Question

1. Complete the following Balance SheeEquations: Assets Liability Stockholders' Equity a. 245000 130000 ? b. 318000 Liability is twice the Stockholders' Equity c. ? Liability is half the Stockholders' Equity 168000 2. The following is record of Restaurant 2313's purchases and sales of wines: March 2: Purchased 12 bottles of M&B wine @$12.50 each March 16: Purchased 24 bottles of M&B wine @$13.50 each March 31: Sold 32 bottles during March @$26 each. Determine the value of El and CoS for wines in March using: a. First-in, First-out method (FIFO) b. Last-in, First-out method (LIFO) 3. Restaurant 3313 started business with total assets of $450,000 and total liabilities of CORO DO

Answer 1

1. Assets = Liabilities + Stockholder’s Equity (Balance Sheet Equation)

a. Assets = 245000

Liabilities = 130000

Stockholder’s Equity = Assets – Liabilities = 245000 – 130000 = 115000

b. Assets = 318000

Liability is twice the Stockholder’s Equity

Let, Stockholder’s Equity be ‘x’. Thus, Liability = ‘2x’

Thus, 318000 = x + 2x

X = 318000 / 3 = 106000

Stockholder’s Equity = 106000

Liability = Stockholder’s Equity * 2 = 106000 * 2 = 212000

c. Stockholder’s Equity = 168000

Liability is half the Stockholder’s Equity

Liability = 168000 / 2 = 84000

Assets = Liability + Stockholder’s Equity = 84000 + 168000 = 252000

2. a. First-in, First-out Method (FIFO)

Ending Inventory = 12 Bottles Purchased on March 2 + 24 Bottles Purchased on March 16 – 32 Bottles Sold on March 31 = 4 Bottles

Under FIFO Method, Items Purchased First are Sold First.

In this case, 32 Bottles Sold on March 31 are comprising of 12 Bottles Purchased on March 2 + 20 Bottles Purchased on March 16.

Thus, the Ending Inventory of 4 Bottles is from the Purchase made on March 16.

Value of Ending Inventory = 4 Bottles * Cost of Purchase on March 16 = 4 Bottles * $13.50 = $54

Value of Cost of Sales = Value of 12 Bottles Purchased on March 2 + Value of 20 Bottles Purchased on March 16.

Value of Cost of Sales = (12 Bottles * $12.50) + (20 Bottles * $13.50) = $150 + $270 = $420

b. Last-in, First-Out Method (LIFO)

Ending Inventory = 12 Bottles Purchased on March 2 + 24 Bottles Purchased on March 16 – 32 Bottles Sold on March 31 = 4 Bottles

Under LIFO Method, Items Purchased Recently are Sold First.

In this case, 32 Bottles Sold on March 31 are comprising of 24 Bottles Purchased on March 16 + 8 Bottles Purchased on March 2

Thus, the Ending Inventory of 4 Bottles is from the Purchase made on March 2.

Value of Ending Inventory = 4 Bottles * Cost of Purchase on March 2 = 4 Bottles * $12.50 = $50

Value of Cost of Sales = Value of 24 Bottles Purchased on March 16 + Value of 8 Bottles Purchased on March 2.

Value of Cost of Sales = (24 Bottles * $13.50) + (8 Bottles * $12.50) = $324 + $100 = $424

3. a. Total Assets = Total Liabilities + Stockholder’s Equity

Total Assets at the Beginning = $450,000

Total Liabilities at the Beginning = $250,000

Stockholder’s Equity at the Beginning = Total Assets at the Beginning – Total Liabilities at the Beginning = $450,000 - $250,000 = $200,000

b. Profit for the year = Revenues – Costs and Expenses

Revenues = $735,000

Costs and Expenses = $430,000

Profit for the year = $735,000 - $430,000 = $305,000

            c. Stockholder’s Holding at the End of the Year = Stockholder’s Holding at the Beginning of the Year +  Retained Earnings   

              Stockholder’s Holding at the Beginning of the Year = $200,000

              Dividends = $105,000

              Retained Earnings = Profit for the Year – Dividends = $305,000 - $105,000 = $200,000

              Stockholder’s Ending at the End of the Year = $200,000 + $200,000 = $400,000