Explore BrainMass

Explore BrainMass

    Completing Financial Statements

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    See attached file for full problem description.

    Assets = Liabilities + Owners' Equity
    (August starting cost) $350,000 $275,000 $75,000
    Borrowed $12,000 in cash from bank +12,000 +12,000
    New totals $362,000 $287,000
    Bought merchandise inventory for $19,000 on account
    New totals
    Paid $7,000 cash for operating expenses
    New totals
    Received $50,000 in cash for sales of merchandise that cost $33,000
    New totals
    Paid $14,000 owed on accounts payable
    New totals
    Collected $17,000 of accounts receivable
    New totals
    Repaid $10,000 to bank plus $200 interest
    New totals
    Paid owner (self) cash dividend of $5,000
    New totals

    (Once all the values have been input in their appropriate column, please assist in the following)
    1. What was the amount of net income (loss) during August? How much were total revenues and total expenses during August?
    2. What were the net changes during the month of August in total assets, total liabilities, and total owners' equity?
    3. Explain which transactions caused the net change in owners' equity during August.
    4. Explain why dividend payments are not an expense, but interest is an expense.
    5. Explain why the money borrowed from the bank increased assets but did not increase net income.
    6. Explain why paying off accounts payable and collecting accounts receivable did not affect net income.

    Company Balance Sheet, December 31, 2007 and 2006
    2007 2006 2007 2006
    Assets Liabilities and Owners' Equity
    Current assets: Current Liabilities:
    Cash $ $30 Note payable $49 $40
    Account receivable 126 120 Accounts payable 123 110
    Inventory 241 230 Total current liabilities $172 $150
    Total assets $ $380 Long-term debt $80
    Land $ $25 Total liabilities $ $230
    Equipment $375 Owners' Equity
    Less: Accumulated deprecation (180) (160) Common stock $200 $200
    Total land & equipment $ $240 Retained earnings 190
    Total assets $ $620 Total owners' equity $ $390
    Total liabilities and owners' equity $ $620

    Please complete the balance sheet based on information from the statement of cash flows for the year ended December 31, 2007, it is determined that:
    ? Net income for the year ended December 31, 2007 was $26
    ? Dividends paid during the year ended December 31, 2007 were $8
    ? Cash increased $8 during the year ended December 31, 2007
    ? The cost of new equipment acquired during 2007 was $15; no equipment Ws disposed of.
    ? There were no transactions affecting the land account during 2007, but it is estimated the fair market value of the land at December 31, 2007, is $42

    Consolidated Statement of Income
    Fiscal Year Ended
    January 28, 2005 January 30, 2004
    Net revenue $49,205 $41,444
    Cost of revenue 40,190 33,892
    Gross margin 9,015 7,552
    Operating expenses:
    Selling, general, and administrative 4,298 3,544
    Research, development, and engineering 463 464
    Total operating expenses 4,761 4,008
    Operating income 4,254 3,544
    Investment and other income, net 191 180
    Income before income taxes 4,445 3,724
    Income tax provision 1,402 1,079
    Net income $3,043 $2,645

    Consolidated Statement of Financial Position
    January 28, 2005 January 30, 2004
    Assets
    Current assets:
    Cash and cash equivalents $4,747 $4,317
    Short term investments 5,060 835
    Accounts receivable, net 4,414 3,635
    Inventories 459 327
    Other 2,217 1,519
    Total current assets 16,897 10,633
    Property, plant, and equipment, net 1,691 1,517
    Investments 4,319 6,770
    Other noncurrent assets 308 391
    Total assets $23,215 $19,311

    Liabilities and Stockholders' Equity

    Current liabilities:
    Accounts payable $8,895 $7,316
    Accrued and other 5,241 3,580
    Total current liabilities 14,136 10,896
    Long-term debt 505 505
    Other noncurrent liabilities 2,089 1,630
    Total liabilities 16,730 13,031
    Stockholders' equity:
    Preferred stock and capital in excess of $0.01 par value;
    Shares issued and outstanding: none ____ ____
    Common stock and capital in excess of $0.01 par value;
    Shares authorized: 7,000; shares issued: 2,769 and 2,721, respectively

