Problem 2.

5 A

HERE COME THE CLOWNS!

Balance Sheet
As of June 30, 2009
Assets: Liabilities:
Cash $ 32,520 Notes payable $ 180,000
Notes receivable $ 9,500 Accounts payable $ 26,100
Account receivable $ 7,450 Salaries payable $ 9,750
Cages $ 24,630 Total liabilities: $ 215,850
Tents $ 63,000 Owners’ equity:
Costumes $ 31,500 Capital stock $ 310,000
Animals $ 189,060 Retained Earnings $ 27,230
Trucks and wagons $ 105,840 Total owners’ equity : $ 337,230
Props and equipment $ 89,580
Total assets : $ 553,080

a. Total assets = Total liabilities + Total owners’ equity

$ 553,080 =$ 215,850 + $ 337,230
$ 553,080-$ 520,560= $ 32,520
Total assets = $553,080; Total liabilities = $215,850

b. It would be required to subtract from the cost of tents (63000-14300=48700) the sum
of destroyed tent, and then we should subtract the same amount from retained earnings
(27230-14300=12930), because assets must be equal to the sum of Total liabilities and
Owners’ equity. Assets decrease, Liabilities does not change Owners’ equity decrease.
Finally, the loss of an asset from the fire would require a revised balance sheet that shows
decrease in total assets.

Problem 2.6 A

Wilson Farm, Inc.

Balance Sheet
As of September 30, 2009
Assets: Liabilities:
Cash $ 16,710 Notes payable $ 330,000
Accounts receivable $ 22,365 Accounts payable $ 77,095
Barns and Sheds $ 78,300 Wages payable $ 5,820
Livestock $ 120,780 Property Taxes Payable $ 9,135
Land $ 490,000 Total liabilities: $ 422,050
Citrus trees $ 76,650 Owners’ equity:
Fences and Gates $ 33,570 Capital stock $ 290,000
Farm machinery $ 42,970 Retained Earnings $ 189,420
Irrigation system $ 20,125 Total owners’ equity : $ 479,420
Total assets : $ 901,470

a. Total assets = Total liabilities + Total owners’ equity

$ 901,470=$ 422,050+$ 479,420
 b. It would be required to subtract from the cost of barns ($ 78,300-$13,700=$64,600)
the sum of destroyed barns, and because it was not insured then we should subtract
the same amount from retained earnings ($ 189,420-$13,700=$175,720), in addition
assets must be equal to the sum of Total liabilities and Owners’ equity. Assets
decrease, Liabilities does not change Owners’ equity decrease.

Problem 2.8 B

a. The Candy Shop

Balance Sheet
As of September 30, 2009

Assets: Liabilities:
Cash $ 6,900 Notes payable $ 50,000
Accounts receivable $ 5,000 Account payable $6,800
Suppliers $ 3,000 Total liabilities: $ 56,800
Land $ 72,000 Owners’ equity:
Building $ 80,000 Capital stock $ 100,000
Furniture and Fixtures $ 9,000 Retained earnings $ 19,100
Total assets : $ 175,900 Total owners’ equity: $ 119,100

Total assets = Total liabilities + Total owners’ equity

Total liabilities= Total assets - Total owners’ equity
$ 175,900-($ 119,100+$6,800)= 50,000

b.
Assets Liabilities Owners’ equity
Cash Acc. R Sup. Land Build. Furniture Notes Acc. Cap. Retained
Fixtures payable payable Stock earnings
Sep. 6,900 5,000 3,000 72,000 80,000 9,000 50,000 6,800 100,000 19,100
30
Oct. +30,000 -6,800 +30,000
3 -6,800
Oct. -900 +900 +8,000 +8,000
6
Oct. +8,000 +8,000
1- 6 -3,200 -3,200
T 34,000 5,000 3,900 72,000 80,000 17,000 50,000 8,000 130,000 $23,900

The Candy Shop

Balance Sheet
As of September 6, 2009
Assets: Liabilities:
Cash $ 40,700 Notes payable $ 50,000
Accounts receivable $ 5,000 Account payable $8,000
Suppliers $ 3,900 Total liabilities: $ 58,000
Land $ 72,000 Owners’ equity:
Building $ 80,000 Capital stock $ 130,000
Furniture and Fixtures $ 17,000 Retained earnings $ 23,900
Total assets : $ 211,900 Total owners’ equity: $ 153,900

The Candy Shop

Income statement
For the period of October 1-6, 2009
Revenue: $23,900
Expenses: (3,200)
Net income : 20,700

The Candy Shop

Statement of Cash Flows
For the Period October 1-6, 2009
Cash flows from operating activities:  
Cash received from revenues
 Cash paid for expenses
 Cash paid for accounts payable
Cash paid for supplies
Cash used in operating activities
Cash flows from investing activities:  
Cash flows from financing activities:
Cash received from sale of capital stock
Increase in cash
Cash balance, October 1, 2009
 Cash balance, October 6, 2009
c. The Candy shop is in a stronger
financial position on October 6 than
on September 30. Because on Sep.
$ 23,900
30, the company had highly liquid
(3,200) assets of $11,900 which barely
(8000) exceeded the $6,800 in liabilities
(900) (accounts payable) due in the near
$ (11,800) future. On October 6, after
None investment of cash by stockholders,
the company's cash exceeded its
short-term obligations.
 $ 30,000
 $ 33,800
 $ 6,900
$ 40,700