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Ch 15 & 16 – Heizer et al (2014)

Tutorial Chapter 11

Understanding Basic Accounting

and
Basic Financial Statements
Presented by

Dr Noor Ajian Mohd Lair

Senior Lecturer
Mechaincal Engineering Program
Faculty of Engineering
Universiti Malaysia Sabah

Office No 43, 2nd floor

Ext: 3422
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email: nrajian72@gmail.com
Tutorial 1
King Hardware Transactions
An Example

King Hardware Company began business as a

corporation—a business organized as a
separate legal entity and owned by its
stockholders. The company’s first transaction
occurred on February 28, 20X1, when its
stockholders invested a total of $100,000
cash.

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 King Hardware Transactions

The following additional transactions

occurred during March:

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 King Hardware Transactions

Analysis of Transactions (in dollars) for March

144,000 144,000

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 Balance Sheet

The balance sheet for King Hardware

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 Income Statement

King Hardware Co.

Income Statement for the Month Ended March 31, 20X1 (page
641)
________________________________________
Revenue (sales) $130,000
Expenses
Cost of good sold $100,000
Rent 1,000
Total Expenses $101,000
Net Income$ 29,000
________________________________________

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Tutorial 2 Example:
Preparing Financial Statements

Transaction occured during month April:

1. Cash collections of accounts recievable, $88,000
2. Cash payment of account payable, $24,000
3. Acquisitions of inventory on open account, $80,000
4. Merchandise carried in inventory at a cost of $70,000 was sold on open
account for $85,000
5. Adjustment for recoginition of rent expense for April.
Using the accrual basis accounting, prepare an analysis of transactions,
employing the equationCopyright
approach.
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 Balance Sheet

King Hardware Company

Balance Sheet as of April 30, 20X1

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 Income Statement

King Hardware Company Income Statement

for the Month Ended April 30, 20X1

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 Changes in Retained Earnings

King Hardware Company Changes in Retained

Earnings for the Month Ended April 30, 20X1

This statement shows the linkage between the balance

sheet and income statement. It starts with the
beginning balance, adds net income for April, and
deducts cash dividends, to arrive at an ending balance.
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 Example:
The Felski Company (page 690)
The Felski Company had the following items on its December 31, 20X1, balance sheet
and income statement:

Revenue $830,000 Inventories 19,000

Notes Payable 90,000 Interest Income 19,000
Long term debt, Provision of income taxes 55,000
excluding current portion 81,000 Interest Expense 45,000
Good will, patents and trademarks 70,000 Retained earnings ?
Other long term assets 78,000 Account receivable, net 38,000
Deferred income tax liability – Prepaid expenses 48,000
long term 36,000 Cash and Equivalents 80,000
Income taxes payable 8,000 Cost of sales 490,000
Additional paid in capital 35,000 Property, plant and
Common stock (120,000 shares equiptment at cost 680,000
outstanding 120,000 Account Payable 81,000
Current portion of long term debt 12,000 Less: Accumulated
Selling and administrative expenses 190,000 depretiation 260,000
Prepare in proper form the December 31, 20X1, balance sheet and income statement for
felski company. Include the proper amount of retained earnings.
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 Balance Sheet
Felski Company, Balance Sheet,
ASSETS:
December 31, 20X1
________________________________________________________
Current assets:
Cash and equivalents $80,000
account recievable, net 38,000
inventories 19,000
prepaid expenses 48,000
total current assets 185,000
Noncurrent assests:
Property, plant and equiptment at cost 680,000
Less: Accumulated depretiation 260,000
Property, plant and equiptment at net 420,000
Good will, patents and trademarks 70,000
Other long term assets 78,000
Total noncurrent assets 568,000
Total assests $753,000

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 Balance Sheet
Felski Company, Balance Sheet, December 31,
20X1 (cont)
LIABILITIES AND SHAREHOLDERS’ EQUITY:
____________________________________________________________________________________________________________________________________________

Current liabilities:
Notes Payable 90,000
Account Payable 81,000
Income taxes payable 8,000
Current portion of long term debt 12,000
Total current liabilities 191,000
Noncurrent liabilities:
Long term debt, excluding current portion 81,000
Deferred income tax liability – long term 36,000
Total Noncurrent liabilities 117,000
Total Liabilities 308,000
Shareholders’ equity:
Common stock (120,000 shares outstanding) 120,000
Additional paid in capital 35,000
Retained earnings $290,000
Total shareholders’ equity 445,000
Total liabilities and shareholders’ equity $753,000

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 Income Statement
Felski Company, Income Statement,
December 31, 20X1
Revenue $830,000
Cost of sales 490,000
Gross Profit 340,000
Selling and administrative expenses 190,000
Income from operations 150,000
Other income (expenses):
Interest Expense $(45,000)
Interest Income 19,000
Total Other income (expenses) $(26,000)
Income before income taxes $124,000
Provision for income taxes 55,000
Net income 69,000
Earnings per share ($69,000/120,000) $ 0.58

Total shareholders’ equity = total liabilities and shareholders’s equity – total liabilities
= $753,000 - $308,000 = $445,000
Retained earnings = sharesholders’ equity – common stock – additional paid in capital
= $445,000-$120,000-$35,000 = $290,000

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 The End

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Tutorial 2 King Hardware Company

Select relevant items from a set of data and

assemble them into a balance sheet and an
income statement.

The balance sheet uses totals from the asset,

liability, and stockholders’ equity columns.

The income statement uses the revenue and

expense entries in the retained earnings column.

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