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Problems on single/ Multiple Step Income Statement, Owners Equity Statement and Classified

Balance sheet.

1. At the end of its first month of operations, Watson answering services has the following unadjusted
trial balance.

Watson Answering Service


Trial Balance
August 31, 2010
Debit Credit

Cash 5,400
Accounts receivable 2,400
Supplies 2,800
Prepaid insurance 1,300
Equipment 60,000
Notes payable 40,000
Accounts payable 2,400
Ray Watson, capital 30,000
Ray Watson, drawing 1,000
Service revenue 4,900
Salary expense 3,200
Utility expense 800
Advertising expense 400
Total 77,300 77,300

Other data:

1. Insurance expires at the rate of $200 per month.


2. $1000 of supplies are on hand at August, 31.
3. Monthly depreciation on the equipment is $900.
4. Interest of $500 on the notes payable has accrued during August.

Instruction:
a. Prepare a single step income statement and an owner’s equity statement.
b. Prepare a classified balance sheet assuming $35,000 of the notes payable is long-
term.
Solution

Instruction: a

Watson Answering Service


Income statement (single step)
For the month ended August 31, 2010

Particular Amount Amount

Service Revenue $,4900


Less: Expenses
Salary expense 3,200
Utility expense 800
Advertising expense 400
Insurance expense 200
Supplies expense 1800
Depreciation expense 900
Interest expense 500
7,800
Net loss 2900

Watson Answering Service


Owner’s equity statement
For the month ended August 31, 2010

Particular Amount

Ray Watson, Capital 30,000


Less: Net loss 2900
27,100
Less: Drawings 1000
Ray Watson, Capital (ending) 26,100
Instruction: b

Watson Answering Service


Balance Sheet
August 31, 2010

Particular Amount (Tk.) Amount (Tk.)


Asset
Current assets:
5400
Cash…………………………… 2400
Accounts receivable……………. 1000
Supplies (2800-1800)…………..
Prepaid insurance……. 1300
Less: (expired) ….. 200 1100
9900
Total current asset 0
Long term Asset:

Property, plant & equipment(PPE):


Equipment………………… 60,000
Less: Accumulated depreciation 900
59,100
Intangible asset: 0

Total Asset 69,000

Liabilities & owners equity

Current liability:
Notes payable……. (40,000-35,000) 5,000
Accounts payable…………………… 2,400
Interest payable…………………….. 500
7,900
Total current liability

Long Term Liability:


Notes payable………………………... 35,000
42,900
Total Liability……………………..

Owner equity 26,100


Ray Watson, Capital (ending)…….
69,000
Total Liability &owners equity
2. The trial balance of Kevin Poorten Fashion Centre contained the following accounts at November 30,
2011 of the company’s fiscal year.

Kevin Poorten Fashion Centre


Trial Balance
November 30, 2011

Debit Credit
Cash 26,700
Accounts Receivable 30,700
Merchandise Inventory (Nov 30, 2011) 44,700
Store Supplies 6,200
Store Equipment 85,000
Accumulated Depreciation-Store Equipment 18,000
Delivery Equipment 48,000
Accumulated Depreciation- Delivery Equipment 6,000
Notes Payable 51,000
Accounts Payable 48,500
Kevin Poorten, Capital 110,000
Kevin Poorten, Drawing 12,000
Sales 759,200
Sales Returns and Allowances 8,800
Cost of Goods Sold 497,400
Salaries Expenses 140,000
Advertising Expenses 26,400
Utility Expenses 14,000
Repair Expenses 12,100
Delivery Expenses 16,700
Rent Expenses 24,000
Total 992,700 992,700

Adjustment Data:
1. Store supplies on hand totaled Tk.3, 500.
2. Depreciation is Tk. 9,000 on the store equipment and Tk. 6,000 on the delivery equipment.
3. Interest of Tk. 4,080 is accrued on the notes payable at November 30.
Other Data:
1. Salaries expenses 70% selling and 30% administrative.
2. Rent expense and utilities expenses are 80% selling and 20% administrative.
3. Tk. 30,000 of notes payable are due for payment next year.
4. Repair expense is 100% administrative.

Required:
a. Prepare a multiple step income statement and an owner’s equity statement for the year.
b. Classified balance sheet as of November 30, 2011.
Solution
Req:a
Kevin Poorten fashion Centre
Classified Income Statement
For the year ended November 30, 2011

Particular Amount Amount Amount

Sales……………………………………….. 759200
Less: Sales returns & allowance…………... (8800)
Net sales…………………………………... 750400

Less: Cost of goods sold (COGS)………… 497400


Gross Profit……………………………… 253000

Less: Operating Expenses


Administrative Expenses
Salary expenses (140,000*30)…………….. 42000
Utility expenses (14000*20)……………… 2800
Repair expenses …………………………... 12100
Rent expenses (24000*20)………………... 4800
Supplies……………………………………….. 2700
Total administrative expense…………………. 64400

