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Q.2-15E

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Financial & Managerial Accounting
Found in: Page 84
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Question: A corporation had the following assets and liabilities at the beginning and end of this year.

Assets Liabilities

Beginning of the year $ 60,000 $20,000

End of the year . . . . . . . . . . . . . . . . . 105,000 36,000

Determine the net income earned or net loss incurred by the business during the year for each of the following separate cases:

a. Owner made no investments in the business, and no dividends were paid during the year.

b. Owner made no investments in the business, but dividends were $1,250 cash per month.

c. No dividends were paid during the year, but the owner did invest an additional $55,000 cash in exchange for common stock.

d. Dividends were $1,250 cash per month, and the owner invested an additional $35,000 cash in exchange for common stock.

Answer

The net income under different cases would be as follows:

Case a —$29,000

Case b —$14,000

Case c —$29,000

Case d —$14,000

See the step by step solution

Step by Step Solution

Step 1: Calculation of owner’s equity

Step 2: Case a.

Step 3: Case b.

Step 4: Case c.

Explanation: - Additional investment would make zero net effect as both asset and equity would increase by additional investment.

Step 4: Case d.

Explanation: - Additional investment would make zero net effect as both asset and equity would increase by additional investment.

Most popular questions for Business-studies Textbooks

At the beginning of April, Bernadette Grechus launched a custom computer solutions company called Softworks. The company had the following transactions during April.

a. Bernadette Grechus invested $65,000 cash, office equipment with a value of $5,750, and $30,000 of computer equipment in the company in exchange for common stock.

b. The company purchased land worth $22,000 for an office by paying $5,000 cash and signing a longterm note payable for $17,000.

c. The company purchased a portable building with $34,500 cash and moved it onto the land acquired in b.

d. The company paid $5,000 cash for the premium on a two-year insurance policy.

e. The company provided services to a client and immediately collected $4,600 cash.

f. The company purchased $4,500 of additional computer equipment by paying $800 cash and signing a long-term note payable for $3,700.

g. The company completed $4,250 of services for a client. This amount is to be received within 30 days.

h. The company purchased $950 of additional office equipment on credit.

i. The company completed client services for $10,200 on credit.

j. The company received a bill for rent of a computer testing device that was used on a recently completed job. The $580 rent cost must be paid within 30 days.

k. The company collected $5,100 cash in partial payment from the client described in transaction i.

l. The company paid $1,800 cash for wages to an assistant.

m. The company paid $950 cash to settle the payable created in transaction h.

n. The company paid $608 cash for minor maintenance of the company’s computer equipment.

o. The company paid $6,230 cash in dividends.

p. The company paid $1,800 cash for wages to an assistant.

q. The company paid $750 cash for advertisements on the web during April.

Required

2. Open the following ledger accounts—their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Prepaid Insurance (108); Office Equipment (163); Computer Equipment (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); Common Stock (307); Dividends (319); Fees Earned (402); Wages Expense (601); Computer Rental Expense (602); Advertising Expense (603); and Repairs Expense (604). Post the journal entries from part 1 to the accounts and enter the balance after each posting.

Question: Aracel Engineering completed the following transactions in the month of June.

a. Jenna Aracel, the owner, invested $100,000 cash, office equipment with a value of $5,000, and $60,000 of drafting equipment to launch the company in exchange for common stock.

b. The company purchased land worth $49,000 for an office by paying $6,300 cash and signing a longterm note payable for $42,700.

c. The company purchased a portable building with $55,000 cash and moved it onto the land acquired in b.

d. The company paid $3,000 cash for the premium on an 18-month insurance policy.

e. The company completed and delivered a set of plans for a client and collected $6,200 cash.

f. The company purchased $20,000 of additional drafting equipment by paying $9,500 cash and signing a long-term note payable for $10,500.

g. The company completed $14,000 of engineering services for a client. This amount is to be received in 30 days.

h. The company purchased $1,150 of additional office equipment on credit.

i. The company completed engineering services for $22,000 on credit.

j. The company received a bill for rent of equipment that was used on a recently completed job. The $1,333 rent cost must be paid within 30 days.

k. The company collected $7,000 cash in partial payment from the client described in transaction g.

l. The company paid $1,200 cash for wages to a drafting assistant.

m. The company paid $1,150 cash to settle the account payable created in transaction h.

n. The company paid $925 cash for minor maintenance of its drafting equipment.

o. The company paid $9,480 cash in dividends.

p. The company paid $1,200 cash for wages to a drafting assistant.

q. The company paid $2,500 cash for advertisements on the web during June.

Required

3. Prepare a trial balance as of the end of June.

Question: Aracel Engineering completed the following transactions in the month of June.

a. Jenna Aracel, the owner, invested $100,000 cash, office equipment with a value of $5,000, and $60,000 of drafting equipment to launch the company in exchange for common stock.

b. The company purchased land worth $49,000 for an office by paying $6,300 cash and signing a longterm note payable for $42,700.

c. The company purchased a portable building with $55,000 cash and moved it onto the land acquired in b.

d. The company paid $3,000 cash for the premium on an 18-month insurance policy.

e. The company completed and delivered a set of plans for a client and collected $6,200 cash.

f. The company purchased $20,000 of additional drafting equipment by paying $9,500 cash and signing a long-term note payable for $10,500.

g. The company completed $14,000 of engineering services for a client. This amount is to be received in 30 days.

h. The company purchased $1,150 of additional office equipment on credit.

i. The company completed engineering services for $22,000 on credit.

j. The company received a bill for rent of equipment that was used on a recently completed job. The $1,333 rent cost must be paid within 30 days.

k. The company collected $7,000 cash in partial payment from the client described in transaction g.

l. The company paid $1,200 cash for wages to a drafting assistant.

m. The company paid $1,150 cash to settle the account payable created in transaction h.

n. The company paid $925 cash for minor maintenance of its drafting equipment.

o. The company paid $9,480 cash in dividends.

p. The company paid $1,200 cash for wages to a drafting assistant.

q. The company paid $2,500 cash for advertisements on the web during June.

Required

2. Open the following ledger accounts—their account numbers are in parentheses (use the balance column format): Cash (101); Accounts Receivable (106); Prepaid Insurance (108); Office Equipment (163); Drafting Equipment (164); Building (170); Land (172); Accounts Payable (201); Notes

Payable (250); Common Stock (307); Dividends (319); Engineering Fees Earned (402); Wages Expense (601); Equipment Rental Expense (602); Advertising Expense (603); and Repairs Expense (604). Post the journal entries from part 1 to the accounts and enter the balance after each posting.

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