Question

umber-3 Part- A Marks 2

PRIDE FOREVER
BALA
CE SHEET AS JU
E 30, 2010----.
Assets Liabilities and Owners’ Equity
Cash ................................ 12,000 Bank loan ................................ 40,000
Inventory ................................
95,000 Owners’ Equity
Other assets ................................
13,000 Owners’ equity................................
80,000
Total liabilities and
Total assets ................................
120,000 owners’ equity................................
120,000
.The purpose of this problem is to test the equality of the basic accounting equation: assets equal liabilities
plus owners’ equity.

Problem -14 ( Part – B) Marks 5 Zentech Company

The missing numbers are:

Year 1
Noncurrent assets ................................................................
Rs410,976
240,518
Noncurrent liabilities ................................................................
Year 2
90,442
Current assets ................................................................
Total assets ................................................................
288,456
Noncurrent liabilities ................................................................
78,585
( Answers can vary according to faculty
announcement in exam hall, benefit is to
be given to the students)

Year 3
Total assets ................................................................
247,135
15,583
Current liabilities ................................................................
Total liabilities and owners’ equity ................................
247,135

Year 4
69,090
Current assets ................................................................
Current liabilities ................................................................
17,539

The basic accounting equation is

Assets = Liabilities + Owners’ equity

Current assets + Noncurrent assets = Total assets
Current liabilities + Noncurrent liabilities = Total liabilities
Paid-in capital + Retained earnings = Owners’ equity.
Faculty explanation: - The additional paid-in capital account is a special account to record the
excess of capital received over par value in common share stock issuances. Simply use a
descriptive term, like paid-in capital, to describe capital received from stockholders.
QUESTIO
-15 (5 MARKS) STAPLE COMPA
Y
BALA
CE SHEET, JU
E 30, ----.
Assets Liabilities
Cash ................................................................
Rs 89,000 Accounts payable ................................ 241,000
Marketable securities................................ 379,000 Taxes payable................................ 125,000
Accounts receivable ................................ 505,000 Accrued expenses................................ 107,000
Inventories 513,000 Current liabilities................................ 473,000
Current assets ................................................................
1,486,000 Notes payable ................................ 200,000
Land................................................................
230,000 Bonds payable ................................ 700,000
Buildings ................................................................
1,120,000 Total liabilities ................................ 1,373,000
Accumulated depreciation ................................ (538,000)
Equipment ................................................................
761,000 Owners’ Equity
Accumulated depreciation ................................ (386,000) Capital share stock ................................1,000,000
Investments................................................................
320,000 Retained earnings................................ 620,000
Total liabilities
Total assets ................................................................
2,993,000 and owners’ equity ................................
2,993,000

Some students may want to test the notes payable as a current liability. Notes payable are usually debt
instruments longer than one year, but in the absence of any details listing them as a current liability is
acceptable.

Question: 16 CASE (Part C)

( Marks 13 )

The explanation of these 11 transactions is:

1. Owners invest Rs20,000 of equity capital in Acme Consulting.

2. Equipment costing Rs7,000 is purchased for Rs5,000 cash and an account payable of Rs2,000.

3. Supplies inventory costing Rs1,000 is bought for cash.

4. Salaries of Rs4,500 are paid in cash.

5. Revenues of Rs10,000 are earned, of which Rs5,000 has been recovered in cash. The remaining
Rs5,000 is owed to the company by its customers.

6. Accounts payables of Rs1,500 are paid in cash.

7. Customers pay Rs1,000 of the Rs5,000 they owe the company.

8. Rent Expense of Rs750 is paid in cash.

9. Utilities of Rs500 are paid in cash.

10. A Rs200 travel expense has been incurred but not yet paid.

11. Supplies inventory costing Rs200 are consumed.

 ACME CO
SULTI
G
BALA
CE SHEET AS OF June 30, ----.
Assets Liabilities and Owners’ Equity
Rs12,75
Cash ................................................................ Accounts payable ................................
Rs 700
0
Accounts receivable ................................ 4,000
Supplies inventory ................................ 800 ______
Current assets ................................17,550 Current liabilities ................................ 700
7,000
Equipment ................................................................ Owners’ equity................................ 23,850
Total liabilities
24,550
Total assets ................................................................ and owners’ equity ................................24,550

ACME CO
SULTI
G
I
COME STATEME
T June 1 - 30, ----.
Revenues ................................................................ Rs10,000
Expenses
Salaries ................................................................ 4,500
Rent ................................................................ 750
Utilities ................................................................ 500
Travel ................................................................ 200
Supplies ................................................................ 200 6,150
Net income ................................................................ Rs 3,850

ACME CO
SULTI
G
CASH RECEIPTS A
D DISBURSEME
TS, June 1 - 30, ----.
Receipts
Owners’ investment................................................................ Rs20,000
Cash sales ................................................................ 5,000
Collection of accounts receivable................................ 1,000
Total receipts ................................................................ Rs26,000
Disbursements
Equipment purchase ................................................................ Rs5,000
Supplies purchase ................................................................ 1,000
Salaries paid ................................................................ 4,500
Payments to vendors................................................................ 1,500
Rent paid ................................................................ 750
Utilities paid ................................................................ 500
Total disbursements ................................................................ Rs13,250
Increase in cash ................................................................ Rs12,750

The change in this cash account includes the owners’ investment, which is not an income statement item.
The income statement includes revenues and expenses that have not yet been received in cash or paid in
cash. The cash paid to purchase the equipment is not reflected in the income statement.

This problem explains several important points that managers should understand. These are:
a. Every transaction involves at least two accounts.

b. Net income is not equivalent to the net change in the cash account during an accounting period.

c. Cash is influenced by both balance sheet and income statement events.

d. The basic accounting equation (Assets = Liabilities + Owners’ equity) can be used to capture,
illustrate, and explain the accounting consequences of many (but not all) transactions and events that
involve a company.

The cash receipts - disbursements display is used since it would be premature to introduce the cash flow
statement display at this point i.e. mid-term exam.