CHAPTER 15-PROBLEMS

Problem 15-1
Beginning of current year at year-end
Total Assets 5,000,000 7,500,000
Total Liabilities 2,000,000 3,200,000
Equity 3,000,000 4,300,000

Increase in assets (4.3M-3M) 1,300,000

Add: Dividend paid 250,000
Total 1,550,000
Less: Issue price of share capital at a premium
500,000 + 300,000 (800,000)
Net income 750,000 - C

Problem 15-2
Increase in share capital (5,750,000 – 5,000,000) 750,000
Increase in share premium (1,500,000 – 1,000,000) 500,000
Stock dividend 1,250,000

Retained earnings – Dec.31 4,500,000

Stock dividend 1,250,000
Cash dividend 1,000,000
Total 6,750,000
Retained earnings – Jan. 1 (3,500,000)
Net income 3,250,000 A

Problem 15-3
Retained Earnings -Dec 31 (4M-3M) 1,000,000
Add: Dividend Declared 400,000
Total 1,400,000
Less: Net Income (700,000)
Adjusted Beginning balance 700,000
Overstatement of inventory 200,000
Retained earnings on January 1, 2021 900,000 – B

Problem 15-4
Total shareholders’ equity – December 31 5,000,000
Less: Share capital 3,000,000
Share premium from treasury shares 300,000 3,300,000
Retained earnings – December 31 1,700,000

Retained earnings – December 31 1,700,000

Add: Dividend declared 600,000
Total 2,300,000
Less: Net income 800,000
Retained earnings over depreciation 100,000 900,000
Retained earnings – January 1 1,400,000 A.

Problem 15-5
Increase in asset 8,900,000
Increase in liabilities 2,700,000
Net income 6,200,000
Add: Dividend payment 1,300,000
Total 7,500,000
Less: Share Capital 6,000,000
Share premium 600,000 6,600,000
Net income 900,000 – C
Problem 15-6
Increase in Cash 800,000
Decrease in Accounts receivable (400,000)
Increase in Inventory 300,000
Increase in Equipment 950,000
Increase in Note payable – bank (500,000)
Decrease in Accounts payable 600,000
Increase in assets 1,750,000
Dividend paid 1,500,000
Total 3,250,000
Increase in share capital (700,000)
Increase in share premium (300,000)
Error (250,000)
Net income 2,000,000 A.

Problem 15-7
Increase in asset 200,000
Increase in liability (1M – 840k) (160,000)
Increase in equity 40,000
Excess of share capital issued over dividends (240,000)
Net loss 200,000 -C

Problem 15-8
Increase in cash 800,000
Increase in a/rec., net 250,000
Increase in inventory 1,250,000
Decrease in Investment (500,000)
Decrease in Accounts payable 400,000
Increase in Bonds payable (900,000)
Net increase in equity 1,300,000
Add: Dividend declared 300,000
Total 1,600,000
Less: Share capital 1,000,000
Share premium 100,000 1,100,000
Net income 500,000 C.

Problem 15-9
Increase in asset 500,000
Increase in liabilities 800,000
Net increase in Equity 1,300,000
Shareholders’ Equity Beg. 2,000,000
Shareholders’ Equity End. 3,300,000 – A

Problem 15-10
Increase Decrease
Cash 450,000
Accounts receivable 300,000
Merchandise inventory 200,000
Accounts payable 100,000
Prepaid expenses 20,000
Accrued expenses 40,000
Unearned rental income 30,000 _______
Total 700,000 440,000
Net increase 260,000
(700,000 – 440,000)
Add: Withdrawals 100,000
Total 360,000
Less: Additional investment 500,000
Net loss 140,000 D.
Problem 15-11
Shareholder’s Equity (3M/150%) 2,000,000
Contributed Capital (1,500,000)
Retaining earnings – Dec 31 500,000

Share capital 1,000,000

Share premium 500,000
Contributed Capital 1,500,000

Total liabilities 1,000,000 100%

Shareholder’s equity 2,000,000 50%
Total assets 3,000,000 150%

Retained earnings – Jan 1 (SUEEZE) 1,300,000

Net loss (100,000)
Dividends declared (700,000)

Retained earnings – Dec 31 500,000 - C

Problem 15-12
Increase in Cash 1,500,000
Increase in Accounts receivable 3,500,000
Increase in Inventory 3,900,000
Decrease in Investments (1,000,000)
Increase in Equipment 3,000,000
Decrease in Accounts payable 800,000
Increase in Bonds payable (2,000,000)
Net increase in equity 9,700,000
Add: Dividend paid 1,500,000
Total 11,200,000
Less: Increase in share capital (100,000 x 30) 3,000,000
Increase in donated capital 2,000,000 5,000,000
Net income 6,200,000 A.

