Management Accounting I Construction of Balance Sheet (PGP22: Section A, B & C)
Management Accounting I Construction of Balance Sheet (PGP22: Section A, B & C)
A number of business transactions carried out by Smalling Manufacturing Company are as follows:
a. Borrowed money from a bank.
c. Paid a liability.
d. Returned for credit some of the office equipment previously purchased on credit but not yet
paid for. (Treat this the opposite of a transaction in which you purchased office equipment on
credit.)
e. Sold land for cash at a price in excess of cost. (Hint: The difference between cost and sales
price represents a gain that will be in the company's income statement.)
Solution 2.1:
EXERCISE 2.2:For each of the following categories, state concisely a transaction that will have the
required effect on the elements of the accounting equation.
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a. Increase an asset and increase a liability.
Solution 2.2:
e. Bought machine, Paid some margin money with cash and remaining is to be paid in instalments.
PROBLEM 2.3: Listed below in random order are the items to be included in the balance sheet of
Smokey Mountain Lodge at December 31, 2011:
Prepare a balance sheet at December 31, 2011 with proper heading and classification.
Solution 2.3:
a.
Balance Sheet of SMOKEY MOUNTAIN LODGE as on Dec 31, 2011
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Assets Liabilities & Owners' Equity
Non-current Assets Equity
Land $425,000 Retained earnings $175,000
Buildings $450,000 Capital Stock $135,000
Furnishings $58,700 Total Equity $310,000
Equipment $39,200 Current Liabilities
Snow Mobiles $15,400 Accounts payable $54,800
Total Non-Current Assets $988,300 Notes payable $620,000
Current Assets Salaries payable $33,500
Cash $31,400 Interest Payable $12,000
$7,20,300
Account Receivables $10,600 Total Liabilities
Total Current Assets $177,000
TotalAsset
s 1,030,300 Total Equity & liabilities 1,030,300
Exercise 2.4:
The following six transactions of Ajax Moving Company, a corporation, are summarized in equation
form, with each of the six transactions identified by a letter. For each of the
transactions (a) through (f) write a separate statement explaining the nature of the transaction. For
example, the explanation of transaction (a) could be as follows: Purchased equipment for cash at a
cost of $3,200.
Solution 2.4:
Description of transaction:
c. Purchased equipment of $13,500 with a loan/borrowing of $10,000 and cash in hand $3500
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e. Raised through cash an additional capital of $15,000
Exercise 2.5:
Goldstar Communications was organized on December 1 of the current year and had the following
account balances at December 31, listed in tabular form:
Early in January, the following transactions were carried out by Goldstar Communications:
Instructions
a. List the December 31 balances of assets, liabilities, and owners' equity in tabular form as shown
above.
b. Record the effects of each of the five transactions in the preceding tabular arrangement and
show the totals for all columns after each transaction.
Solution 2.5:
Owners'
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Cash + Land + Building + Equipment = Payable + Payable + Stock
$ 37,000 $ 95,000 $ 125,000 $ 51,250 $ 80,000 $ 28,250 $ 200,000
(1) $ 35,000.00 $ 35,000.00
$ 22,500.00 $ 35,000.00 $ 55,000.00 $ 67,500.00
(2)
$ 9,500.00 $ 9,500.00
(3)
(4) $ 20,000.00 $ 20,000.00
(5) $ 28,250.00 $ 28,250.00
Exercise 2.6:
The items making up the balance sheet of Rankin Truck Rental at December 31 are listed below in
tabular form.
During a short period after December 31, Rankin Truck Rental had the following transactions:
1. Bought office equipment at a cost of $2,700. Paid cash.
4. Borrowed $10,000 from a bank. Signed a note payable for that amount.
5. Purchased two trucks for $30,500. Paid $15,000 cash and signed a note payable for the
balance.
Solution 2.6:
Owners'
Equipment
Cash + Receivable + Trucks + = Payable + Payable + Stock
$ 9,500 $ 13,900 $ 68,000 $ 3,800 $ 20,000 $ 10,200 $ 65,000
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$ 9500 $ 3800
-$ 2700 $ 2700
(1) $ 6800 $ 13,900 $ 68,000 $ 6500 $ 20,000 $ 10,200 $ 65,000
$ 6800 $ 13,900
$ 4000 $ - 4,000
(2) $ 10800 $ 9,900 $ 68,000 $ 6500 $ 20,000 $ 10,200 $ 65,000
$ 10800 $ 10,200
$ -3200 $ -3,200
(3) $ 7600 $ 9,900 $ 68,000 $ 6500 $ 20,000 $ 7,000 $ 65,000
$ 7600 $ 20,000
$ 10000 $10,000
(4) $ 17600 $ 9,900 $ 68,000 $ 6500 $ 30,000 $ 7,000 $ 65,000
$ 17600 $ 68,000 $ 30,000
$ -15000 $ 30,500 $ 15,000
(5) $ 2600 $ 9,900 $ 98,500 $ 6500 $ 45,000 $ 7,000 $ 65,000
$ 2600 $ 65,000
$ 75000 $ 75000
(6) $ 77600 $ 9,900 $ 98,500 $ 6500 $ 45,000 $ 7,000 $140,000
$ 77600 $ 9,900 $ 98,500 $ 6500 $ 45,000 $ 7,000 $140,000
Exercise 2.7:HERE COME THE CLOWNS! is the name of a traveling circus. The ledger accounts of the
business at June 30, 2011, are listed here in alphabetical order:
Prepare a balance sheet by using these items and computing the amount of Cash at June 30,
2011.
Solution 2.7:
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Tents $63,000 Current Liabilities
Trucks & Wagons 105,840 Notes payable $180,000
Costumes $31,500 Accounts payable $26,100
Total Non-current Assets $503,610 Salaries payable $9,750
Current Assets Total Liabilities 215,850
Notes Receivable $9,500
Accounts Receivable $7,450
Cash $32,520
Total Current Assets $49,470
Total Assets $553,080 Total Equity & Liabilities $553,080