15 Minutes, Medium
Owners’
Assets = Equity
A
ccounts Office Notes
A
ccounts Capital
Cash + Receivable + Equipment
+
Trucks = Payable + Payable + Stock
December 31 balances 9,500$ 13,900$ 3,800$ 68,000$ 20,000$ 10,200$ 65,000$
(1) (2,700) 2,700
Balances 6,800$ 13,900$ 6,500$ 68,000$ 20,000$ 10,200$ 65,000$
(2) 4,000 (4,000)
Balances 10,800$ 9,900$ 6,500$ 68,000$ 20,000$ 10,200$ 65,000$
(3) (3,200) (3,200)
Balances 7,600$ 9,900$ 6,500$ 68,000$ 20,000$ 7,000$ 65,000$
PHILLIPS TRUCK RENTA
L
Liabilities +
PROBLEM 2.4
A
$
$
$
$
$
$
$
20 Minutes, Medium
a.
Liabilities & Owners’ Equity
Cash * 22,520$ Liabilities:
Notes receivable 9,500 Notes payable 180,000$
Accounts receivable 7,450 Accounts payable 26,100
Animals 189,060 Salaries payable 9,750
Cages 24,630 Total liabilities 215,850$
Costumes 31,500 Owners’ equity:
89,580 Capital stock 300,000
PROBLEM 2.5
A
HERE COME THE CLOWNS!
HERE COME THE CLOWNS!
Balance Sheet
Props and equipment
June 30, 2015
Assets
Education.
20 Minutes, Medium
a.
Liabilities & Owners’ Equity
Cash 16,710$ Liabilities:
Accounts receivable 22,365 Notes payable 330,000$
Barns and sheds 78,300 Accounts payable 77,095
Citrus trees 76,650 Property taxes payable 9,135
Livestock 120,780 Wages payable 5,820
PROBLEM 2.6
A
A
LEXANDER FARMS
,
INC
.
September 30, 2015
Assets
ALEXANDER FARMS, INC.
Balance Sheet
a.
Liabilities & Owners’ Equity
Cash 6,940$ Liabilities:
Accounts receivable 11,260 Notes payable 74,900$
Supplies 7,000 Accounts payable 16,200
b.
Liabilities & Owners’ Equity
Cash 14,490$ Liabilities:
Accounts receivable 11,260 Notes payable 74,900$
Supplies 8,250 Accounts payable 7,200
51,700 Salaries payable 8,900
Building 84,000 Total liabilities 91,000$
67,000 Owners’ equity:
PROBLEM 2.7
A
FRANKLIN BAKER
Y
35 Minutes, Medium
FRANKLIN BAKERY
Balance Sheet
August 1, 2015
Assets
FRANKLIN BAKERY
Balance Sheet
August 3, 2015
*Retained earnings ($40,700) = Total assets ($220,700), less total liabilities ($100,000) and capital stock
($80,000).
Assets
Land
Equipment & fixtures
Cash flows from operating activities:
(16,200)$
(1,250)
Cash used in operating activities: (17,450)$
None
c.
Statement of Cash Flows
For the Period August 1-3, 2015
Franklin Bakery is in a stronger financial position on August 3 than it was on August 1.
Cash payment of accounts payable
Cash purchase of supplies
Cash flows from investing activities:
PROBLEM 2.7
A
FRANKLIN BAKERY
(
concluded
)
FRANKLIN BAKERY
On August 1, the highly liquid assets (cash and accounts receivable) total only $18,200, but the
company has $25,100 in debts due in the near future (accounts payable plus salaries payable).
On August 3, after additional infusion of cash from the sale of stock, the liquid assets total $25,750,
a.
Liabilities & Owners’ Equity
Cash 7,400$ Liabilities:
Accounts receivable 1,250 Notes payable * 70,000$
Supplies 3,440 Accounts payable 8,500
b.
Liabilities & Owners’ Equity
Cash 29,400$ Liabilities:
Accounts receivable 1,250 Notes payable 70,000$
5,500$
Balance Sheet
October 6, 2015
Assets
THE SODA SHOP
Balance Sheet
September 30, 2015
Assets
PROBLEM 2.8
A
THE SODA SHO
P
40 Minutes, Strong
THE SODA SHOP
*Total assets, $132,590 less owners’ equity, $54,090 less accounts payable, $8,500, equals notes payable.
THE SODA SHOP
Income Statement
For the Period October 1-6, 2015
Revenues
Cash flows from operating activities:
5,500$
Cash paid for expenses (4,000)
Cash paid for accounts payable (8,500)
(1,000)
(8,000)$
None
30,000$
Increase in cash 22,000$
PROBLEM 2.8
A
THE SODA SHOP
(
concluded
)
THE SODA SHOP
Statement of Cash Flows
For the Period October 1-6, 2015
Cash received from revenues
Cash paid for supplies
Cash flows from financing activities:
Cash flows from investing activities:
Cash used in operating activities
Cash received from sale of capital stock
Education.
a
.