Problem 15-13

Accounts payable – Dec 19 750,000

Payments to trade creditors 2,000,000
Total purchases 2,750,000 - B
Less: Unadjusted debit balance 700,000
Of merchandise account
Sales 2,050,000 - B
Cash – January 1 (investment) 2,000,000
Collections of AR (2,050,000 – 600k) 1,450,000
Total 3,450,000
Less: Payment of accounts payable 2,000,000
Payment of expenses 100,000 (2,100,000)
Cash- Dec 31 1,350,000 - A

Sales 2,050,000
Cost of Sales
Purchases 2,750,000
Merchandise Inv. -12/31(SQUEEZE) (450,000) 3,200,000
Gross sales (250,000)
Expenses (100,000)
Net loss (450,000) - B
Problem 15-14
December 31 January 1
Total assets 6,880,000 6,000,000
Total liabilities 1,600,000 2,120,000
Capital 5,280,000 3,880,000

Capital – December 31 5,280,000

Add: Withdrawals 400,000
Total 5,680,000
Less: Capital – January 1 3,880,000
Investment 600,000 4,480,000
Net income 1,200,000

Notes receivable – Dec. 31 1,200,000

Accounts receivable – Dec. 31 2,000,000
Collections of accounts receivable 3,000,000
Collections of notes receivable 960,000
Sales discount 100,000
Bad debts (accounts written off) 120,000
Sales returns 320,000
Total 7,700,000
Less: Notes receivable – Jan. 1 400,000
A/rec. – Jan. 1 1,600,000 2,000,000
Sales on account 5,700,000
Cash sales 800,000
Total sales 6,500,000

Notes payable – December 31 480,000

Accounts payable – December 31 1,040,000
Payment of accounts payable 1,520,000
Payments of notes payable 1,280,000
Purchase allowances 80,000
Total 4,400,000
Less: Notes payable – Jan. 1 720,000
Accounts payable – Jan.1 1,200,000 1,920,000
Purchases on account 2,480,000
Cash purchase 600,000
Total purchases 3,080,000

Rent received 80,000

Add: Unearned rent income – Jan. 1 120,000
Total 200,000
Less: Unearned rent income – Dec. 31 40,000
Rent income 160,000
Sales price 120,000
Less: Carrying amount of equipment sold 100,000
Gain on sale of equipment 20,000

Equipment – January 1 1,200,000

Add: Acquisition 400,000
Total 1,600,000
Less: Equipment – December 31 1,120,000
CA of equipment sold 100,000 1,220,000
Depreciation 380,000

Interest paid 160,000

Add: Accrued interest payable – Dec. 31 40,000
Total 200,000
Less: Accrued interest payable – Jan. 1 80,000
Interest expense 120,000
 Lancer Company
Income statement
December 31, 2021

Net sales (Note 1) 6,080,000

Cost of sales (Note 2) 3,640,000
Gross income 2,440,000
Other income (Note 3) 180,000
Total income 2,620,000
Expenses:
Expenses 800,000
Bad debts 120,000
Depreciation 380,000
Interest expense 120,000 1,420,000
Net income 1,200,000

Note 1 – Net sales

Sales 6,500,000
Sales discount ( 100,000)
Sales return ( 320,000)
Net sales 6,080,000

Note 2 – Cost of sales

Inventory – January 1 1,600,000
Purchases 3,080,000
Purchase allowances (80,000) 3,000,000
Goods available for sale 4,600,000
Less: Inventory – Dec.31 960,000
Cost of sales 3,640,000

Note 3 – Other income

Rent income 160,000
Gain on sale of equipment 20,000
Total 180,000

Problem 15-15
Retained earnings – December 31 600,000
Add: Dividends 400,000
Total 1,000,000
Less: Retained earnings – January 1 500,000
Net income 500,000

Notes receivable – December 31 210,000

Accounts receivable – December 31 950,000
Collection of notes and accounts 2,950,000
Note receivable discounted 200,000
Total 4,310,000
Less: Notes receivable – January 1 200,000
Accounts receivable – January 1 740,000 940,000
Sales on account 3,370,000

Loss on note discounted (200,000 – 190,000) 10,000

Accrued interest expense on note

issued to bank (300,000 x 12%x 10/12) 30,000

Sales price 250,000

Less: Cost of investment sold 300,000
Loss on sale of investment (50,000)

Notes payable – December 31 580,000

Less: Note payable – bank 300,000
Notes payable – trade 280,000
Accounts payable – December 31 750,000
Payments of notes and accounts 2,100,000
Total 3,130,000
Less: Notes payable – January 1 750,000
Accounts payable – January 1 600,000 1,350,000
Purchases on account 1,780,000

