STARTING UP A BUSINESS

1. Use the accounting equation to compute the missing financial statement amounts:

Company Assets = Liabilities + Equity

A P300,000 ________ 250.000
B _______ 450,000 350,000
C 900,000 150,000 ______
D 500,000 ______ 2/5
E _______ 20% or 800,000 _______

2. Refer to number 1. Considering the net worth of each firm, which one is most solvent? Assume
profit earned by each firm is P200,000, which one has the highest return on investment (use the
formula: Profit/Equity x 100= _%)

3.
A. Total assets of ABC Financial Co. equals P1,400,000 and owner has a 60% interest over
it. How much is liabilities?
B. Total assets of Red River Co amounts to P2,550,000 with equal liabilities and equity
amounts. How much is the owner's equity?
C. Total liabilities of Danielle Company amounts to P400,000 which is 40% of the total
assets. How much is owner’s equity?
D. Total liabilities amounts to P500,000. Total owner’s equity is thrice the liabilities. How
much is total assets?

4. Complete the statement of financial position of Mr. Red.

Assets Liabilities and Owner’s Equity
Cash P7,000 Accounts Payable P14,000
Accounts Receivable _____ Notes Payable _______
Car _____ Red, Capital _______

Use the following data to complete the statement and give the total assets and total
liabilities and owner’s equity:
a. Red’s record shows customers owe the firm P40,000.
b. The car costs P180,000 but its current trade in value is only P100,000.
c. Mr. Red signed a note payable to the bank for P300,000. But he says he has
already paid half of this.
d. He started with a capital of P50,000 and above statement was made after three
months. He made no additional investment or withdrawal. Did the change result
from a profit or loss? Explain.

5. The following items were found in the financial statement of Marny’s Sports Center:
Cash P120,000 Accounts Receivable P280,000
Bank Loan 440,000 Accounts Payable 360,000
Supplies 10,000 Car 892,000
Equipment 500,000 Office Furniture 156,000
 a. Group the items into assets and liabilities
b. Determine the center’s net worth by means of an accounting equation

6. Using the data in No. 5, explain what will happen to the assets, liabilities and owner’s equity if a
set of furniture was purchased and P20,000 cash was paid.

7. Using the data in No. 5, explain what will happen to the assets, liabilities and owner’s equity if
additional equipment of P50,000 were purchased on credit

8. Using the data in No. 5, explain what will happen to the assets, liabilities and owner’s equity if
cash of P1,000 was withdrawn by the owner.

9. A list of transactions appear below. Indicate which accounting elements of the business are
affected by placing the amount and the + (increase) or - (decrease) sign or NA, if accounts are
not affected, in the respective columns. Ariel is the owner-manager of the business. Unless
otherwise stated, the transactions are all for business.

Transactions Assets Liabilities Owner’s Equity

A. Ariel received P1,000,000 as

retirement pay.

B. He invested P500,000 in a pizza

parlor and bought a car P500,000 for
his own use.

C. He hired a cook, a cashier and a

server for a monthly salary of P5,000
each worker.

D. He bought cooking equipment and

paid P350,000

E. He bought office equipment worth

P125,000 on account from D’Best

F. He paid half of the account due to

D’Best

G. He took home P5,000 cash for his

own use.