Lesson 9
Financial Statements
Exercises
1,The following financial statement information is known about five separate proprietorships:
Company
A
Company
B
Company
C
Company
D
Company
E
December 31,2001
Assets
$66,000
$28,500
$89,000
$70,000

Liabilities
32,000
22.500
40,000
35,000
20,000
December 31,2002
Assets

30,000
91,000
66,000
60,000
Liabilities
28,000
23,000

41,000
15,000
During year 2002
Owner investments
2,000
3,000
0
3,000
5,000
Net income (loss)
15,000

(7,000)

20,000
Owner withdrawals
8,000
5,500
3,000
2,000
10,000
Required
1) Answer the following questions about Company A:
A. What is the equity amount on December 31,2001?
B. What is the equity amount on December 31,2002?
C. What is the amount of assets on December 31,2002?
2) Answer the following questions about Company B:
A. What is the equity amount on December 31,2001?
B. What is the equity amount on December 31,2002?
C. What is net income (loss) for year 2002?
3) Calculate the amount of liabilities for Company C on December 31,2002.
4) Calculate the amount of income (loss) for Company D during year 2002.
5) Calculate the amount of assets for Company E on December 31,2001.
2,A new startup company often engages in the following transactions in its first year of operations,Classify these transactions in one of the three major categories of an organization’s business activities.
A,Financing B,Investing C,Operating
1) Owners investment in the business. 5) Performing services for customers.
2) Purchasing a new server. 6) Collecting cash from customers.
3) Selling used equipment. 7) Renting warehouse space.
4) Borrowing cash from a bank. 8) Paying telephone bill.
3,A-La-Mode Company manufactures,markets,and sells various tie-dye clothes,The average amount invested,or average total assets,in A-La-Mode is $175,000,In its most recent year,A-La-Mode reported net income of $19,250 on sales of $200,000.
Required
1)?What is A-La-Mode’s return on investment?
2)?What are total expenses for A-La-Mode in its most recent year?
3)?What is the average total amount of financing (liabilities plus equity) for A-La-Mode?
4,Identify how each of the following separate transactions affects financial statements,For the balance sheet,identify how each transaction affects total assets,total liabilities,and equity,For the income statement,identify how each transaction affects net income,For the statement of cash flows,identify how each transaction affects cash flows from operating activities,cash flows from financing activities,and cash flows from investing activities,For increases,place a,+” in the column or columns,For decreases,place a,-,in the column or columns,If both an increase and a decrease occur,place a,+/-,in the column or columns,The first transaction is completed as an example.
Balance Sheet
Income Statement
Statement of Cash Flows
Transaction
Total Assets
Total Liab.
Equity
Net Income
Operating Activities
Financing Activities
Investing Activities
1.Owner invests cash
2,Buys supplies for cash
3,Buys supplies on credit
4,Pays rent with cash
5,Perform services on credit
6,Pays cash on payable from (3)
7,Owner withdraws cash
8,Performs services for cash
9,Collects cash on receivable from (5)
10,Ordered supplies
5,The following is selected financial information for Beauty Photo Store for the year ended December 31,2005:
Equity,Dec,31,2005 $13,000
Withdrawals $2,500
Net income $?5,500
Equity,Dec,31,2004 $10,000
Required
Prepare the 2001 annual statement of changes in owner’s equity for Park Place.
6,At December 31,2002,Air Canada reported total assets,liabilities,and equity as follows (in millions):
Assets = Liabilities + Equity
$7,416 = $9,704 + $(2,288)
Required
Discuss how liabilities can be greater than assets and how equity can be negative.