Expenses paid 790,000

Add: Prepaid expenses – January 1 120,000
Accrued expenses – December 31 50,000
Total 960,000
Less: Prepaid expenses – Dec. 31 100,000
Accrued expenses – January 1 40,000 140,000
Expenses 820,000

Equipment – January 1 1,000,000

Add: Acquisition 280,000
Total 1,280,000
Less: Equipment – December 31 1,200,000
Depreciation 80,000

Corolla Company
Income statement
December 31, 2021

Sales 3,370,000
Cost of sales:
Inventory – January 1 1,600,000
Purchases 1,780,000
Goods available for sale 3,380,000
Less: Inventory – December 31 1,500,000 1,880,000
Gross income 1,490,000
Expenses:
Expenses 820,000
Depreciation 80,000
Loss on sale of investment 50,000
Loss on notes discounted 10,000
Interest expense 30,000 990,000
Net income 500,000

Problem 15-16
Total assets 1,590,000
Less: total liabilities 460,000
Capital – January 1 1,130,000

Cash balance – January 1 200,000

Add: Deposits 3,930,000
Total 4,130,000
Less: Checks drawn 3,360,000
Bank service charge 10,000 3,370,000
Cash balance – Dec. 31 760,000

Accounts payable – Jan. 1 250,000

Add: Purchases 2,280,000
Total 2,530,000
Less: Purchase returns 70,000
Payments 2,200,000 2,270,000
Accounts payable – Dec. 31 260,000

Salaries paid 400,000

Accrued salaries – Dec. 31 15,000
Total 415,000
Less: Accrued salaries – Jan. 1 10,000
Salaries expense 405,000

Supplies paid 75,000

Add: Prepaid supplies – Jan. 1 40,000
Total 115,000
Less: Prepaid supplies – Dec. 31 20,000
Supplies expense 95,000

Taxes paid 45,000

Miscellaneous expense paid 35,000

Other expenses paid 245,000

Note payable – Jan. 1 200,000

Less: Payment 120,000
Note payable – Dec. 31 80,000

Accounts receivable – Dec. 31 450,000

Accounts collected 1,720,000
Accounts written off 30,000
Total 2,200,000
Less: Accounts receivable – Jan. 1 420,000
Sales on account 1,780,000

Allo. for doubtful accounts – Jan. 1 20,000

Add: Doubtful accounts expense (squeeze) 60,000
Total 80,000
Less: Accounts written off 30,000
Allowance for doubtful accounts – Dec. 31 50,000

Total deposits 3,930,000

Less: Accounts receivable collected 1,720,000
Cash sales 2,210,000
Add: Sales on accounts 1,780,000
Total sales 3,990,000

Depreciation (350,000 x 10%) 35,000

Camry Company
Income statement
December 31, xxxx

Sales 3,990,000
Cost of sales:
Merchandise inventory – Jan.1 700,000
Purchases 2,280,000
Less: Purchases returns 70,000 2,210,000
Goods available for sale 2,910,000
Less: Merchandise inventory – Dec. 31 650,000 2,260,000
Gross income 1,730,000
Expenses:
Salaries 405,000
Supplies 95,000
 Taxes 45,000
Other expenses 245,000
Doubtful accounts 60,000
Depreciation 35,000
Bank service charge 10,000
Miscellaneous expense 35,000 930,000
Net income 800,000

Camry Company
Statement of Financial Position
December 31, xxxx

Assets
Current assets:
Cash 760,000
Accounts receivable, net (50,000) 400,000
Merchandise inventory 650,000
Prepaid supplies 20,000 1,830,000
Noncurrent assets:
Equipment 350,000
Less: Accumulated depreciation 135,000 215,000
Total assets 2,045,000

Liabilities and Equity

Current liabilities:
Accounts payable 260,000
Note payable 80,000
Accrued salaries payable 15,000 355,000
Equity:
Capital – January 1 1,130,000
Add: Net income 800,000
Total 1,930,000
Less: Drawings 240,000 1,690,000
Total liabilities and equity 2,045,000

Problem 15-17

Balance per bank 250,000

Less: Outstanding checks 50,000
Adjusted bank balance 200,000

Cash investment 500,000

Proceeds of bank loan 500,000
Collection of accounts receivable (Squeeze) 2,500,000
Total deposits 3,500,000

Less: Disbursements in check:

Payment of loan 125,000
Interest on loan 25,000
Equipment 400,000
Interest on equipment 45,000
Payment of accounts payable (squeeze) 2,705,000 3,300,000
Cash in bank – December 31 200,000

Customers’ deposit 75,000

Collections of accounts receivable (squeeze) 600,000
Total 675,000
Less: Disbursement in cash 550,000
Cash on hand – December 31 125,000
Accounts receivable – December 31 900,000
Collection deposited 2,500,000
Collection not deposited 600,000
Total sales 4,000,000

