
Concept explainers
a)
Prepare a 2014 income statement, capital statement,
a)

Explanation of Solution
Income statement: It is one of the financial statements that reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare the income statement of forCompany AS the year ended December 31, 2014.
Company AS | |
Income statement | |
Forthe year ended December 31, 2014 | |
Particulars | Amount ($) |
Revenues | 80,000 |
Less: Expenses | (56,000) |
Net income | $24,000 |
Table (1)
Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare the capital account of Company AS for the year ended December 31, 2014.
Company AS | |
Capital statement | |
Forthe year ended December 31, 2014 | |
Particulars | Amount ($) |
Beginning Capital Balance | 0 |
Add: Initial Capital from owner | 120,000 |
Add: Net Income | 24,000 |
Less: Withdrawal by owner | (5,000) |
Ending Capital Balance | 139,000 |
Table (2)
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the balance sheet of Company AS as on December 31st, 2014.
Company AS | |
Balance sheet | |
Ason December 31, 2014 | |
Particulars | Amount ($) |
Assets | |
Cash | 139,000 |
Total assets | 139,000 |
Liabilities and Equity | |
Liabilities | 0 |
Equity | |
BB’s Capital | 139,000 |
Total Liabilities and Equity | 139,000 |
Table (3)
StatementCash flows: Statement of cash flows is a statement showing the source and application of cash between two balance sheet dates. It shows how the cash is sourced and used for the company’s operating, investing, and financing activities.
Prepare statement of cash flows for year ended December 31st, 2014 of Company AS.
Company AS | ||
Cash Flow Statement | ||
For the year ended December 31, 2014 | ||
Particulars | Amount ($) | Amount ($) |
Cash Flows From Operating Activities: | ||
Receipts from Revenues | 80,000 | |
Paid for Expenses | (56,000) | |
Net Cash Flow from Operating Activities | 24,000 | |
Cash Flows From Investing Activities | 0 | |
Cash Flows From Financing Activities: | ||
Proceeds from owners | 120,000 | |
Paid for Owner’s Withdrawals | (5,000) | |
Net Cash Flow from Financing Activities | 115,000 | |
Net Change in Cash | 139,000 | |
Add: Beginning Cash Balance | 0 | |
Ending Cash Balance | 139,000 |
Table (4)
b)
Prepare a 2014 income statement, capital statement, balance sheet, and statement of cash flows for a
b)

Explanation of Solution
Calculate the capital contributions and determine the adjustments to the capital account.
Particulars | Amount ($) | Percentage (%) |
Capital contributions: | ||
SM’s contribution | 72,000 | 60% |
JP’s contribution | 48,000 | 40% |
Total capital contribution | 120,000 | 100% |
Adjustments to capital account | ||
Revenues (add to capital) | 80,000 | |
Expenses (deduct from capital) | 56,000 | |
Withdrawals: | ||
SM (deduct from capital) | 3,500 | |
JP (deduct from capital) | 1,500 |
Table (5)
Income statement: It is one of the financial statements that reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare the income statement of a PartnershipAS for the year ended December 31, 2014.
Partnership AS | |
Income statement | |
Forthe year ended December 31, 2014 | |
Particulars | Amount ($) |
Revenues | 80,000 |
Less: Expenses | (56,000) |
Net income | 24,000 |
Table (6)
Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare the capital account of PartnershipAS for the year ended December 31, 2014.
PartnershipAS | |
Capital statement | |
Forthe year ended December 31, 2014 | |
Particulars | Amount ($) |
Beginning Capital Balance | 0 |
Add: initial Capital from partners | 120,000 |
Add: Net Income | 24,000 |
Less: Withdrawal by partners | (5,000) |
Ending Capital Balance | $139,000 |
Table (7)
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the balance sheet of PartnershipAS as on December 31st, 2014.
PartnershipAS | |
Balance sheet | |
Ason December 31, 2014 | |
Particulars | Amount ($) |
Assets | |
Cash | 139,000 |
Total assets | 139,000 |
Liabilities and Equity | |
Liabilities | 0 |
Equity | |
SM’s Capital(1) | 78,100 |
JP’s Capital(1) | 60,900 |
Total Liabilities and Equity | 139,000 |
Table (8)
StatementCash flows: Statement of cash flows is a statement showing the source and application of cash between two balance sheet dates. It shows how the cash is sourced and used for the company’s operating, investing, and financing activities.
Prepare statement of cash flows for year ended December 31st, 2014 of Partnership AS.
PartnershipAS | ||
Cash Flow Statement | ||
For the year ended December 31, 2014 | ||
Particulars | Amount ($) | Amount ($) |
Cash Flows From Operating Activities: | ||
Receipts from Revenues | 80,000 | |
Paid for Expenses | (56,000) | |
Net Cash Flow from Operating Activities | 24,000 | |
Cash Flows From Investing Activities | 0 | |
Cash Flows From Financing Activities: | ||
Proceeds from Partners | 120,000 | |
Paid for partners’ Withdrawals | (5,000) | |
Net Cash Flow from Financing Activities | 115,000 | |
Net Change in Cash | 139,000 | |
Add: Beginning Cash Balance | 0 | |
Ending Cash Balance | 139,000 |
Table (9)
Working note:
1. Calculate the ending balance of capital for each partner.
Particulars | BS | JP | Total |
Beginning Capital Balance | $0 | $0 | $0 |
Investments | 72,000 | 48,000 | 120,000 |
Add: Net Income | 24,000 | ||
SM 40% | 9,600 | ||
JP 60% | 14,400 | ||
Less: Withdrawals | (3,500) | (1,500) | (5,000) |
Ending Capital Balances | $78,100 | $60,900 | $139,000 |
Table (10)
c)
Prepare a 2014 income statement, statement of changes in
c)

