Instructor’s Manual / Solutions Manual
E2.14.
SE .
A = L + PIC + RE
Beginning: ? = $320,000 + $ 30,000 + ?
Changes: +65,000 = -18,000 + ? + ? (net income or loss)
-25,000 (dividends)
Ending: ? = ? + $192,000 + ? ($429,000 total SE)
Solution approach:
Ending retained earnings = $429,000 total stockholders’ equity – $192,000 paid-in
capital = $237,000. Ending liabilities = $320,000 beginning liabilities – $18,000
Retained earnings, beginning . ……….. ……….. ……….. ……….. ……….. $316,000
Less: Net income or loss for the year ……….. ……….. ……….. ……….. ?
P2.15.
Set up the accounting equation and show the effects of the transactions described.
Since total assets must equal total liabilities and stockholders’ equity, the unadjusted
stockholders’ equity can be calculated by subtracting liabilities from the total of the
assets given.
A = L + SE
Accounts Plant & Stockholders’
Cash + Receivable + Inventory + Equipment = Liabilities + Equity
Data given $ 45,600 + 228,400 + 122,800 + 530,000 = 611,200 + 315,600
Collection of accounts receivable +216,980 –228,400 -11,420
P2.16.
The solution approach is similar to that shown in Problem 2-15. Gains or losses
can be calculated for the sale (or collection) of each of Kimber Co.’s non-cash
assets, as follows:
Cash received upon Gain (loss) recorded and
sale or collection of asset effect on Stockholders’ Equity
Accounts receivable . . . . $62,600 * 90% = $ 56,340 $62,600 * 10% = $ (6,260)
Merchandise inventory . . $114,700 * 80% = 91,760 $114,700 * 20% = (22,940)
^ $343,000 – $195,000 accumulated depreciation = $148,000 book value of
buildings & equipment.
The $401,100 cash received from the liquidation of non-cash assets would be added
to the beginning cash balance of $18,400, and $419,500 is the amount of cash
available to pay the claims of creditors and stockholders. Liabilities would be paid
first (including the amounts that are not shown on the balance sheet), and the
balance would be paid to the stockholders:
Total cash available … ……….. ……….. ……….. ……….. ……….. $419,500
Accounts payable …… ……….. ……….. ……….. ……….. ……….. $46,700
Less: Loss on collection of accounts receivable ……. ……….. ……….. (6,260)
Less: Loss on liquidation of merchandise inventory. ……….. ……….. (22,940)
Less: Unrecorded wages expense…… ……….. ……….. ……….. ……….. (2,400)
Less: Unrecorded interest expense …. ……….. ……….. ……….. ……….. (5,100)
Total stockholders’ equity, as adjusted …… ……….. ……….. ……….. $242,000
a.
P2.16.
(continued)
As shown in the schedule in part a), total stockholders’ equity on the balance sheet
b.
P2.17.
Accounts receivable .. ……….. ……….. ……….. ……….. ……….. ……….. $ 99,000
Cash .. ……….. ……….. ……….. ……….. ……….. ……….. ……….. ……….. 27,000
Accounts payable ….. ……….. ……….. ……….. ……….. ……….. ……….. $ 69,000
Long-term debt ………. ……….. ……….. ……….. ……….. ……….. ……….. 120,000
Sales revenue . ……….. ……….. ……….. ……….. ……….. ……….. ……….. $420,000
Cost of goods sold ….. ……….. ……….. ……….. ……….. ……….. ……….. (270,000)
Gross profit … ……….. ……….. ……….. ……….. ……….. ……….. ……….. $150,000
Earnings from operations (operating income)……….. ……….. ……….. $132,000
Interest expense ……… ……….. ……….. ……….. ……….. ……….. ……….. (12,000)
Earnings before taxes ……….. ……….. ……….. ……….. ……….. ……….. $120,000
Income tax expense … ……….. ……….. ……….. ……….. ……….. ……….. (36,000)
Net income …. ……….. ……….. ……….. ……….. ……….. ……….. ……….. $ 84,000
$36,000 income tax expense / $120,000 earnings before taxes = 30% average tax
rate
Retained earnings, January 1, 2016 .. ……….. ……….. ……….. ……….. ?
a.
b.
c.
d.
e.
f.
P2.18.
Merchandise inventory ………. ……….. ……….. ……….. ……….. ……….. $ 210,000
Accounts receivable .. ……….. ……….. ……….. ……….. ……….. ……….. 48,000
Cash … ……….. ……….. ……….. ……….. ……….. ……….. ……….. ……….. 36,000
Total current assets …. ……….. ……….. ……….. ……….. ……….. ……….. $ 294,000
Less: Accounts payable * …… ……….. ……….. ……….. ……….. ……….. (23,000)
Current assets less current liabilities . ……….. ……….. ……….. ……….. $ 271,000
* No other current liabilities are included in the problem.
