Case 1-1, Case 1-3 Accounting Text and Cases 13th Edition
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My solution and answers of the Case 1-1 and Case 1-2 from the book: Accounting Text and Cases 13th Edition by Robert N. ...
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CASE 1 – 1 1. How would you report on the three – month operations of Ribbons an’ Bows, Inc., through June 30? Was the company profitable? (Ignore income taxes) Why did its cash in the bank decline during the three – month operating period? Why did its cash in the bank decline during the three month period? Ribbons an' Bows, Inc. Income Statement For the Period of April 1 to June 30, 2010 Sales Less: Cost of Sales Gross Sales
2,100.00
Less: Salary Expense Rent Expense Supplies Expense Depreciation Expense - Computer Depreciation Expense - Sewing Machine Interest Expense Advertising Expense
1,600.00 1,800.00 80.00 250.00 60.00 200.00 150.00
Profit (Before Taxes)
7,720.00 (2,100.00) 5,620.00
(4,140.00) 1,480.00
Answer: Yes, the company is considered profitable. Ribbons an' Bows, Inc. Cash Flow Statement For the Period of April 1 to June 30, 2010 Cash, Beginning Sales Total Cash Inflow Salary Expense Rent Expense Inventory (Merchandise) Sewing Machine Total Cash Outflow Cash, End
4000.00 7400.00 11400.00 1510.00 1800.00 2900.00 1800.00 8010.00
(8,010.00) 3390.00
Answer: The main reasons why the ending cash balance declined during the three month operating period is because of the purchase of additional assets such as the Sewing Machine (1800.00) after the preoperating period and the ending inventory is higher than the beginning inventory all because more inventory was bought in cash (2900.00) than the cost of goods sold (2100.00).
2. How would you report the financial condition of the business on June 30, 2010? Answer: Because the data lacks some date indication of many of the transactions. Carmen should report the financial condition of the business in a balance sheet from the beginning of the operating period to June 30, 2010. Ribbons an' Bows, Inc. Balance Sheet Statement For the Period of April 1 to June 30, 2010 ASSETS Cash Accounts Receivable Inventory Supplies Prepaid Rent Computer (net) Sewing Machine (net)
3,390.00 320.00 4,100.00 20.00 1,200.00 1,750.00 1,740.00
Cash Register Deposit
250.00
TOTAL ASSETS LIABILITIES Salaries Payable Interest Payable Accounts Payable TOTAL LIABILITIES EQUITY Diaz, Capital Earnings/Profit TOTAL EQUITY TOTAL LIABILITIES & EQUITY
12,770.00
90.00 200.00 10,000.00 10,290.00
1,000.00 1,480.00 2,480.00
12,770.00
3. Do you believe Carmen’s first three months of operation could be characterized as “successful”? Explain your answer. Answer: I believed that the business is “successful” in its three months of operation. Carmen has acquired plenty of free assets during the rent of the building and has gain profit from her business. She is in a good start but will do better in the year if she would compensate herself for her effort and replay her cousin’s loan.
CASE 1 – 3 1. For each farm, prepare balance sheets as of the beginning and end of the growing season and an income statement for the season. (Do not be concerned that you do not have much understanding of what a balance sheet and income statement are; just use your intuition as best as you can.) IVAN’S PLOT Ivan's Field Balance Sheet Statement For the Beginning of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox
0 100 20 2 40
TOTAL ASSETS
162
TOTAL LIABILITIES
0
EQUITY Capital, Beginning TOTAL EQUITY
162 162
TOTAL LIABILITIES AND EQUITY
162
Ivan's Field Income Statement For the Entire Harvesting Season Revenue Less:
Profit
243 Seed Expense Fertilizer Expense Depreciation Expense - Plow Depreciation Expense - Ox
20 2 3 4
(29) 214
Ivan's Field Balance Sheet Statement For the End of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox TOTAL ASSETS
223 100 0 0 36 359
LIABILITIES Accounts Payable TOTAL LIABILITIES
3 3
EQUITY Capital, End TOTAL EQUITY
356 356
TOTAL LIABILITIES AND EQUITY
359
Ivan's Field Statement of Changes in Equity For the End of the Season Capital, Beginning Add: Profit Total
162 214 376
Less: Withdrawals Capital, End
(20) 356
FREDERICK’S PLOT Frederick's Field Balance Sheet Statement For the Beginning of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox TOTAL ASSETS
TOTAL LIABILITIES
0 50 10 1 40 101
0
EQUITY Capital, Beginning TOTAL EQUITY
101 101
TOTAL LIABILITIES AND EQUITY
101
Frederick's Field Income Statement For the Entire Harvesting Season Revenue Less:
Profit
138 Seed Expense Fertilizer Expense Depreciation Expense - Plow Depreciation Expense - Ox
10 1 1 4
(16) 122
Frederick's Field Statement of Changes in Equity For the End of the Season Capital, Beginning Add: Profit Total
101 122 223
Less: Withdrawals Capital, End
(30) 193
Frederick's Field Balance Sheet Statement For the End of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox Plow TOTAL ASSETS
LIABILITIES Accounts Payable TOTAL LIABILITIES
105 50 0 0 36 2 193
0 0
EQUITY Capital, End TOTAL EQUITY
193 193
TOTAL LIABILITIES AND EQUITY
193
2. Which peasant was the better farmer? Answer: Frederick is the better farmer because he produced 12.2 Bushels of Wheat per acre (122 BW/10 acres of land), has saved two more season for the plow and left no liabilities. Ivan produced 10. 7 Bushels of Wheat (214 BW/20 acres of land) which is 12.30% less than Fredericks.
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