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Concept explainers
Concept Introduction:
Income Statement: The financial statement concerned with computation net income during an accounting period is called income statement. Net income is the excess amount of revenue over the expenses of a company and when the expenses are more than the revenue is termed as net loss.
Statement of Owner's Equity: It is a financial statement which shows the portion of owner's fund in the total capital of a company.
Classified
Requirement 1:
To Prepare:
Income statement, statement of owner's equity and the classified balance sheet for the year ended December 31, 2019.
![Check Mark](/static/check-mark.png)
Answer to Problem 4BPSB
Particulars | Amount |
Net Income | $4,300 |
Statement of Owner's Equity | $117,700 |
Balance Sheet Total | $218,100 |
Explanation of Solution
ANARA CO.Income Statement
December 31, 2019 | ||
Revenue: | ||
Professional Fees Earned | $59,600 | |
Rent Earned | 4,500 | |
Dividends Earned | 1,000 | |
Interest Earned | 1,320 | |
Total Revenue | $66,420 | |
Expenses: | ||
2,000 | ||
Depreciation expense − Equipment | 1,000 | |
Wages expense | 18,500 | |
Interest expense | 1,550 | |
Insurance expense | 1,525 | |
Rent expense | 3,600 | |
Supplies expense | 1,000 | |
Postage expense | 410 | |
Property taxes expense | 4,825 | |
Repairs expense | 679 | |
Telephone expense | 521 | |
Utilities expense | 1,920 | |
Total Expense | $37,530 | |
Net Income | $28,890 |
ANARA CO.Statement of Owner's Equity
December 31, 2019 | |
P. Anara, Capital; December 31, 2018 | $92,800 |
Add:Net Income | 28, 890 |
Subtotal | 121,690 |
Less: P. Anara, Withdrawals | 8,000 |
P. Anara, Capital; December 31, 2019 | $113,690 |
ANARA CO.Balance Sheet
December 31, 2019 | ||
Assets | ||
Current Assets: | ||
Cash | $7,400 | |
Short-Term Investment | 11,200 | |
Supplies | 4,600 | |
Prepaid Insurance | 1,000 | |
Total Current Assets | $24,200 | |
Property, Plant and Equipment | ||
Equipment24,000 | ||
Less: Accumulated Depreciation4,000 | 20,000 | |
Building100,000 | ||
Less: Accumulated Depreciation10,000 | 90,000 | |
Land | 30,500 | |
Total Property, Plant and Equipment | 140,500 | |
Total Assets | $164,700 | |
Liabilities and Owner's Equity | ||
Liabilities | ||
Current Liabilities: | ||
Accounts Payable | 3,500 | |
Interest Payable | 1,750 | |
Rent Payable | 400 | |
Wages Payable | 1,280 | |
Property taxes payable | 3,330 | |
Unearned Professional Fees | 750 | |
Current Portion of Long-Term Note Payable | 8,400 | |
Total Current Liabilities | $19,410 | |
Long-Term Liabilities | ||
Long-term notes payable | 31,600 | |
Total Long-Term Liabilities | 31,600 | |
Total Liabilities | 51,010 | |
Owner's Equity | ||
P. Anara, Capital; December 31, 2019 | 113,690 | |
Total Liabilities and Owner's Equity | $164,700 |
Concept Introduction:
Closing Entries:
The
Requirement 2:
Journalize the closing entries at December 31, 2019.
![Check Mark](/static/check-mark.png)
Answer to Problem 4BPSB
Account Title | Balance |
Cash | $7,400 |
Short-Term Investment | 11,200 |
Supplies | 4,600 |
Prepaid Insurance | 1,000 |
Equipment | 24,000 |
4,000 | |
Building | 100,000 |
Accumulated Depreciation − Building | 10,000 |
Land | 30,500 |
Accounts Payable | 3,500 |
Interest Payable | 1,750 |
Rent Payable | 400 |
Wages Payable | 1,280 |
Property taxes payable | 3,330 |
Unearned Professional Fees | 750 |
Current Portion of Long-Term Note Payable | 8,400 |
Long-term notes payable | 31,600 |
P. Anara, Capital | 113,690 |
P. Anara, Withdrawals | 0 |
Professional Fees Earned | 0 |
Rent Earned | 0 |
Dividends Earned | 0 |
Interest Earned | 0 |
Depreciation expense − Building | 0 |
Depreciation expense − Equipment | 0 |
Wages expense | 0 |
Interest expense | 0 |
Insurance expense | 0 |
Rent expense | 0 |
Supplies expense | 0 |
Postage expense | 0 |
Property taxes expense | 0 |
Repairs expense | 0 |
Telephone expense | 0 |
Utilities expense | 0 |
Explanation of Solution
Date | Particulars | Debit | Credit |
2019 | |||
Dec. 31 | |||
A. | Professional Fees Earned | $59,600 | |
Rent Earned | 4,500 | ||
Dividends Earned | 1,000 | ||
Interest Earned | 1,320 | ||
Income Summary | $66,420 | ||
B. | Income Summary | $37,530 | |
Depreciation expense − Building | 2,000 | ||
Depreciation expense − Equipment | 1,000 | ||
Wages expense | 18,500 | ||
Interest expense | 1,550 | ||
Insurance expense | 1,525 | ||
Rent expense | 3,600 | ||
Supplies expense | 1,000 | ||
Postage expense | 410 | ||
Property taxes expense | 4,825 | ||
Repairs expense | 679 | ||
Telephone expense | 521 | ||
Utilities expense | 1,920 | ||
C. | Income Summary | 28, 890 | |
P. Anara, Capital | 28, 890 | ||
D. | P. Anara, Capital | 8,000 | |
P. Anara, Withdrawals | 8,000 | ||
Concept Introduction:
Return on Asset:
Return on asset is a financial ratio which measures the amount of returns generated by the assets of the company.
Debt Ratio:
Debt ratio determines the proportion of the total assets financed by debt funds. It is key ratio in measuring the company's leverage.
Profit Margin Ratio:
It indicates the percentage of net income compared with total revenue earned during an accounting year.
The
Requirement 3:
Computation of (a) return on assets (b) debt ratio (c) profit margin ratio (d) current ratio
![Check Mark](/static/check-mark.png)
Answer to Problem 4BPSB
Ratios | |
Return on Assets | 17.79% |
Debt Ratio | 0.31 |
Profit Margin Ratio | 43.50% |
Current Ratio | 2.20 |
Explanation of Solution
(a) Return on Assets = Net Income / Average Total Assets
= $28, 890 / $162,350
= 17.79%
Average Total Assets = Beginning Total Assets + Ending Total Assets / 2
= $160,000 + $164,700 / 2
= $162,350
(b) Debt Ratio = Total Liabilities / Total Assets
= $51,010 / $164,700
= 0.31
(c) Profit Margin Ratio = Net Income / Total Revenues
= $28, 890 / $66,420
= 43.50%
(d) Current Ratio = Current Assets / Current Liabilities
= $24,200 / $11,010
= 2.20
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Chapter 4 Solutions
Connect Access Card For Fundamental Accounting Principles
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