Problem 3-2 Financial Statement account identification.

Mark as indicated each of the accounts listed in the following table:

a) In column (1), indicate to which statement the account belongs: Income Statement (IS)
or Balance Sheet (BS).
b) In column (2), indicate whether the account is a current asset (CA), a current liability
(CL), an expense (E), a fixed asset (FA), long-term debt (LTD), revenue (R) or
shareholders´ equity (SE)

Account Name a) Statement b)Type of account

Accounts payable balance sheet Current liability

Acounts receivable balance sheet current asset

Accruals – Gastos por pagar balance sheet current liability
Accumulated depreciation balance sheet Non current asset
Administrative expense income statement expense
Buildings balance sheet non current asset
Cash balance sheet current asset
Common stock (at par) balance sheet Stockholder´s Equity
Cost of goods sold income statement expense
Depreciation (gasto de operación) income statement expense
Equipment balance sheet non current assets
General expense income statement expense
Interest expense income statement expense
Inventories balance sheet current assets
Land balance sheet non current assets
Long-term debt balance sheet long term liability
Machinery balance sheet non current assets
Marketable securities - Inversiones temporales balance sheet current assets
Notes payable balance sheet current liability
Operating expense income statement expense
Paid-in capital in excess of par – Prima en venta de acciones
balance sheet stockholder´s equity
Preferred stock balance sheet stockholder´s equity
Preferred stock dividends income statement expense
Retained earnings balance sheet Stockholder´s equity
Sales revenue income statement Revenue
Selling expense income statement expense
Taxes income statement expense
Vehicles balance sheet non current assets

Taxes payable balance sheet current liability

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Problem 3-3 Income Statement

On December 31, 2015, Cathy Chen, a certified public accountant (CPC) working on her
own, completed her first year of professional practice. Throughout the year, she invoiced $
360,000 for her accounting services. During this period, she was assisted by two
employees, an accounting assistant and an office assistant.

In addition to her own monthly salary of $ 8,000, Cathy paid annual salaries of $ 48,000 to
the accounting assistant and $ 36,000 to the office assistant. Their payroll taxes and
benefits in the period were $ 34,600.

The expense for office items, including postage, amounted to $ 10,400 during that year.
Cathy also invested $ 17,000 in travel and entertainment to serve her customers, an
expense that is tax deductible to support the development of new businesses. Lease
payment for the rented space where she installed her office (another tax-deductible
expense) was $ 2,700 per month.

The depreciation expense for furniture and office accessories amounted to $ 15,600 in the
year. During this period, Cathy also paid $ 15,000 in interest expense on a $ 120,000 loan
she requested to start her business. Finally, in 2015 the tax rate was 30 percent.

a) Prepare an Income Statement for Cathy Chen, CPC, for the year ended December 31,
2015.

b) Evaluate the financial performance in 2015

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Problem 3-4. Personal finance, Income statement preparation.

Adam and Arin collected information about their income and personal expenses, and
asked you to prepare the Income Statement for the year ended December 31, 2015. The
following are the data.

Adam´s salary $45,000   Utility expense    $3,200

Arin`s salary   30,000   Groceries     2,200
Interest received 500   Medical expenses   1,500
Dividends received 150   Property taxes   1,659
Auto insurance 600   Income tax and social security 13,000
Home insurance 750   Clothes and accesories   2,000
Auto loan payment 3,300   Gas and auto repair 2,100
Mortage paymentes 14,000   Entretenimiento   2,000

a. Prepare an Income statement for the period ended December 31, 2015. It should
be similar to a Corporate Income Statement

b. Does the Adams family have a surplus or a cash deficit?

c. If the result is a surplus, how can the Adams family use it?

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Problem 3-5 Calculation of EPS and retained earnings.

Everdeen Mining, Inc. ended 2015 with a net profit before taxes of $ 436,000. The
company uses a 40 percent tax rate, and it must pay $ 64,000 in preferred stock dividends
before distributing any profit on the 170,000 shares currently in circulation.
a. Calculate the earnings per share (EPS) of Everdeen in 2015.
b. If the company paid dividends of $ 0.80 for common stock, what amount of money
ended up as retained earnings?

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Problem 3-6. Balance Sheet Preparation.
Use the appropriate items in the following list to prepare the Balance Sheet of Mellark's
Baked Goods as of December 31, 2015

Value
    ($000)       Value ($000)
Accounts   31-Dec-15   Accounts   31-Dec-15
Accounts payable $220   Inventories   $375
Accounts receivable 450   Land   100
Accruals 55   Long-term debt 420
Accumulated
Depreciation 265   Machinery   420
Buildings   225   Marketabke securities 75
Cash   215   Nots payable 475
Paid-in capital in excess
Common stock (at par) 90   of par 360
Depreciation expense 45   Preferred stock 100
Equipment   140   Retained earnings 210
Furniture and fixtures 170   Sales revenue 3,600
Personal expenses 320   Vehicles   25

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Problem 3-7 Balance Sheet Preparation.
Adam and Arin Adams collected data on their personal assets and liabilities, and asked
you to prepare a balance sheet based on them as of December 31, 2015. The following is
the information that the Adams provided you.

