Preparation and Interpretation of Financial Statements

P 1. Below is a list of financial statement items.

____ Utilities expense ____ Equipment ____Withdrawals

____ Building ____ Revenues ____Fees earned

____ Owners capital ____ Accounts receivable ____ Cash

____ Net income ____ Accounts payable ____ Supplies

____ Land ____ Rent expense ____ Wages expense

Required

1. Indicate whether each item is found on the income statement (IS), statement of owners equity (OE), and/or balance sheet (BS). 2. Which statement is most closely associated with the goal of profitability?

Integration of Financial Statements

P 2. The following three independent sets of financial statements have several amounts missing:

Income Statement Set A Set B Set C

Revenues $5,320 $ 8,600 $ m

Expenses a g 2,010

Net income $ 510 $ h $ n

Statement of Owners Equity

Beginning balance $1,780 $15,400 $ 200

Net income b i 450

Less withdrawals c 1,000 o

Ending balance $ d $16,000 $ p

Balance Sheet Total assets $ e $ j $1,900

Liabilities $ f $ 2,000 $1,300

Owners equity

Owners capital 2,100 k q

Total liabilities and owners equity $2,700 $ l $ r

Required

1. Complete each set of financial statements by determining the amounts that correspond to the letters. 2. Why is it necessary to prepare the income statement prior to the balance sheet?

Curious if you got the right answer? Look at the Check Figures section that precedes Chapter 1.

Preparation and Interpretation of Financial Statements

P 4. The following are the accounts of Unique Ad, an agency that develops marketing materials for print, radio, and television. The agencys first year of operations just ended on January 31, 2010.

Accounts Payable $ 19,400

Accounts Receivable 24,900

Advertising Service Revenue 165,200

Cash 1,800

Equipment Rental Expense 37,200

Marketing Expense 6,800

Office Rent Expense 13,500

Owners Capital 5,000*

Salaries Expense 86,000

Salaries Payable 1,300

Supplies 1,600

Supplies Expense 19,100

Withdrawals 0

________

*Represents the initial investment by the owner.

Required

1. Prepare the income statement, statement of owners equity, and balance sheet for Unique Ad.

2. Review the financial statements and comment on the financial challenges Unique Ad faces.