Chapter 2, Problem 8AP

To determine

Calculate the unknown amounts indicated by letters.

Explanation of Solution

Financial statements:

Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.

(a)

Calculate the sales revenue:

$\begin{array}{c}\begin{array}{l}\text{Ending }\\ \text{stockholders’ equity}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Beginning stockholders’ equity + }\\ \text{Common stock during the year + }\\ \text{Sales revenue – Expenses – Dividends}\end{array}\right\}\\ \text{Sales revenue}=\left\{\begin{array}{l}\text{Ending stockholders’ equity}-\text{Beginning stockholders’ equity }-\\ \text{Common stock during the year + Expenses +Dividends}\end{array}\right\}\\ =\$12,700(1)-\$9,400\text{ (2)}-\$2,000+\$8,500+\$5,000\\ =\$14,800\end{array}$

Therefore, the value of sales revenue is $14,800.

Working notes:

Calculate the value of ending stockholder’s equity.

$\begin{array}{c}\text{Ending stockholder's equity = Ending assets- Ending liabilties}\\ \text{=\$30,000}-\$17,300\\ =\$12,700\end{array}$ (1)

Calculate the value of beginning stockholder’s equity.

$\begin{array}{c}\text{Beginning stockholder's equity = Beginning assets- Beginning liabilties}\\ \text{=\$28,000}-\$18,600\\ =\$9,400\end{array}$ (2)

(b)

Calculate the ending liability:

$\begin{array}{c}\begin{array}{l}\text{Ending }\\ \text{liabilities}\end{array}\}=\left\{\begin{array}{l}\text{Ending assets – }\\ \text{Stockholders' equity (4)}\end{array}\right\}\\ =\$26,000–\$17,000\\ =\$9,000\end{array}$

Therefore, the value of ending liability is $9,000.

Working notes:

Calculate the value of beginning stockholders equity.

$\begin{array}{c}\begin{array}{l}\text{Beginning }\\ \text{stockholders’ equity}\end{array}\}=\text{Beginning assets – Beginning liabilities}\\ =\$12,000–\$5,000\\ =\$7,000\end{array}$ (3)

Calculate the value of ending stockholders equity.

$\begin{array}{c}\begin{array}{l}\text{Ending }\\ \text{stockholders' equity}\end{array}\}=\left\{\begin{array}{l}\text{Beginning stockholders’ equity (3) + }\\ \text{Common stock + Sales revenue –}\\ \text{Expenses – Dividends}\end{array}\right\}\\ =\left(\begin{array}{l}\$7,000+\$4,500+\$28,000\\ –\$1,500–\$21,000\end{array}\right)\\ =\$17,000\end{array}$ (4)

(c)

Calculate the value of common stock.

$\begin{array}{c}\begin{array}{l}\text{Ending }\\ \text{stockholders’ equity}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Beginning stockholders’ equity + }\\ \text{Common stock during the year + }\\ \text{Sales revenue – Expenses – Dividends}\end{array}\right\}\\ \text{Common stock}=\left\{\begin{array}{l}\text{Ending stockholders’ equity (5)}-\text{Beginning stockholders’}\\ \text{ equity (6)}-\text{ Sales revenue + Expenses + Dividends}\end{array}\right\}\\ =\$19,000-\$9,000-\$18,000+\$11,000+\$1,000\\ =\$4,000\end{array}$

Therefore, the value of common stock is $4,000.

Working notes:

Calculate the value of ending stockholders equity.

$\begin{array}{c}\text{Ending stockholder's equity = Ending assets- Ending liabilties}\\ \text{=\$34,000}-\$15,000\\ =\$19,000\end{array}$ (5)

Calculate the value of beginning stockholders equity.

$\begin{array}{c}\text{Beginning stockholder's equity = Beginning assets- Beginning liabilties}\\ \text{=\$28,000}-\$19,000\\ =\$9,000\end{array}$ (6)

(d)

Calculate the value of beginning assets:

$\begin{array}{c}\text{Beginning assets}=\left\{\begin{array}{l}\text{Beginning liabilities + }\\ \text{Beginning stockholders' equity (8)}\end{array}\right\}\\ =\$9,000+\$17,000\\ =\$26,000\end{array}$

Therefore, the value of beginning assets is $26,000.

Working notes:

Calculate the value of ending stockholder’s equity.

$\begin{array}{c}\text{Ending stockholder's equity = Ending assets- Ending liabilties}\\ \text{=\$34,000}-\$15,000\\ =\$19,000\end{array}$ (7)

Calculate the value of beginning stockholders equity.

$\begin{array}{c}\begin{array}{l}\text{Beginning }\\ \text{stockholders' equity}\end{array}\}=\left\{\begin{array}{l}\text{Ending stockholders’ equity (7) }-\\ \text{Common stock }-\text{Sales revenue +}\\ \text{Expenses + Dividends}\end{array}\right\}\\ =\left(\$21,000-\$3,500-\$24,000+\$17,000+\$6,500\right)\\ =\$17,000\end{array}$ (8)