Cash   $300   Retirement funds   $2,000

Checking 3,000   2014 Chrysler 15,000
Savings   1,200   2010 Jeep   8,000
IBM stock 2,000   Money market funds 1,200
Auto loan 8,000   Jewelry and artwork   3,000
Mortage   100,000   Total net worth   76,500
Household
Medical bills 250   furnishings   4,200
Utility bills 150   Credit card balance   2,000
Real estate   150,000   Personal loan   3,000

a. Prepare a Balance sheet as of December 31, 2015. It should be similar to a corporate

balance sheet.
b. How much are the total assets of the Adams family as to December 31, 2015?
c. What is the working capital (WC) in the year of 2015? (Hint: the WC is the difference
between total liquid assets and total current liabilities)

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Problem 3-8 Effect of net income on a firm´s balance sheet.

Conrad Air, Inc. reported a net income of $ 1,365,000 for the year ended December 31,
2016. Illustrate how the company´s balance sheet should change from 2015 to 2016,
depending on how that profit is spent according to the scenarios described below.
 
Conrad Air, Inc. Balance Sheet December 31, 2015

Liabilities and Shareholders'

Assets       equity  
Cash $120,000 Accounts payable $70,000
Marketable Securities 35,000 Notes payable 55,000
Accounts Receivable 45,000 Current liabilities 125,000
Inventories 130,000 Long-term debt 2,700,000
Current Assets $330,000 Total liabilities 2,825,000
Equipment $2,970,000 Common stock $500,000
Property 1,600,000 Retained earnings 1,575,000
Fixed Assets 4,570,000 Total shareholders' equity 2,075,000
Total Assets 4,900,000 Total Liabilities + Equity 4,900,000
             

a. Conrad did not pay dividends during the year, and invested the funds in marketable
securities.
b. Conrad paid $ 500,000 in dividends and used the remaining to pay off (pay) the long-
term debt.
c. Conrad paid dividends for a total of $ 500,000 and invested the remaining in the
construction of a new hangar.
d. Conrad paid the total amount of $ 1,365,000 as a dividend to its shareholders.

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Problem 3-9 Initial sales price of common stock.

Haymitch Brewing Corporation has preferred and common stock.

Taking into account the stockholders´equity of Haymitch presented below, determine the
initial sales price per share to which the company sold its common stock.

Stockholders' equity ($000)

Preferred Stock $225
Common Stock ($0.50 par, 400,000 shares outstanding) 200
Paid-in capital in excess of par on common stock 2,600
Retained earnings 800
Total stockholders' equity $3,825

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Problem 3-10 State of retained earnings

Hayes Enterprises began 2015 with retained earnings balance of $ 928,000. The
company generated $37,000 as net profits after taxes that year. The preferred
shareholders received a payment of $ 47,000 in dividends. At the end of the year, the
balance of retained earnings of the company was $ 1'048,000. Hayes maintained $
140,000 common shares during 2015.

a) Prepare a statement of retained earnings for the year ended December 31, 2015 for
Hayes Enterprises. (Note: be sure to calculate and include the amount corresponding to
cash dividends paid in 2015).
b) Calculate the earnings per share (EPS) of the company in 2015.
c) How big was the cash dividend paid by the company for the common shares in 2015?

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Problem 3-11. Changes in shareholders’ equity

The
En la following tableseshows
tabla siguiente the las
presentan sections corresponding
secciones correspondientes to equity inpatrimonial
al capital the balance ensheets
los for
2014 and 2015 reported by Mountain Air Ski Resort, Inc. The total value
balances generales de los años 2014 y 2015 reportados por Mountain Air Ski Resort, Inc. El of the
shareholder’s
valor general delequity
capitalhas increased
patrimonial from
de los 2'000,000
accionistas se hatoincrementado
7'500,000 dollars. Use athe balances
de 2'000,000
to discover
7'500,000 how and
dólares. why
Utilice los that account
balances changed.cómo y por qué ocurrió lo anterior.
para descubrir
Mountain Air Ski Resort, Inc.
Balance Sheets (partial)
Stockholders' Equity 2014 2015
Common Stock ($1.00 par)
Authorized: 5',000,000 shares
Outstanding: 1'500,000 shares 2015 $1,500,000
500,000 shares 2014 $500,000
Paid-in capital in excess or par value 500,000 4,500,000
Retained Earnings 1,000,000 1,500,000
Total stockholders' Equity $2,000,000 $7,500,000

La empresa pagó dividendos por un total de 200,000 dólares durante el año fiscal 2015.
The
a) ¿Acompany paid dividends
cuánto ascendió for ade
el ingreso neto total of $ 200,000
Mountain Air en el during the
año fiscal fiscal year 2015.
2015?
a)
b) How much
¿Cuántas was the
acciones Mountain
nuevas emitió yAir's netlaincome
vendió in 2015?
corporación durante el año?
b)
c) How
¿Cuál many new shares
fue el precio promediodidpor
the corporation
acción issue
a la que se and
vendió sell during
la nueva thedurante
emisión year?el
c)2015?
What was the average price per share at which the new issue was sold during 2015?
d)
d) At
¿A what pricepor
qué precio peracción
sharevendió
did Mountain
Mountain Air sus
sell500,000
its original 500,000
acciones shares?
originales?

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