Explanation of Solution
Income statement: It is one of the financial statements that reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare the income statement of Company AS for the year ended December 31, 2014.
Company AS | |
Income statement | |
Forthe year ended December 31, 2014 | |
Particulars | Amount ($) |
Revenues | 80,000 |
Less: Expenses | (56,000) |
Net income | $24,000 |
Table (11)
Statement of owner's’ equity: This statement reports the beginning owner’s equity and all the changes which led to ending owner's’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning owner’s equity to arrive at the end result, ending owner’s equity.
Prepare the capital account of Company AS for the year ended December 31, 2014.
Company AS | |
Statement of changes in stockholders’ equity | |
Forthe year ended December 31, 2014 | |
Particulars | Amount ($) |
Beginning Capital Balance | 0 |
Add: issuance of common stock | 120,000 |
Ending common stock | 120,000 |
Beginning | $0 |
Add: Net Income | 24,000 |
Less: Dividends | (5,000) |
Ending retained earnings | $19,000 |
Total stockholders’ equity | $139,000 |
Table (12)
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the balance sheet of Company AS as on December 31st, 2014.
Company AS | |
Balance sheet | |
Ason December 31, 2014 | |
Particulars | Amount ($) |
Assets | |
Cash | 139,000 |
Total assets | 139,000 |
Liabilities and Equity | |
Liabilities | 0 |
Equity | |
Common stock, $10 par value, 10,000 shares issued and outstanding | 100,000 |
Paid-in capital in excess and outstanding | 20,000 |
Total paid in capital | 120,000 |
Retained earnings | 19,000 |
Total Liabilities and Equity | 139,000 |
Table (13)
StatementCash flows: Statement of cash flows is a statement showing the source and application of cash between two balance sheet dates. It shows how the cash is sourced and used for the company’s operating, investing, and financing activities.
Prepare statement of cash flows for year ended December 31st, 2014 of Corporation C.
Company AS | ||
Cash Flow Statement | ||
For the year ended December 31, 2014 | ||
Particulars | Amount ($) | Amount ($) |
Cash Flows From Operating Activities: | ||
Receipts from Revenues | 80,000 | |
Paid for Expenses | (56,000) | |
Net Cash Flow from Operating Activities | 24,000 | |
Cash Flows From Investing Activities | 0 | |
Cash Flows From Financing Activities: | ||
Proceeds from issue of stock | 120,000 | |
Paid for Dividends | (5,000) | |
Net Cash Flow from Financing Activities | 115,000 | |
Net Change in Cash | 139,000 | |
Add: Beginning Cash Balance | 0 | |
Ending Cash Balance | 139,000 |
Table (14)
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