Answer-Balance Sheet-class exercises

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PGP-22; Sec. D, E & F 
 
MANAC I – Balance Sheet – Class exercise 
Problem 1 
As of December 31, Charles Company had $12,000 in cash, held $95,000 of inventory, and 
owned other items that originally cost $13,000. Charles Company also had borrowed $40,000 
from First City Bank. Prepare a balance sheet for Charles Company as of December 31. Be sure 
to label each item and each column with appropriate terms. 
 
Answer: 
 
CHARLES COMPANY 
BALANCE SHEET AS OF DECEMBER 31, ----. 
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 assets ................................
 
$120,000 
 Total liabilities and owners’ 
equity ................................................................
 
$120,000 
 
 
PGP-22; Sec. D, E & F 
 
 
Problem 2 
Selected balance sheet items are shown for the Microtech Company. Compute the missing 
amounts for each of the four years. What basic accounting equation did you apply in making 
your calculations? 
 Year 1 Year 2 Year3 Year 4 
Current Assets $113,624 $ ? $85,124 $ ? 
Noncurrent assets ? 198,014 162,011 151,021 
Total assets $524,600 $ ? $ ? $220,111 
Current liabilities $56,142 $40,220 $ ? $ ? 
Noncurrent liabilities ? ? 60,100 30,222 
Paid-in capital 214,155 173,295 170,000 170,000 
Retained earnings 13,785 (3,644) 1,452 2,350 
Total liabilities and owners’ equity $524,600 $288,456 $ ? $220,111 
 
 
 
 
Answer: 
 Year 1 Year 2 Year3 Year 4 
Current Assets $113,624 90,442 $85,124 69,090 
Noncurrent assets 4,10,976 1,98,014 1,62,011 1,51,021 
Total assets $524,600 2,88,456 2,47,135 $220,111 
Current liabilities $56,142 $40,220 15,583 17,539 
Noncurrent liabilities 2,40,518 78,585 60,100 30,222 
Paid-in capital 2,14,155 1,73,295 1,70,000 1,70,000 
Retained earnings 13,785 -3,644 1,452 2,350 
Total liabilities and 
owners’ equity 
$524,600 $288,456 2,47,135 $220,111 
 
 
PGP-22; Sec. D, E & F 
 
 
Problem 3 
During the month of June, Bon Voyage travel recorded the following transactions: 
1. Owners invested $25,000 in cash to start the business. They received common stock. 
2. The month’s rent of $500 was prepaid in cash. 
3. Equipment costing $8,000 was bought on credit. 
4. $500 was paid for office supplies. 
5. Advertising costing $750 was paid for with cash. 
6. Paid $3,000 employee salaries in cash. 
7. Earned travel commissions of $10,000 of which $2,000 was received in cash. 
8. Paid $5,000 of the $8,000 owed to the equipment supplier. 
9. Used $100 of the office supplies. 
10. Charged $1,000 of miscellaneous expenses on the corporate credit card. 
Required: 
a. Explain how the transactions during the month changed the basic accounting equation 
(Assets = Liabilities + Owners’ equity) for the company. 
 
Answer: 
 
 
Assets Liabilities Equity 
1 25000 
 
 
 
 
 
25000 
2 -500 
 
 
 
 
 
-500 
3 
 
8000 
 
8000 
 
 
4 -500 
 
500 
 
 
 
 
5 -750 
 
 
 
 
 
-750 
6 -3,000 
 
 
 
 
 
-3,000 
7 2,000 8000 
 
 
 
 
 
10,000 
8 -5,000 
 
 
 
-5,000 
 
 
9 
 
-100 
 
 
 
-100 
10 
 
1,000 -1,000 
 
17250 8000 400 8000 
 
4000 0 29650 
 
TOTAL 33650 
 
TOTAL 33650 
 
 
PGP-22; Sec. D, E & F 
 
Problem 4 
Analysis of the transactions made by Acme Consulting for the month of July is shown below. 
 Cash + Accounts 
Receivable 
+ Supplies 
Inventory 
+ Equipment = Accounts 
payable 
+ Owners’ 
Equity 
1. +$20,000 +$20,000 
2. -$5,000 +$7,000 +$2,000 
3. -$1,000 +$1,000 
4. -$4,500 -$4,500 
5. +$5,000 +$5,000 +$10,000 
6. -$1,500 -$1,500 
7. +$1,000 -$1,000 
8. -$750 -$750 
9. -$500 -$500 
10. +$200 -$200 
11. -$200 -$200 
Required: 
a. Explain each transaction. 
b. List the changes in the company’s balance sheet during the month of July. 
Answer: 
The explanation of these 11 transactions is: 
1. Owners invest $20,000 of equity capital in Acme Consulting. 
2. Equipment costing $7,000 is purchased for $5,000 cash and an account payable of $2,000. 
3. Supplies inventory costing $1,000 is bought for cash. 
4. Some expenses of $4,500 are paid in cash. 
5. Revenues of $10,000 are earned, of which $5,000 has been recovered in cash. The remaining $5,000 
is owed to the company by its customers. 
6. Accounts payable/credit suppliers of $1,500 are paid in cash. 
7. Credit customers pay $1,000 of the $5,000 they owe the company. 
8. Some Expense of $750 is paid in cash. 
9. Some expenses of $500 are paid in cash. 
10. A $200 travel expense has been incurred but not yet paid. 
11. Supplies inventory costing $200 are consumed. 
 
PGP-22; Sec. D, E & F 
 
Problem 5 
Selected income statement items are shown for Astrotech Company. Compute the missing 
amounts for each of the four years. What basic accounting equation did you apply in making 
your calculations? 
(Hint: To estimate the Year 4 missing numbers, compute the typical percentage each expense 
item is of sales for Years 1 to 3 and apply the percentage figure for each expense item to Year 
4’s sales.) 
 Year 1 Year 2 Year 3 Year 4 
Sales $12,011 $ ? $11,545 $10,000 
Cost of goods sold 3,011 2,992 ? ? 
Gross margin ? 8,976 8,659 ? 
Other expenses 6,201 6,429 ? ? 
Profit before taxes 2,799 ? 2,363 ? 
Tax expense ? 1,019 945 ? 
Net income $1,679 $1,528 $1,418 ? 
 
Answer: 
 
Year 1 
 
Year 
2 
 
Year 
3 
 
Year 
4 
Sales 12011 100 11968 100 11545 100 Averages 10000 
cost of goods sold 3011 25.1 2992 25.0 2886 25.0 25.0 2502 
Gross Margin 9000 74.9 8976 75.0 8659 75.0 75.0 7498 
Other expenses 6201 51.6 6429 53.7 6296 54.5 53.3 5329 
Profit before taxes 2799 23.3 2547 21.3 2363 20.5 21.7 2168 
Tax expense 1120 9.3 1019 8.5 945 8.2 8.7 867 
Net Income 1679 14.0 1528 12.8 1418 12.3 13.0 1301