FINANCIAL ACCOUNTING

Ques 1)
Charles Company
Balance sheet
As of December 31
Liabilities $ Assets $
Current Liabilities Current Assets
Bank Loan 40000 Cash 12000
(First City Bank) Inventory 95000
80000 13000
Owners’ Equity Other Items

120000 120000

Working Notes:

Liabilities + Owners’ Equity = Assets

40000 + OE = 120000
OE = 80000

Ques 2)
Microtech Company
Year 1 Year 2 Year 3 Year 4
Current Assets 113624 90442 4 85124 69090 9
Non-Current
Assets 410976 1 198014 162011 151021
Total Assets 524600 288456 3 247135 6 220111
Current Liabilities 56142 40220 15583 8 17539 10
Non-Current
Liabilities 240518 2 78585 5 60100 30222
Paid-in-Capital 214155 173295 170000 170000
Retained Earnings 13785 (3644) 1452 2350
Total Liabilities & 524600 288456 247135 7 220111
Owners’ equity
Working Notes:
a) Current Assets + Non-Current Assets = Total Assets [1,4,6,9]
b) Current Liabilities + Non-Current Liabilities + Paid-in-Capital
+ Retained Earnings = Total Liabilities & Owners’ equity [2,5,8,10]
c) Total Assets = Total Liabilities & Owners’ equity [3,7]

Ques 3)
Astrotech Company
Year 1 Year 2 Year 3 Year 4
Sales 12011 11968 11545 10000
Cost of goods sold (3011) (2992) (2886) (2500)
Gross Margin 9000 8976 8659 7500
Other Expenses (6201) (6429) (6296) (5200)
Profit before taxes 2799 2547 2363 2300
Tax Expense (1120) (1019) (945) (850)
Net Income 1679 1528 1418 1450

Working Notes:
Sales
- Cost of goods sold
Gross Margin
-Other Expenses
Profit before taxes
-Tax expense
Net income

To estimate the values for Year 4:

1) Cost of goods sold * 100
Sales
For year 1,2,3- 25% (approx.)

For year 4- 10000 * 25% = 2500 (cost of goods sold)

2) Other Expenses * 100

 Sales
For year 1,2,3- 52% (approx.)

For year 4- 10000 * 52% = 5200 (other expenses)

3) Tax Expense * 100

Sales
For year 1,2,3- 8.5% (approx.)

For year 4- 10000 * 8.5% = 850 (tax expense)

Ques 4)
a)
1) Amount, $20,000, invested to the business in cash. Therefore, Owners’
equity and Cash A/cs are increased.
2) Equipment bought for $7,000, of which $5,000 is paid in cash.
Therefore, Equipment is increased by $7000, Cash A/c is reduced by
$5000 and Accounts Payable A/c is increased by $2000.
3) Inventory purchased in cash for $1000.
4) Salaries paid to employees in cash for $4500. When expense occurs,
Owners’ equity decreases.
5) Revenues for $10000 received partially in cash. Therefore, Cash and
Accounts Receivable A/cs are increased by $5000 each. When revenue
increases, Owners’ equity also increases.
6) $1500 paid to Accounts Payable (creditors). Therefore, both Cash and
Accounts Payables A/cs are decreased.
7) $1000 received from Accounts Receivables (debtors). Therefore, Cash
A/c is increased and Accounts Receivables A/c is decreased.
8) Rent paid in cash for $750. When expense occurs, Owners’ equity
decreases.
9) Utilities bought in cash for $500. When expense occurs, Owners’ equity
decreases.
10) Travel expenses made on credit for $200. Therefore, Owners’ equity A/c
and Accounts Payable A/c are increased.
11) Loss of inventory for $200. Loss is considered as an expense. When
expense occurs, Owners’ equity decreases.
 b) Acme Consulting
Balance sheet
As of July 31
Liabilities $ Assets $
Current Liabilities Current Assets
Accounts Payable 5 750 Cash 1 12750
Owners’ Equity 6 Inventory 2 800
23850 4000
Accounts Receivables 3
Non-Current Assets
7000
Equipment 4
24550 24550

Working Notes:

1) Cash A/c
20000-5000-1000-4500+5000-1500+1000-750-500 = 12750
2) Inventory A/c
1000-200 = 800
3) Accounts Receivables
5000-1000 = 4000
4) Equipment
= 7000
5) Accounts Payable
2000-1500+200 = 700
6) Owners’ Equity
20000-4500+10000-750-500-200-200 = 23850
c)
Acme Consulting
Income Statement
As of July 31
Revenues 10000
Expenses
Salaries 4500
Rent 750
Utilities 500
Travel 200 (6150)
Loss of Inventory 200
Net income 3850

d)
Acme Consulting
Cash Flow Statement
As of July 31
Receipts
Owners’ Investment 20000
Cash Sales 5000
Collection from Accounts Receivables 1000
Total Receipts 26000
Disbursements
Equipment purchase 5000
Supplies purchase 1000
Salaries 4500
Payments 1500
Rent 750
Utilities 500
Total Expenses (13250)
Increase in Cash 12750
 e)
The reasons why cash account and month’s income are not same are:
 Expenses are included in the calculation of net income for which no
cash payments have yet been made.
 Revenues are included in the calculation of net income, because they
have been earned, even though the related cash receipts may not yet
have occurred.

Ques 5)

a)
Bon Voyage Travel

Cash + Accounts + Equipment + Office = Creditors + Owners’

Receivables Supplies Equity
+25000 +25000
-500 -500
+8000 +8000
+500
-500
-3000 -3000
-750 +8000 -750
+2000 -5000 +10000
-5000 -100
1000 +100
-1000

b)
 Bon Voyage Travel
Balance sheet
As of June 30
Liabilities $ Assets $
Current Liabilities Current Assets
Accounts Payable 4000 Cash 17250
Owners’ Equity 29650 Inventory 400
Accounts Receivables 8000
Non-Current Assets
8000
Equipment
33650 33650

c)
Bon Voyage Travel
Income Statement
As of June 30
Revenues
Commissions 10000
Expenses
Rent 500
Advertising 750
Salaries 3000
Supplies 100 (5350)
Miscellaneous Expenses 1000
Net income 4650

d)
Bon Voyage Travel
 Cash Flow Statement
As of June 30
Receipts
Owners’ Investment 25000
Collection of Commission 2000

Total Receipts 27000

Disbursements
Rent 500
Supplies 500
Advertising 750
Salaries 3000
Venders 5000
Total Expenses (9750)
Increase in Cash 17250

e)
The reasons why cash account and month’s income are not same are:
 Expenses are included in the calculation of net income for which no
cash payments may have yet been made.
 Revenues are included in the calculation of net income, because they
have been earned, even though the related cash receipts may not yet
have occurred.