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EXERCISE 1: Effects of Transactions on the Accounting Equation The total assets and liabilities at the beginning and end of the year for Pizarro Company are listed below. Assets Beginning of the year End of the year Liabilities $110,000 $200,000 $45,000 $120,000
Determine Pizarros net income for the year under each of the following alternatives: 1. The owner made no investments in or withdrawals from the business during the year. 2. The owner made no investments in the business, but the owner withdrew $22,000 during the year. 3. The owner made an investment of $13,000 but made no withdrawals during the year. 4. The owner made an investment of $10,000 in the business and withdrew $22,000 during the year. Total asset during the year : 200.000 $ 110.000 $= 90.000 $ Total liabilities during the year : 120.000 $ 45.000 $ = 75.000 $ Ta thy Asset = Liability + Owers Equity (OE) OE = Asset Liability OE = 90.000 75.000 = 15.000 $
1/ The owner made no investments in or withdrawals from the business during the year. Ch u t khng u t hoc khng rt vn t kinh doanh trong sut nm. OE = Capital + Net income + investment Withdrawals OE = 0 + Net income + 0 - 0 Net income = 15.000 $ 2/ The owner made no investments in the business, but the owner withdrew 22.000 USD during the year. Ch u t khng u t u t nhng rt khi vn 22.000 USD trong sut nm. OE = Capital + Net income + investment Withdrawals 15.000 = 0 + Net income + 0 -22.000
=> Net income = 15.000 + 22.000 = 37.000 $ 3/ The owner made an investment of 13.000 USD , but made no withdrawals during the year. Ch u t u t thm 13.000 nhng khng rt vn trong sut nm. OE = Capital + Net income + investment Withdrawals 15.000 = 0 +Net income +13.000 0 => Net income = 15.000 13.000 = 2.000 $
4/ The owner made an investment of 10.000 $ in the business, and withdrew $22,000 during the year. Ch u t u t thm 10.000 v rt vn ra 22.000 $ trong sut nm. OE = Capital + Net income + investment Withdrawals 15.000 = 0 +Net income +10.000 22.000 => Net income = 15.000 10.000 + 22.000 = 27.000 $
EXERCISE 2: The Accounting Equation At the beginning of the year, Sherman Companys assets were $220,000 and its owners equity was $100,000. During the year, assets increased $60,000 and liabilities decreased $10,000. Whats was the owners equity at the end of the year? Ansewr Assets = Liabilities + Owners Equity
<=> Liabilities = Assets Owners Equity = $220000 - $100000 = $120000 During the year: Asset Increased = $280000 Liabilities Decreased = $110000
Owners equity at the end of the year Assets = Liabilities + Owners Equity
$4,600
EXERCISE 5: Transactions Analysis Paid two months rent in advance, $1,200. Answer: Expense account DR $1,200. EXERCISE 6: Transactions Analysis Withdrew $850 from business for living expenses. Expense account DR $850 CR DR $850 Owners Equity CR CR DR Cash account CR
$1,200.