    8,195

    6,823
    Treasury stock, at cost; 284 and 165 shares, respectively (10,758) (6,539)
    Retained earnings 9,174 6,131
    Other comprehensive loss (82) (83)
    Other (44) (52)
    Total stockholders' equity 6,485 6,280
    Total liabilities and stockholders' equity $23,215 $19,311

    At January 31, 2003, total assets were $15, 470 and total stockholders' equity was $4, 873
    1. Calculate the working capital, current ratio, and acid-test ratio at January 28, 2005, and January 30, 2004. Round ratio to two nearest decimal place and percentage to one decimal place.
    2. Calculate the ROE for the years ended January 28, 2005 and January 30, 2004. Round ratio to two decimal place and percentage to one decimal place.
    3. Calculate the ROI, showing margin and turnover, for the years ended January 28, 2005 and January 30, 2004. Round ratio to two decimal place and percentage to one decimal place.
    4. Evaluate the company's overall liquidity and profitability.
    5. The company did not declare or pay any dividends during the years ended January 28, 2005 or January 3, 2004. What do you suppose is the primary reason for this?

    © BrainMass Inc. brainmass.com June 3, 2020, 8:57 am ad1c9bdddf
    https://brainmass.com/business/dividends-stock-repurchase-and-policy/completing-financial-statements-137614

    Attachments

    Solution Preview

    Assets = Liabilities + Owners' Equity
    (August starting cost) $350,000 $275,000 $75,000
    Borrowed $12,000 in cash from bank (1) +12,000 +12,000
    New totals $362,000 $287,000 75,000
    Bought merchandise inventory for $19,000 on account (2) 19,000 19,000
    New totals 381,000 306,000 75,000
    Paid $7,000 cash for operating expenses (3) -7,000 -7,000
    New totals 374,000 306,000 68,000
    Received $50,000 in cash for sales of merchandise that cost $33,000 (4) 17,000 17,000
    New totals 391,000 306,000 85,000
    Paid $14,000 owed on accounts payable (5) -14,000 -14,000
    New totals 377,000 292,000 85,000
    Collected $17,000 of accounts receivable (6) - - -
    New totals 377,000 292,000 85,000
    Repaid $10,000 to bank plus $200 interest (7) -10,200 -10,000 -200
    New totals 366,800 282,000 84,800
    Paid owner (self) cash dividend of $5,000 (8) -5,000 -5,000
    New totals 361,800 282,000 79,800

    The revenue and expense will increase/decrease owners equity.
    For transaction (4) - the net change ins 17,000 - cash increase of 50,000 and inventory decrease of 33,000
    For transaction (6) there is no change since accounts receivable decrease by 17,000 and cash increases by 17,000
    For transaction (7), the interest is an expense
    (Once all the values have been input in their appropriate column, please assist in the following)
    1. What was the amount of net income (loss) during August? How much were total revenues and total expenses during August?
    Total revenue is $50,000 from the cash sales (4)
    Total expenses are
    Cost of goods sold 33,000 (4)
    Operating Expenses 7,000 (3)
    Interest Expense 200 (7)
    Total expenses 40,200
    Net Income = 50,000-40,200 = 9,800
    2. What were the net changes during the month of August in total assets, total liabilities, and total owners' equity?
    We can write as a table below
    Beg. Balance End. Balance Net Change
    Total Assets 350,000 361,800 11,800
    Total Liabilities 275,000 282,000 7,000
    Owners Equity 75,000 79,800 4,800

    3. Explain which transactions caused the net change in owners' equity during August.
    The transactions related to revenue, expense and the amount paid as dividends. The transactions are 3,4,7 and 8
    4. Explain why dividend payments are not an expense, but interest is an expense.
    Payment of dividend is not an expense since the amount is paid to the owner, so it is equivalent to amount being taken out of the business by the owners. Expenses are for services utilized which is not the case with dividend.
    Interest is an expense since it is paid ...

    Solution Summary

    The solution explains how to calculate the missing value to complete the financial statements and then calculate some ratios.

    $2.19

    ADVERTISEMENT