Answer:
Instructions
:
1. Prepare an income statement for the year ended December 31, 20Y5.
2. Prepare a statement of stockholders' equity for the year ended December 31, 20Y5.
3. Prepare a balance sheet as of December 31, 20Y5.
4. What items appear on both the statement of stockholders' equity and the balance sheet?
Solution:
Global Travel Agency
1. Income Statement for the year ended December 31, 20Y5:
Revenue (Fees Earned) = $940,000
less Expenses:
Wages = $415,000
Miscellaneous = $19,500
Rent = $56,000
Supplies Exp = $12,700
Utilities = $34,800
Total = $538,000
Net Income = $402,000
2. Statement of Stockholders' Equity for the year ended December 31, 20Y5:
Common Stock = $575,000
Retained Earnings = $1,562,000 (1,250,000 + 402,000 - 90,000)
Total Equity = $2,137,000
3. Balance sheet as of December 31, 20Y5:
Assets:
Land = $1,500,000
Supplies = $6,000
Accounts Receivable = $539,000
Cash = $200,000
Total Assets = $2,245,000
Equity & Liabilities:
Equity:
Common Stock = $575,000
Retained Earnings = $1,562,000
Total Equity = $2,137,000
Liabilities:
Accounts Payable = $108,000
Total Equity and Liabilities = $2,245,000
4. Items appearing on Stockholders' Equity and Balance Sheet are:
a) Common Stock
b) Retained Earnings
Explanation:
a) Financial Statements are the financial reports prepared by management to summarize the financial position (Balance Sheet), the financial performance (Income Statement), and the cash flows (Cash Flow Statement), including notes of an entity at a given date and for a period of time, usually a year or a quarter.
b) The income statement shows the (net income) excess of revenue over cost of revenue and other expenses incurred in the running of the business.
c) The balance sheet lists the assets, liabilities, and Equity. It shows the resources available for business operations and the owners of the funds used in financing the resources. Liabilities are outside fund owners, while Equity depicts the internal fund owners.
d) Other items that might appear in Stockholders' Equity and the balance sheet are Additional Paid-in Capital and Treasury Stock (contra account to the Common Stock).