Problem 1 - 1 Total assets = $120,000 Owners' equity = $80,000

Problem 1 - 2 Year 1 Current assets NonCurrent assets Total assets Current liabilities NonCurrent liabilities Paid-in capital Retained earnings Total sources of funds $410,976 $288,456 $247,135 $15,583 $240,518 $78,585 Year 2 $90,442 Year 3

$247,135

Problem 1 - 3 Year 4 $10,000 2,500 7,500 5,330 2,170 870 $1,300

Sales Less: Cost of goods sold Gross margin Less: other expenses Profit before taxes Taxes expense Net Income (Profit after taxes)

Problem 1 - 4

a. (2) bougth the equipment, (3) goods purchased, (6) paid to suppliers, (7)received amount due from customers, (11) us b. Balance sheet at the end of last transaction is provided below: Assets Cash Accounts Receivable Supplies Inventory Equipment Liabilities and Owners' Equity Accounts payable Owners' equity Retained earnings

12,750 4,000 800 7,000 24,550

c. Revenue for the month is 10,000 Expenses in the month is 6,150 Hence, operating profit is 3,850

d. Cash was used to make purchase of fixed assets and inventory. Part of it is funded with credit from suppliers. Cash was also used in selling the goods on credit and payment for various expenses.

e. Some of the revenues are not received in case (by the date of the statement) Payments on account of equipment purchased would not be shown in the income statement. The depreciation of the equipment does not result in any cash payment. The travel expenses (paid by credit card) will be reflected in income statement but not in cash a/c as it is not yet paid Only part of the goods inventory purchased in the month was consumed in sales operations. Remaining amount is the One can reconcile the differences between income statement and cash using the cash flow statement (covered in sess

Problem 1 - 5 a. You can build a worksheet (Transaction analysis) as shown in Problem 1-4. b. Calculate the amount of each asset and liability after each transaction. The balances of assets and liabilities after the last transaction is as below:

Cash +
$17,250 $17,250

Accounts Receivabl
$8,000 $8,000

Suppli es
$400 $400

Equipme nt
$8,000 $8,000

Accounts Payable
$3,000

1,000
$4,000

c. Commissions for the month is $10,000 Total expenses is $5,350. Hence, operating profit is $4,650

d. You may analyse in the lines I have analysed it for problem 1-4. You may segregate them into operating activities and i e. Analyse in the lines of Problem 1-4. Total receipts is $27,000 Total cash payment is $9,750 Hence, the cash balance is increased by $17,250 (viz. from 0 to $17,250).

Year 4 $69,090 $220,111 $17,539

ue from customers, (11) used inventory for personal consumption

700 20,000 3,850 24,550

edit from suppliers.

sh a/c as it is not yet paid s. Remaining amount is the cash locked in inventory. statement (covered in sessions 7 & 8 of the course)

Owners Equity
$30,650 Balance before the last transaction

-1,000 Expenses
$29,650 Balance after the last transactiion. Asset total is $33,650 After each transaction, sum of assets shall be equal to sum of liabilities and owners' equity

nto operating activities and investment activities

ties and owners' equity