Selling expenses

Salary expenses (140,000*70)…………….. 98000


Utility expenses (14000*80)……………… 11200
Rent expenses (24000*80)………………... 19200
Advertising expenses………………………… 26400
Delivery expenses…………………………….. 16700
Depreciation expense (store equipment)……... 9000
Depreciation expense (delivery van)……......... 6000
186500
Total Operating expense…………………… (250900)

Total operating income/ income from


operation…………………………………….. 2100
Less: Non-operating expenses
Interest expense………………………………. (4080)

Net Loss…………………………………….. (1980)


Kevin Poorten fashion Centre
Owners Equity Statement
For the year ended November 30, 2011

Particular Amount

Kevin Poorten Capital………………………… 110000


Less: Net Loss…………………………………… (1980)
108020
Less: Drawings………………………………….. (12000)
Kevin Poorten, Capital (ending) 96020

Solution: Req (b)


Kevin Poorten fashion Centre
Balance Sheet
November 30, 2011

Particular Amount Amount

Current asset:
Cash…………………………………………………………… 26700
Accounts receivable…………………………………………... 30700
Merchandise inventory (ending)…………………………….... 44700
Store supplies…………………………………………………. 3500
Total current asset…………………………………………... 105,600

Long term investment:……………………………………… 0

Property, plant & Equipment (PPE):

Store equipment………………………………………85000
Less: Accumulated depreciation……………………..27000 58000

Delivery equipment…………………………………48000
Less: Accumulated depreciation……………………12000 36000
Total PPE……………………………………………………. 94,000

Intangible asset:…………………………………………… 0

Total Asset……………………………………………… 199,600

Liabilities & owners equity


Liability:

Current liability:
Notes payable… (51000-30000)…………………………… 21000
Accounts payable……………………………………………... 48500
Interest payable……………………………………………….. 4080
Total current liability 73,500

Long term liability


Notes payable………………………………………………… 30,000

Owners equity

Kevin Poorten ending capital…………………………………. 96020


199600
3. Following are the balances of “Y” Company as on 30th June, 2013 –
“Y” Company
Trial Balance
30th June, 2013
Debit Credit

Sales 50,000
Inventory (01-07-2012) 6,000
Purchase 24,000
Purchase return 1,000
Sales discount 2,500
Accounts receivable 20,000
Accounts payable 14,000
Capital 40,000
Drawings 10,000
Salaries 8,000
Supplies 3,000
Delivery van 20,000
Insurance expense 2,200
Cash 9,300
Total 1,05,000 1,05,000

Other data:
 Supplies used Tk. 1200.
 Depreciation on delivery van is Tk. 2,000.
 Inventory was Tk. 5,500 on June 30, 2013.
 Salaries was accrued Tk. 4,000.
 Tk. 2,500 of accounts receivable was uncollectible.
Instruction:

a. Prepare a multiple step income statement and an owner’s equity statement for the period June 30, 2013.
b. Classified balance sheet as of June 30, 20113.
Solution
Req:a
“Y” Company
Classified Income Statement
For the year ended June 30, 2013

Particular Amount Amount Amount

Sales……………………………………….. 50,000
Less: Sales returns …………...................... (2,500)
Net sales…………………………………... 47,500

Less: Cost of goods sold (COGS)…………


Inventory (01-07-2012)………………….. 6,000
Add: Purchase…………………………….. 24,000
30,000
Less: Purchase return………………………… 1,000
29,000
Less: Inventory (30-07-2013)……………… 5,500
23,500

Gross Profit……………………………… 24,000

Less: Operating Expenses


Administrative Expenses
Supplies expense……………………………. 1,200
Salaries expense…………………………….. 12,000
Insurance expense…………………………. 2,200
Total administrative expense………………… 15,400

Selling expenses

Bad debts……………………………….. 2,500


Depreciation expense (delivery van)……........ 2,000
4,500
Total Operating expense…………………… 19,900

Total operating income/ income from


operation…………………………………….. 4100
“Y” Company
Owners Equity Statement
For the year ended June 30, 2013

Particular Amount

Capital………………………… 40,000
Add: Net profit………………………… 4,100
44,100
Less: Drawings………………………………….. (10,000)
Capital (ending) 34,100

Solution: Req (b)


“Y” Company
Balance Sheet
June 30, 2013

Particular Amount Amount

Current asset:
Cash…………………………………………………………… 9,300
Accounts receivable……………20,000
Less: Bad debts…………………2,500 17,500
Inventory (ending)…………………………….... 5,500
supplies…………………………………………………. 1,800
Total current asset…………………………………………... 34,100

Long term investment:……………………………………… 0

Property, plant & Equipment (PPE):

Delivery equipment……………………………………….. 20,000


Less: Accumulated depreciation…………………………. 2,000
Total PPE……………………………………………………. 18,000

Intangible asset:…………………………………………… 0

Total Asset……………………………………………… 52,100


Liabilities & owners equity

Liability:

Current liability:
Accounts payable……………………………………………... 14,000
Salary payable……………………………………………….. 4,000
Total current liability 18,000

Long term liability


Notes payable………………………………………………… 0

Owners equity
Capital ending ………………………………. 34,100
Total Liability and owners equity………………………….. 52,100