Question

Cuppa Beverage Ltd. has just completed its first year of operations. Presented below are its income statement and statement of financial position. No dividends were paid during the year. CUPPA BEVERAGE LTD. Income Statement Year Ended July 31, 2012 $ A 31,000 Sales Operating expenses Depreciation expense Profit before income tax expense Income tax Profit 1,000 $ D CUPPA BEVERAGE LTD. Balance Sheet Assets $ Cash Accounts receivable Inventory Prepaid rent Equipment Accumulated depreciation Total assets F 200 5,500 600 $13,000 G 11,000 $ H Liabilities and Shareholders' Equity Accounts payable Bank loan payable $5,500 $ 7,500 $9,300 Shareholders' equity Common shares (5,000 shares issued) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity K $19,800 Required: Solve for the missing amounts. Hint: It is not always best to start at the beginning and do things in alphabetical order.

Answer 1

Income Statement Sales Operating expenses Depreciation expense Profit before income tax expense Income tax Profit 37000 31000 2000 4000 1000 3000 Balance Sheet Assets Cash Accounts Receivable Inventory Prepaid Rent Equipment Accumulated Depreciation Total Assets 2500 200 55001 600 13000 2000 110001 19800 Liabilities and shareholders Equity Accounts payable Bank loan payable 5500 2000 7500 Shareholders' equity Common shares (5000 shares issued) Retained Earnings Total shareholders' equity Total liabilities and shareholders' equity 9300 3000 12300 19800

Explanation:

1) Total Assets = Total Liabilities and shareholders' equity = 19800

2) Accumulated Depreciation = Cost of Equipment - Book Value of Equipment

= 13000 - 11000 = 2000

3) Cash = Total Assets - Accounts Receivable - Inventory - Prepaid Rent - Equipment

= 19800 - 200 - 5500 - 600 - 11000 = 2500

4) Retained Earnings = Total shareholders' equity - Common shares

= 12300 - 9300 = 3000

5) Bank loan = Total Liabilities - Accounts payable

= 7500 - 5500 = 2000

6) Profit = Balance in Retained Earnings , i.e 3000

7) Profit + Income tax = Profit before income tax expense

3000 + 1000 = 4000

8) Depreciation expense = Balance in Accumulated Depreciation i.e 2000

9) Sales = Profit before income taxes + Depreciation expense + operating expense

= 4000 + 2000 + 31000 = 37000