Financial Accounting, 8th Edition
Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 3, Problem 16E

1.

To determine

Identify the amounts for assets, liabilities, and stockholders’ equity.

1.

Expert Solution
Check Mark

Explanation of Solution

Accounting equation:

Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets=Liabilities+Stockholders' equity

Identify the amount:

Assets=Liabilities+Stockholders’ Equity
3,2002,400800
8,0005,6004,000
6,4001,6003,200
$17,600$9,600$8,000

Table (1)

Note:

Assets include cash, accounts receivable, and long-term investments.

Liabilities include accounts payable, unearned revenue, and long-term note payable.

Stockholders’ equity includes common stock, additional paid-in capital, and retained earnings.

2

To determine

Prepare the T- account and enter the amount for the given transaction in their respective accounts.

2

Expert Solution
Check Mark

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a) The title of the account

b) The left or debit side

c) The right or credit side

Prepare the T-accounts:

Cash account:

Cash account
Beginning balance$3,200(d)$57,200
(a)$48,000(g)$480
(b)$5,600
(c)$400
(e)$1,600
Ending balance$1,120

Accounts receivable account:

Accounts receivable account
Beginning balance$8,000(b)$5,600
(a)$10,000
Ending balance$12,400

Long-term investment account:

Long-term investment account
Beginning balance$6,400
Ending balance$6,400

Accounts payable account:

Accounts payable account
Beginning balance$2,400
(d)$1,600(f)$800
Ending balance$1,600

Unearned revenue account:

Unearned revenue account
Beginning balance$5,600
(e)$1,600
Ending balance$7,200

Long-term note payable account:

Long-term note payable account
Beginning balance$1,600
Ending balance$1,600

Common stock account:

Common stock account
Beginning balance$800
Ending balance$800

Additional paid-in capital account:

Additional paid-in capital account
Beginning balance$4,000
Ending balance$4,000

Retained earnings account:

Retained earnings account
Beginning balance$3,200
(g)$480
Ending balance$2,720

Consulting fees revenue account:

Consulting fees revenue account
Beginning balance0
(a)$58,000
Ending balance$58,000

Investment income account:

Investment income account
Beginning balance0
(c)$400
Ending balance$400

Wages expense account:

Wages expense account
Beginning balance0
(d)$36,000
Ending balance$36,000

Travel expense account:

Travel expense account
Beginning balance0
(d)$12,000
Ending balance$12,000

Utilities expense account:

Utilities expense account
Beginning balance0
(f)$800
Ending balance$800

Rent expense account:

Rent expense account
Beginning balance0
(d)$7,600
Ending balance$7,600

Thus, the t-accounts are prepared and the ending balances are calculated.

3.

To determine

Ascertain the amount for the given equations at the end of the 31st December 2015.

3.

Expert Solution
Check Mark

Answer to Problem 16E

For the equationRevenuesExpenses=Net income:

RevenueExpenses=Net income$58,400$56,400=$2,000

For the equationAssets=Liabilities+Stockholders' equity:

Assets=Liabilities+Stockholders' equity$19,920=$10,400+$9,520

Explanation of Solution

Income statement:

The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Working note:

Calculate the revenues:

Revenues=Revenue from sales+Revenue from investments=$58,000+$400=$58,400 (1)

Calculate the expenses:

Expenses=(Wages expenses+Utilities expenses+Travel expenses+Rent expenes)=$36,000+$800+12,000+$7,600=$56,400 (2)

Calculate the net income:

ParticularsAmount($)Amount ($)
Revenues(1)58,400
Less: Expenses(2)56,400
Net income$2,000

Table (2)

Accounting equation:

Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Stockholders' Equity

Calculate the amount for the accounting equation:

Assets=Liabilities+Stockholders’ Equity
$1,120$1,600$800
$12,400$7,200$4,000
$6,400$1,600$2,720
$2,000
$19,920=$10,400+$9,250

Table (3)

4.

To determine

Calculate the net profit margin ratio for 2015.

4.

Expert Solution
Check Mark

Explanation of Solution

Net profit margin ratio:

Net profit is the financial ratio that shows the relationship between the net profit and net sales (Operating revenue). Net profit is the difference between total operating revenue and total operating expenses. It can be calculated by dividing net profit and operating revenue.

Net profit margin ratio can be calculated by using the following formula:

Net profit margin ratio=Net incomeNet sales revenues

Calculate the net profit margin ratio for 2015:

Net profit margin ratio=Net incomeNet sales revenue=$2,000$58,000×100=3.45%

Hence, the net profit margin ratio for the year 2015 is 3.45%.

  • By computing the net profit margin ratio, Company KK net profit margin ratio is 3.45%. This indicates that there is an increase in the net profit margin ratio.
  • Company KK has become effective in managing its sales and the expenses.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 3 Solutions

Financial Accounting, 8th Edition

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education