Question :
190. Simpson Designers began operations April 1, 2011. The financial statements : 1226638
190. Simpson Designers began operations on April 1, 2011. The financial statements for Simpson Designers are shown below for the month ended April 30, 2011 (the first month of operations). Determine the missing amounts for letters (a) through (o).
Simpson DesignersIncome StatementFor the Month Ended April 30, 2011
Fees earned
$27,000
Operating expenses:
Wages expense
$5,250
Rent expense
(a)
Supplies expense
4,600
Utilities expense
400
Miscellaneous expense
1,250
Total operating expenses
(b)
Net income
$ (c)
Simpson DesignersRetained Earnings Statement For the Month Ended April 30, 2011
Retained Earnings, April 1, 2011
0
Net income for April
$ (d)
Less dividends
6,000
Increase in retained earnings
(e)
Retained Earnings, April 30, 2011
$ (f)
Simpson DesignersBalance SheetApril 30, 2011
Assets
Liabilities
Cash
$ (g)
Accounts payable
$ (i)
Supplies
8,100
Stockholders’ Equity
Land
(h)
Capital stock $ (j)
Total assets
$55,900
Retained earnings (k)
Total stockholders’ equity
38,100
Total liabilities and stockholders’ equity
$ (l)
Simpson DesignersStatement of Cash FlowsFor the Month Ended April 30, 2011
Cash flows from operating activities:
Cash received from customers
$23,000
Deduct cash payments for expenses and payments to creditors
4,200
Net cash flow from operating activities
$ 18,800
Cash flows from investing activities:
Cash payments for acquisition of land
(17,000)
Cash flows from financing activities:
Cash received from sale of capital stock
$ (m)
Deduct cash dividends
(n)
Net cash flow from financing activities
(o)
Net cash flow and April 30, 2011, cash balance
$ (p)
Place your answers in the space provided below. Hint: Use the interrelationships among the financial statements to solve this problem.
(a)
___________
(b)
___________
(c)
___________
(d)
___________
(e)
___________
(f)
___________
(g)
___________
(h)
___________
(i)
___________
(j)
___________
(k)
___________
(l)
___________
(m)
___________
(n)
___________
(o)
___________
(p)
___________
191. CPA Associates was organized on January 1, 2011, as a corporation. List the errors that you find in the following financial statements and prepare the corrected statements for the three months ended March 31, 2011.
CPA AssociatesIncome StatementFor the Three Months Ended March 31, 2011
Fees earned
$42,000
Operating expenses:
Salary expense
$9,735
Rent expense
5,200
Advertising expense
3,950
Utilities expense
3,225
Miscellaneous expense
4,000
Answering service expense
2,550
Supplies expense
4,000
Total operating expenses
28,000
Net income
$14,000
CPA AssociatesRetained Earnings StatementMarch 31, 2011
Retained earnings, January, 1, 2011
$ 0
Net income for the 3 months
$ 14,000
Less dividends
5,000
Increase in stockholders’ equity
11,000
Retained earnings, January, 31, 2011
$11,000
Balance SheetFor the Three Months Ended March 31, 2011
Assets
Stockholders’ Equity
Land
$13,000
Capital stock $20,000
Cash
10,860
Retained earnings 11,000
Accounts payable
2,670
Total stockholders’ equity
$31,000
Supplies
925
Liabilities
Total assets
$33,225
Accounts receivable
2,225
Total liab. & stockholders’ equity
$33,225
Errors in the CPA Associates financial statements include the following:
(1)
Miscellaneous expense is incorrectly listed after utilities expense in the income statement. Miscellaneous expense should be listed as the last expense, regardless of the amount.
(2)
The operating expenses are incorrectly added. Instead of $28,000, the total should be $32,660.
(3)
Because operating expenses are incorrectly added, the net income is incorrect. It should be listed as $9,340.
(4)
The retained earnings statement should be for a period of time instead of a specific date. That is, the retained earnings statement should be reported “For the Three Months Ended March 31, 2011.”
(5)
The amount of the retained earnings is incorrect. It should be $4,340.
(6)
The name of the company is missing from the balance sheet heading.
(7)
The balance sheet should be as of “March 31, 2011,” not “For the Three Months Ended March 31, 2011.”
(8)
Cash, not Land, should be the first asset listed on the balance sheet.
(9)
Accounts payable is incorrectly listed as an asset on the balance sheet. Accounts payable should be listed as a liability.
(10)
Liabilities should be listed on the balance sheet ahead of stockholders’ equity.
(11)
Accounts receivable is incorrectly listed as a liability on the balance sheet. Accounts receivable should be listed as an asset.
(12)
The total assets and the total liabilities and stockholders’ equity do not add.
Correctly prepared financial statements for CPA Associates are shown below.