Accounts payable – December 31 350,000

Payments of accounts payable 2,705,000
Total purchases 3,055,000

Complex Company
Income statement
December 31, 2021

Sales 4,000,000
Cost of sales:
Purchases 3,055,000
Less: Inventory – December 31 55,000 2,300,000
Gross income 1,700,000
Expenses:
Utilities 100,000
Salaries 100,000
Supplies 175,000
Taxes 25,000
Doubtful accounts 50,000
Depreciation – building (4,500,000 / 15) 300,000
Depreciation – equipment (400,000 / 5) 80,000
Interest expense (25,000 + 45,000) 70,000 900,000
Net income 800,000

Complex Company
Statement of Financial Position
December 31, 2021

Assets
Current assets:
Cash (Note 1) 325,000
Accounts receivable (Note 2) 850,000
Inventory 755,000 1,930,000
Noncurrent assets:
Land 1,500,000
Building 4,500,000
Less: Accumulated depreciation 300,000 4,200,000
Equipment 400,000
Less: Accumulated depreciation 80,000 320,000 6,020,000
Total assets 7,950,000

Liabilities and equity

Current liabilities:
Accounts payable 350,000
Loan payable – bank 375,000
Customers’ deposit 75,000 800,000
Equity:
Share capital 6,000,000
Share premium 500,000
Retained earnings (Note 3) 650,000 7,150,000
Total liabilities and equity 7,950,000
Note 1 – Cash
Cash in bank 200,000
Cash on hand 125,000
Total cash 325,000

Note 2 – Accounts receivable

Accounts receivable 900,000
Allowance for doubtful accounts (50,000)
Net realizable value 850,000

Note 3 – Retained earnings

Net income 800,000

Dividends (150,000)
Total 650,000

Problem 15-18
Accounts receivable – Dec.31 200,000
Cash sales, collection and advances 3,030,000
Advances from customers – Jan. 1 90,000
Total 3,320,000
Less: Accounts receivable – Jan. 1 120,000
Advances from customers – Dec. 31 50,000 170,000
Sales 3,150,000

Sales price 45,000

Less: Carrying amount of equipment sold 20,000
Gain on sale of equipment 25,000

Accounts payable – Dec. 31 100,000

Cash purchases and payments 1,640,000
Total 1,740,000
Less: Accounts payable – Jan. 1 170,000
Purchases 1,570,000

Insurance paid 80,000

Prepaid insurance – Jan. 1 35,000
Total 115,000
Less: Prepaid insurance – Dec. 31 25,000
Insurance expense 90,000

Depreciation:
Building (2,000,000 x 10%) 200,000
Equipment (800,000 x 10%) 80,000
Equipment – new (200,000 x 10% x 3/12) 5,000
Total 285,000

Salaries paid 390,000

Accrued salaries – Dec.31 30,000
Total 420,000
Less: Accrued salaries – Jan. 1 20,000
Salaries expense 400,000

Doubtful accounts (5% x 200,000) 10,000

Ultimate Company
Income statement
December 31, 2021

Sales 3,150,000
Cost of sales:
Inventory – January 1 230,000
Purchases 1,570,000
Goods available for sale 1,800,000
Less: Inventory – Dec.31 245,000 1,555,000
Gross income 1,595,000
Gain on sale of equipment 25,000
Total income 1,620,000
Expenses:
Insurance 90,000
Depreciation 285,000
Salaries 400,000
Doubtful accounts 10,000
Other expenses 135,000 920,000
Net income 700,000

Ultimate Company
Statement of Financial Position
December 31, 2021

Assets
Current assets:
Cash 905,000
Accounts receivable, net (10,000) 190,000
Inventory 245,000
Prepaid insurance 25,000 1,365,000
Noncurrent assets:
Land 500,000
Building 2,000,000
Less: Accum.depreciation 900,000 1,100,000
Equipment 950,000
Less: Accum. Depreciation 295,000 655,000 2,255,000
Total assets 3,620,000

Liabilities and equity

Current liabilities:
Accounts payable 100,000
Accrued salaries 30,000
Advances from customers 50,000
Dividends payable 125,000 305,000
Equity:
Share capital 2,500,000
Retained earnings 815,000 3,315,000
Total liabilities and equity 3,620,000

Accumulated depreciation – Jan. 1 240,000

Add: Depreciation for 2019 85,000
Total 325,000
Less: Accumulated depreciation on equipment 30,000
Accumulated depreciation – Dec.31 295,000

Retained earnings – Jan. 1 365,000

Net income 700,000
Total 1,065,000
Less: Dividends – Jun. 30 (5%x 2,500,000) 125,000
Dividends – Dec. 31 125,000 250,000
Retained earnings – Dec. 31 815,000