EXERCISE 7: Identification of Accounts A. Indicate below whether each of the following accounts is an asset (A), a liability (L), or a part of owners equity (OE): _________A _ a. Cash _________b. Salaries Payable _________c. Accounts Receivable _________d. Universe, Capital _________e. Land Rent Expense _________f. Accounts Payable _________g. Supplies A A L A OE A L
B. Indicate below whether each accounts would be show on the income statement (IS), the statement of owners equity (OE), or the balance sheet (BS):
__________ a. Repair Revenue _________b. Automobile _________c. Fuel Expense _________d. Cash _________e. Rent Expense _________f. Accounts Payable _________g. Universe, withrawals BS
IS OE IS
IS BS OE
EXERCISE 8: Preparation of Balance Sheet Listed in random order below are the balances for balance sheet items for the Diamond Company as of June 30, 19xx Accounts Payable Building R.Glick, Capital Supplies $20,00 0 45,000 85,000 5,000 Accounts Receivable Cash Equipment $25,000 10,000 20,000
Sort the balances and prepare a balance sheet. BALANCE SHEET Diamond Company Balance Sheet June 30,19xx ASSETS Current cash Account receivable Cash Supplies Total Current Assets Plant assets Building Equipment Total Plant Assets Total Assets LIABILITIES Current Liabilities Account payable Total Current Liabilities CAPITAL R,Glick Capital TOTAL LIABILITIES&CAPITAL $105,000 $85,000 $20,000 20,000 $65,000 $105,000 45,000 20,000 $40,000 25,000 10,000 5,000
Income Statement Revenues Expenses Net Income Statement of Owners Equity Beginning Blance Net Income Less Withdrawals Ending Balance Balance Sheet Total Assets Liabilities Owners Equity
Total Liabilities and Owners Equity $f a/ Income statement: Revenues Expenses = Net income 240 80 = m =>m = 160 b/ Statement of Owners Equity: * OE = Capital + Net income + investment Withdrawals 280 = 0 +80 + 0 i => i = -200 * P = 200 + Net income Leswithdrwaals P = 200 + 80 + 200 P= 480 c/ Balance sheet: OE = 280 Liabilities + Owners Equity = 480 Liabilities = 480 -280 =200 = r * Assets = Liabilities + OE q = 200 + 280= 480
EXERCISE 10: Preparation of Financial Statements Universe Company engaged in the Following activities During the Year: Service Revenues, $52,800; Rent Expenses, $4,800; Wages Expenses, $33,080; Advertising Expenses, $5,400; Utility Expenses, $3,600; and Universe, Withdrawals, $2,800. In addition, the Year-End Balances of Selected Accounts were as Follows: Cash, $6,200; Accounts Receivable, $3,000; Supplies, $400; Land, $4,000; Accounts Payable, $1,800; and Universe, Capital, $8,680.
Using Good Form, Prepare the income statement, statement of OwnerS Equity, and balance sheet for Universe Company ( Assume the Year ends on June 30,19x1). Hint: The amount given for Universe, Capital is the beginning balance. Answer: 1. Income statement Universe Company Income statement Year ends on June 30,19x1 Service Revenues: Expenses: -Rent -Wages -Advertising -Utility PROFITFORYEAR $4,800 $33,080 $5.400 $3,600 ($46,880) $5,920 $52,800
2. Balances Sheet Universe Company Balances Sheet Year ends on June 30,19x1 ASSETS Current Assets: Cash Accounts Receivable Supplies Total Current Assets $400 $9,600 $6,200 $3,000
Plant Assets: Land Total Plant Assets TOTALASSETS LIABILITIES Current Liabilities Accounts Payable Total Current Liabilities $1,800 $1,800 CAPITAL Income Bill Universe Capital Total Capital Withdrawals $2.800 $5,920 $8,680 $14,600 ($2.800) $13.600 $4,000 $4,000 $13.600
TOTALLIABILITIES&CAPITAL
3. Statement of Owners Equity Universe Company Statement of Owners Equity Year ends on June 30,19x1 Capital balance Net Income $8,680 $5,920 $14,600 Withdrawals Balance, June30,19x1 $11,800 $2,800 ($2,800)
EXERCISE 11: Preparation of Financial Statements Prepare the income statement, the statement of owners equity, and balance sheet. Trial Balance May 31 19xx Cash Medical Supplies Prepaid Rent Equipment Accounts payable Diamond, Capital Veterinary Fees Earned Utility Expenses 40 Balance Sheet$2,285
May 31 19xx ASSETS Current Assets Cash Medical Supplies Prepaid Rent Total Current Assets Plant Assets Equipment Total Plant Assets TOTAL ASSETS $1,345 200 300 1,845
400 400 $2,245 Income Statement Statement of Owners Equity LIABILITIES 31 , 19xx Year Ended May 31, 19xx Current Liabilities Veterinary Earned $35 AccountsFees Payable $250 Utility Expenses 40 Equity Balance June 1,19xx TOTAL LIABILITIES 250 $2000 FOR YEAR $5 CAPITAL Loss LOSS for year 19xx 5 Balance , May 31, 19xx Laura Cox, Capital 1995 $1955 TOTAL LIABILITIES & CAPITAL $2,245
Laura Cox