \text{=\$5,000}\end{array}$

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 (f) $9,560. 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.

(c) Company B
Statement of Owners' equity
(d) For the year ended April 30
Particulars	Amount($)	Amount($)
Person Capital, April 1
Investments during April (1)	(e) 5,000
Net income for April	(f) 9,560
Subtotal		14,560

Table (6)

Missing information (g):

In this case, the amount of increase in capital is (g) $13,560 and it is same as the Ending capital of Person L as on April 30, 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 B
Statement of Owners' equity
(d) For the year ended April 30
Particulars	Amount($)	Amount($)
Person Capital, April 1
Investments during April	(e) 5,000
Net income for April	(f) 9,560
Subtotal	14,560
Less: Withdrawals for April	1,000
Increase in capital		(g) 13,560
Person L, Capital, April 30		13,560

Table (7)

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 (h):

In this case, information regarding “Period of time” (For the year ended April 30) is missing in the balance sheet.

Company B

Balance Sheet

(h) For the year ended April 30

Table (8)

Missing information (i):

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

Company B
Balance Sheet
(h) For the year ended April 30
Assets	Amount ($)	Amount ($)
Cash	8,000
Accounts receivable	800
office Equipment	4,000
Office Furniture	2,000
Total Assets		(i) 14,800

Table (9)

Therefore, the amount of total asset is (i) 14,800.

Missing information (j):

In this case, the amount of Person L, Capital is (j) $13,560 and it is the same as the amount of ending capital of Person L that is calculated in the statement of owners’ equity.

Company B
Balance Sheet
(h) For the year ended April 30
Assets	Amount ($)	Amount ($)
Cash	8,000
Accounts receivable	800
office Equipment	4,000
Office Furniture	2,000
Total Assets		(i) 14,800
Liabilities
Accounts Payable		1,240
Owners' Equity
Person L, Capital		(j) 13,560

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 ($14,800) and it is calculated as follows:

Company B
Balance Sheet
(h) For the year ended April 30
Assets	Amount ($)	Amount ($)
Cash	8,000
Accounts receivable	800
office Equipment	4,000
Office Furniture	2,000
Total Assets		(i) 14,800
Liabilities
Accounts Payable		1,240
Owners' Equity
Person L, Capital		(j) 13,560
Total liabilities and owners’ equity (2)		(k)14,800

Table (11)

Working note:

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

$\begin{array}{c}\begin{array}{l}\text{Total}\text{liabilities}\text{and}\\ \text{owners'}\text{equity}\end{array}\}\text{=}\text{Accounts}\text{payable}\text{+}\text{Person}\text{L,capital}\\ \text{=}\text{\$1,240+\$13,560}\\ \text{=}\text{\$14,800}\end{array}$