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.