Question

P1.5A (LO 4,5) Writing Financial Statement Financial statement information about four differ. ent companies is as follows. De Alpha Company Psi Beta Company Company Omega Company $ 80,000 41,000 $150,000 $ 90,000 (d) 40,000 80,000 49,000 90,000 (b) January 1, 2020 Assets Liabilities Owner's equity December 31, 2020 Assets Liabilities Owner's equity Owner's equity changes in year Additional investment Drawings Total revenues Total expenses 60,000 50,000 112,000 72,000 (e) 170,000 (h) 82,000 (k) 100,000 151,000 8,000 (D) (c) 15,000 350,000 333,000 10,000 12.000 () 350,000 15,000 10,000 500.000 410,000 385,000 Instructions a. Determine the missing amounts. (Hint: For example, to solve for(a) Assets - Liabilities Owner's equity = $39,000.) b. Prepare the owner's equity statement for Alpha Company c. Write a memorandum explaining the sequence for preparing financial statements and the interrela- tionship of the owner's equity statement to the income statement and balance sheet

Answer 1

1..

For Alpha company:

(a)

Assets-liabilities=owners equity

80000-41000=39000

owners equity=$39000

(b)

liabilities+owners equity=assets

60000+50000=110000

Assets= $110000

©

closing owners equity=opening owners equity+additional investment-drawing-total expenses+total revenue

50000=39000+additional investment-15000-333000+350000

additional investment=$9000

For Beta company:

(d)

Assets -owners equity= liabilities

90000-40000= liabilities

liabilities=$50000

(e)

Assets-liabilities=owners equity

112000-72000 owners equity

owners equity=$40000

(f)

closing owners equity=opening owners equity+additional investment-drawing-total expenses+total revenue

40000=40000+8000-drawing -385000+410000

Drawing=$33000

For Psi company:

(g)

liabilities+owners equity=assets

80000+49000=assets

Assets= $129000

(h)

Assets -owners equity= liabilities

170000-82000= liabilities

liabilities=$88000

(i)

closing owners equity=opening owners equity+additional investment-drawing-total expenses+total revenue

82000=49000+10000-12000+total revenues-350000

total revenues=$385000

For Omega company:

(j)

Assets -owners equity= liabilities

150000-90000= liabilities

liabilities=$60000

(k)

liabilities+owners equity=assets

100000+151000=assets

Assets= $251000

(l)

closing owners equity=opening owners equity+additional investment-drawing-total expenses+total revenue

151000=90000+15000-10000+500000-total expenses

total expenses=$444000

2…
Statement of owners equity
for Alfa Company
particulars	$
Opening capital	39000
add:additional capital	9000
less:drawing	-15000
add: net profit	17000
(350000-333000)
Closing capital	50000

3..

Financial statements are how companies communicate their story. Thanks to GAAP, there are four basic financial statements everyone must prepare . Together they represent the profitability and strength of a company. The financial statement that reflects a company’s profitability is the income statement. The statement of retained earnings – also called statement of owners equity shows the change in retained earnings between the beginning and end of a period (e.g. a month or a year). The balance sheet reflects a company’s solvency and financial position. The statement of cash flows shows the cash inflows and outflows for a company over a period of time.

There are several accounting activities that happen before financial statements are prepared. Financial statements are prepared in the following order:

1. Income Statement
2. Statement of Retained Earnings – also called Statement of Owners’ Equity
3. The Balance Sheet
4. The Statement of Cash Flows

The income statement, statement of owner's equity, balance sheet, are all interrelated. The income statement for a period shows how assets and liabilities were used, and relates to the statement of owner's equity. The statement of owner's equity relates to the balance sheet. This last relationship between the statement of owner's equity and the balance sheet allows the balance sheet to balance.

The four financial statements relate to each other and correlate to provide external users, such as creditors, customers, lenders, and government agencies, an accurate and important financial picture of a business entity. By examining all the financial statements, which reveal both strengths and weaknesses, good investment and credit decisions can be made by external users, such as stockholders, lenders, and others. Managers can also use the financial statements' information for effective financial planning and decision-making.