Total current assets …. ……….. ……….. ……….. ……….. ……….. ……….. $ 294,000
Land… ……….. ……….. ……….. ……….. ……….. ……….. ……….. ……….. 32,000
Sales revenue . ……….. ……….. ……….. ……….. ……….. ……….. ……….. $ 620,000
Cost of goods sold ….. ……….. ……….. ……….. ……….. ……….. ……….. (440,000)
Gross profit … ……….. ……….. ……….. ……….. ……….. ……….. ……….. $ 180,000
Earnings from operations (operating income)……….. ……….. ……….. $ 159,000
Interest expense ……… ……….. ……….. ……….. ……….. ……….. ……….. (9,000)
Earning before taxes .. ……….. ……….. ……….. ……….. ……….. ……….. $ 150,000
$60,000 income tax expense / $150,000 earnings before taxes = 40% average tax
rate
Retained earnings, January 1, 2016 .. ……….. ……….. ……….. ……….. ?
a.
b.
c.
d.
e.
f.
P2.19.
a.
BREANNA, INC.
Income Statement
For the Year Ended December 31, 2016
Sales .. ……….. ……….. ……….. ……….. ……….. ……….. ……….. ……….. $800,000
Cost of goods sold ….. ……….. ……….. ……….. ……….. ……….. ……….. (512,000)
Gross profit … ……….. ……….. ……….. ……….. ……….. ……….. ……….. $288,000
BREANNA, INC.
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2016
Paid-in capital:
Common stock ……… ……….. ……….. ……….. ……….. ……….. $360,000
Retained earnings:
Beginning balance ….. ……….. ……….. ……….. ……….. ……….. $ 92,000
BREANNA, INC.
Balance Sheet
December 31, 2016
Assets:
Cash .. ……….. ……….. ……….. ……….. ……….. ……….. ……….. $260,000
Accounts receivable .. ……….. ……….. ……….. ……….. ……….. 40,000
Merchandise inventory ………. ……….. ……….. ……….. ……….. 148,000
Total current assets …. ……….. ……….. ……….. ……….. ……….. $448,000
Equipment ….. ……….. ……….. ……….. ……….. ……….. ……….. 480,000
Less: Accumulated depreciation ……. ……….. ……….. ……….. (208,000) 272,000
Total assets …. ……….. ……….. ……….. ……….. ……….. ……….. $720,000
that the board of directors has a policy to pay dividends in proportion to earnings.
P2.19.
b.
(continued)
$32,000 income tax expense / $128,000 earnings before taxes = 25% average tax
rate.
P2.20.
a.
SHAE, INC.
Income Statement
For the Year Ended December 31, 2016
Sales … ……….. ……….. ……….. ……….. ……….. ……….. ……….. ……….. $900,000
Cost of goods sold…… ……….. ……….. ……….. ……….. ……….. ……….. (540,000)
Gross profit …. ……….. ……….. ……….. ……….. ……….. ……….. ……….. $360,000
SHAE, INC.
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2016
Paid-in capital:
Common stock ………. ……….. ……….. ……….. ……….. ……….. $ 210,000
Retained earnings:
Beginning balance…… ……….. ……….. ……….. ……….. ……….. $129,000
P2.20.
(continued)
a.
Less: Accumulated depreciation …….. ……….. ……….. ……….. (216,000) 288,000
SHAE, INC.
Balance Sheet
December 31, 2016
Assets:
Cash .. ……….. ……….. ……….. ……….. ……….. ……….. ……….. $192,000
Accounts receivable .. ……….. ……….. ……….. ……….. ……….. 120,000
Liabilities:
Accounts payable ……. ……….. ……….. ……….. ……….. ……….. $ 90,000
Accrued liabilities …… ……….. ……….. ……….. ……….. ……….. 18,000
Stockholders’ Equity:
Common stock ………. ……….. ……….. ……….. ……….. ……….. $210,000
Retained earnings …… ……….. ……….. ……….. ……….. ……….. 246,000
Total stockholders’ equity ….. ……….. ……….. ……….. ……….. $456,000
Total liabilities and stockholders’ equity ……. ……….. ……….. $864,000
b.
c.
d.
$84,000 income tax expense / $240,000 earnings before taxes = 35% average tax
rate.
$48,000 interest expense / $300,000 notes payable (long-term) = 16% interest rate.
This assumes that the year-end balance of long-term debt is representative of the
average long-term debt account balance throughout the year. If large amounts of cash
$210,000 common stock / 42,000 shares = $5 per share par value.
P2.21.
Stockholders’
Assets = Liabilities + Equity
Borrowed cash on a bank loan + + NE
a.
P2.22.
a.
Stockholder’s
Assets = Liabilities + Equity
August 1, 2016 totals ……. …………. ………………………. …………. $700,000 $550,000 $150,000
August 17, paid $28,000 owed on accounts payable….. ……….. –28,000 –28,000 0
New totals …. …………. …………. ………………………. …………. $754,000 $584,000 $170,000
August 21, collected $34,000 of accounts receivable…. ……….. 0 0 0
New totals ….. …………. …………. ………………………. …………. $754,000 $584,000 $170,000
August 24, repaid $20,000 to the bank, plus $400 interest …….. –20,400 –20,000 –400
c.
net income, minus $10,000 dividends, equals $159,600 ending stockholder’s equity.)
August 1 August 31 Net Change
Total assets …. ……….. ……….. ……….. $700,000 $723,600 $23,600
Total liabilities ………. ……….. ……….. 550,000 564,000 14,000