Problem 2.
8 Recording transactions and preparing financial statements
Financial balances for the car hire business of John’s Limos on 31 March 2016 are provided below in a table in accounting equation form similar to the
chapter illustrations.
Assets = Liabilities + Equity
Office Fuel
Accounts Equip Motor Supplies Accounts John Limos,
+
Cash at Bank + Receivable + ment + Vehicles 0 = Payable + Loan Payable + Capital
+
Bal. $11 000 + $15 000 + $1 500 + $94 000 = $3 500 + $12 000 + $106 000
During April, the business of John’s Limos entered into the following transactions:
1. Collected $8000 of the accounts receivable.
2. Paid $2000 of the accounts payable.
3. Purchased another vehicle for $48 000. Paid $5000 in cash and signed a loan agreement for the balance.
4. Billed customers for services performed, $10 500.
5. Fuel supplies purchased on credit, $3750.
6. Paid expenses in cash, $4250 (wages, $2400; car cleaning $1200; advertising, $650).
7. John Limos withdrew $2000 for personal use.
8. Paid parking fines of $300.
Required
A. List the 31 March balances for assets, liabilities and equity in table form as shown below.
B. Record the effects of each transaction. Show the total of each column after recording each transaction.
C. Prepare an income statement, a statement of changes in equity and a statement of cash flows for the month ended 30 April 2016, and a balance sheet
(account format) as at 30 April 2016.
Solutions Manual to accompany Financial Accounting 9e by Hoggett et al
A. and B.
Assets = Liabilities + Equity
Cash at Accounts Fuel Office Motor Accounts Loans John Limos,
Bank + Receivable + Supplies + Equipment + Vehicles = Payable + Payable + Capital
$11 000 + $15 000 + 0 + $1 500 + $94 000 = $3 500 + $12 000 + $106 000
(1) + 8 000 – 8 000
19 000 + 7 000 + 0 + 1 500 + 94 000 = 3 500 + 12 000 + 106 000
(2) – 2 000 – 2 000
17 000 + 7 000 + 0 + 1 500 + 94 000 = 1 500 + 12 000 + 106 000
(3) – 5 000 +48 000 +43 000
12 000 + 7 000 + — + 1 500 + 142 000 = 1 500 + 55 000 + 106 000
(4) +10 500 +10 500
12 000 + 17 500 + — + 1 500 + 142 000 = 1 500 + 55 000 + 116 500
(5) + 3 750 + 3 750
12 000 + 17 500 + 3 750 + 1 500 + 142 000 = 5 250 + 55 000 + 116 500
(6) – 4 250 – 4 250
7 750 + 17 500 + 3 750 + 1 500 + 142 000 = 5 250 + 55 000 + 112 250
(7) – 2 000 – 2 000
5 750 + 17 500 + 3 750 + 1 500 + 14 2000 = 5 250 + 55 000 + 110 250
(8) -300 – 300
5 450 + 17 500 + 3 750 + 1 500 + 142 000 = 5 250 + 55 000 + 109 950
© John Wiley & Sons Australia, Ltd 2015 2.2
Chapter 2: Financial statements for decision making
C.
JOHN’S LIMOS
Income Statement
for the month ended 30 April 2016
INCOME
Services income $10 500
EXPENSES
Wages expense $2 400
Car cleaning expense 1 200
Advertising expense 650
Parking fines expense 300
4 550
PROFIT $5 950
JOHN’S LIMOS
Statement of Changes in Equity
for the month ended 30 April 2016
John Limos, Capital – 1 April 2016 $106 000
Add: Profit for the month 5 950
111 950
Less: Drawings during the month 2 000
John Limos, Capital – 30 April 2016 $109 950
Solutions Manual to accompany Financial Accounting 9e by Hoggett et al
JOHN’S LIMOS
Statement of Cash Flows
for the month ended 30 April 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $8 000
Cash paid to suppliers and employees (1) (6 550)
Net cash from operating activities $1 450
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of vehicle (5 000)
Net cash used in investing activities (5 000)
CASH FLOWS FROM FINANCING ACTIVITIES
Drawings by owner (2 000)
Net cash used in financing activities (2 000)
Net decrease in cash held (5 550)
Cash at beginning of month 11 000
Cash at end of month $5 450
(1) Paid Accounts Payable $2000 + Cash Expenses $4250 + Parking fines $300
= $6550
JOHN’S LIMOS
Balance Sheet
as at 30 April 2016
ASSETS LIABILITIES
Cash at bank $5 450 Accounts payable $5 250
Accounts receivable 17 500 Loan payable 55 000
Fuel supplies 3 750 EQUITY
Office equipment 1 500 John Limos, Capital 109 950
Motor vehicles 142 000
$170 200 $170 200
© John Wiley & Sons Australia, Ltd 2015 2.4