Liabilities & Owner’s Equity
Cash 16,900$ Liabilities:
Accounts receivable 7,200 Notes payable 15,000$
Props and costumes 18,000 Accounts payable 3,900
Lighting equipment 9,400 Salaries payable 4,200$
Total liabilities 23,100$
Owner’s equity:
b. (1)
(
2
)
(3)
(
4
)
(
)
(
6
)
(
7
)
As the automobile is not used in the business, it appears to be Anita Spencer’s personal asset
rather than an asset of the business entity. Therefore, it should not be included in the balance
sheet of the business. (Note: The advertised sales price of a similar automobile is not an
appropriate valuation figure even if the automobile were to be included.)
The accounts payable should be limited to the debts of the business, $3,900, and should not
include Anita S
p
encer’s
p
ersonal liabilities.
Only the amount receivable from Artistic Tours ($7,200) should be included in the company’s
accounts receivable as of September 30. The amounts expected from future tickets sales do not
relate to completed transactions and are not yet assets of the business.
The props and costumes should be shown in the balance sheet at their cost, $18,000 , not at just
The theater building is not owned by Spencer Playhouse. Therefore, it is not an asset of this
business entity and should not appear in the balance sheet.
The cash in Anita Spencer’s personal savings account is not an asset of the business entity
Spencer
Playhouse. Therefore, it should not appear in the balance sheet of the business. The money on
deposit in the business bank account ($15,000) and in the company safe ($1,900) constitute cash
$16,900.
PROBLEM 2.9
A
SPENCER PLAYHOUS
E
35 Minutes, Strong
SPENCER PLAYHOUSE
Balance Sheet
September 30, 2015
Assets
(8)
(9)
PROBLEM 2.9
A
Owner’s equity is not valued at either the original amount invested or at the estimated market
value of the business. In fact, owner’s equity cannot be valued independently of the amounts
The amount owed to stagehands for work done through September 30 is the result of completed
transactions and should be included among the liabilities of the business. Even if agreement has
been reached with Mario Dane for him to perform in a future play, he has not yet performed
and therefore, is not yet owed any money. Thus, this $25,000 is not yet a liability of the
business.
SPENCER PLAYHOUSE
(
concluded
)
Education.
a.
Liabilities & Owner’s Equity
Cash 3,940$ Liabilities:
Notes receivable 2,200 Notes payable 73,500$
Accounts receivable 2,450 Accounts payable 32,700
Office Furniture* 12,825 Total liabilities 106,200$
Building 54,320 Owner’s equity:
39,000 Capital stock 5,000
* Total assets ($114,735), Less (Total Liabilities, $106,200, + Capital Stock, $5,000)
b.
(
1
)
(
2
)
(3)
(
)
(
5
)
(
6
)
(
7
)
The accounts payable should be limited to the debts of the business, $32,700, and should not
include Pippin’s personal liabilities.
The proper valuation for the land is its historical cost of $39,000, the amount established by the
transaction in which the land was purchased. Although the land may have a current fair value in
excess of its cost, the offer by the friend to buy the land if Pippin would move the building
appears to be mere conversation rather than solid, verifiable evidence of the fair value of the
land. The “cost principle,” although less than perfect, produces far more reliable financial
statements than would result if the owners could “pull figures out of the air” in recording asset
values.
The $22,400 described as “Other assets” is not an asset, because there is no valid legal claim or
any reasonable expectation of recovering the income taxes paid. Also, the payment of federal
income taxes by Pippin was not a business transaction by Big Screen Scripts. If a refund were
obtained from the government, it would come to Pippin personally, not to the business entity.
The cash in Pippin’s personal savings account is not an asset of the business entity Big Screen
Scripts and should not appear in the balance sheet of the business. The money on deposit in the
business bank account ($3,400) and in the company safe ($540) constitute cash owned by the
business. Thus, the cash owned by the business at November 30 is $3,940.
The year-old IOU from a poker game does not qualify as a business asset for two reasons. Most
The total amount to be included in “Office furniture” for the rug is $9,400, the total cost,
PROBLEM 2.10
A
BIG SCREEN SCRIPTS
30 Minutes, Strong
BIG SCREEN SCRIPTS
Balance Sheet
Land
November 30, 2
0
15
Assets
Education.
a.
Liabilities & Owners’ Equity
Cash 9,100$ Liabilities:
Accounts receivable 3,300 Accounts payable 27,400$
Furnishings 22,600 Salaries payable 13,200
Total 614,000$ Total 614,000$
(1) Computed as total assets, $614,000, less total liabilities, $261,600, less retained earnings,
$225,400
b.
SOLUTIONS TO PROBLEMS SET
B
PROBLEM 2.1B
TRI-STATE LODG
E
15 Minutes, Easy
Assets
TRI-STATE LODGE
Balance Sheet
December 31, 2015
The balance sheet indicates that Tri-State Lodge is in a weak financial position. The highly
Education.