MGT 

200A 001 FQ 2020 – Week 2 Assignment

M2-14
Determining Retained Earnings and Net Income Using the Balance Sheet The following information is
reported for Kinney Corporation at the end of 2018.

Accounts receivable $23000

Accounts payable 11000
Cash 8000
Common stock 110000
Retained earnings ?
Supplies inventory 9000
Equipment 138000

a. Compute the amount of retained earnings reported at the end of 2018. ?

Cash Assets Non-Cash Assets Liabilities Contributed Capital Retained Earnings

Cash = 8000 Account Accounts Payable Common Stock = Retained Earnings

Receivable = = 11000 110000
23000
+ Supplies
inventory = 9000

+ Equipment =
138000
8000 170000 11000 110000 ?

Cash Assets + Non Cash Assets = Liabilities + Contributed Capital + Retained Earnings
8000 + 170000 = 11000 + 110000 + Retained Earnings
Retained Earnings = 57,000
b. If the amount of retained earnings at the beginning of 2018 was $30,000, and $12,000 in cash
dividends were declared and paid during 2018, what was its net income for 2018?
Retained earnings at the end of 2018 = Retained earnings at the beginning of 2018 + Net Income -
Dividends
57000 = 30000 +Net Income – 12000
Net Income = 39000
M2-18
Analyzing Transaction Effects on Equity Would each of the following transactions increase, decrease, or
have no effect on equity?
a. Paid cash to acquire supplies. - Decrease
Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
(X) (X) X (X)

b. Paid cash for dividends to shareholders. - Decrease

Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
(X) (X)

c. Paid cash for salaries. - Decrease

Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
(X) (X) X (X)

d. Purchased equipment for cash. – No Change

Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
(X) X

e. Shareholders invested cash in business in exchange for common stock. - Increase

Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
X X

f. Rendered service to customers on account.- Increase

 Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
X X X X

g. Rendered service to customers for cash. - Increase

Let the amount be X

Cash Non-Cash Liabilities Contributed Retained Revenue Expense Net Income

Assets Assets Capital Earnings
X X X X

M2-29
Analyzing Transactions Using the Financial Statement Effects Template Report the effects for each of the
following independent transactions using the financial statement effects template. If no entry should be
made, answer "No entry."

Transaction Balance sheet Income statement

Cash +Non- =Liabilities +Contributed +Earned Revenues - =Net
Asset Cash Capital Capital Expenses Incom
asset e
a)Issue 20,000 20,000
common
stock for
$20,000 cash
b)Pay $2,000 (2,000) (2,000) 2,000 (2,000)
rent in
advance
c)Purchase (7,000) 7,000
computer
equipment
for $7,000
cash
d)Purchase 13,000 (13,000)
and receive
$13,000 of
inventory on
account (i.e.,
pay supplier
later)
e)Pay (13,000 13,000
supplier of )
inventory in
part (d)
E2-41
Classifying Balance Sheet and Income Statement Accounts and Computing Current Ratio
Shoprite Holdings Ltd is an African food retailer listed on the Johannesburg Stock Exchange. The
following accounts are selected from its annual report for the fiscal year ended July 2, 2017. The amounts
below are in millions of South African rand.
a. Indicate the appropriate classification of each account as appearing in either its balance sheet (B) or its
income statement (I).

Amount (R) Classification

Sales of merchandise 141 ,000 Income Statement
Depreciation and amortization 2,176 Balance Sheet
Reserves (Retained earnings) 18,838 Balance Sheet
Property, plant and equipment 18,407 Balance Sheet
Cost of goods and services 107, 174 Income Statement
Trade and other payables 17,414 Balance Sheet
Total assets 55,723 Balance Sheet
Total equity 27,749 Balance Sheet
Employee benefits expense 10,498 Income Statement
Total noncurrent assets 24,572 Balance Sheet
Total noncurrent liabilities 1,492 Balance Sheet

b. Using the data, compute Shoprite's total liabilities at July 2, 2017.

Total Liabilities = Total Assets – Total Equity = 55,723 – 27,749 = 27,973.
c. Calculate Shoprite's current ratio as of July 2, 2017.
Current Assets Total Assets−Total non current assets
Current Ratio = = =
Current Liabilities Total Liabilities−Total non−current liabilities
55723−24572
= 1.17
27973−1492

P2-57
Analyzing Transactions Using the Financial Statement Effects Template and Preparing an Income
Statement On December 1, 2018, R. Lambert formed Lambert Services, which provides career and
vocational counseling services to graduating college students. The following transactions took place
during December, and company accounts include the following: Cash, Accounts Receivable, Land,
Accounts Payable, Notes Payable, Common Stock, Retained Earnings, Counseling Services Revenue,
Rent Expense, Advertising Expense, Interest Expense, Salary Expense, and Utilities Expense.
1. Raised $7,000 cash through common stock issuance.
2. Paid $750 cash for December rent on its furnished office space.
3. Received $500 invoice for December advertising expenses.
 4. Borrowed $15,000 cash from bank and signed note payable for that amount.
5. Received $1,200 cash for counseling services rendered.
6. Billed clients $6,800 for counseling services rendered.
7. Paid $2,200 cash for secretary salary.
8. Paid $370 cash for December utilities.
9. Declared and paid a $900 cash dividend.
10. Purchased land for $13,000 cash to use for its own facilities.
11. Paid $100 cash to bank as December interest expense on note payable.

Cash Non- Liabilitie Contributed Retained Revenue Expense Net

Assets Cash s Capital Earnings Income
Assets
1. 7000 7000
(Common
Stock)
2. (750) (750) (750) (750)
(Rent
Expenses)
3. 500 (500) 500 (500)
(advert.
Expense)
4. 15000 15000
(Notes
Payable)
5. 1200 1200 1200 1200
(Revenue)
6. 6800 6800 6800 6800
(revenue)
7. (2200) (2200) 2200 (2200)
(Wages
Expense)
8. (370) (370) 370 (370)
(Utility
Expenses)
9. (900) (900)
(Dividends)
10 (13000) 13000
. (Land)
11 (100) (100) 100 (100)
. (Interest
expense)