1.
To Prepare: The financial report that compares what A and J own and owe on September 30 along with a list of any decisions made while preparing the report.
1.
Answer to Problem 1.6SDC
The Net worth of A as on September 30, is shown below:
A | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $1,000 | |
Art work | $800 | |
Total assets (A) | $1,800 | |
Liabilities | ||
Liabilities | ||
Loan payable | $250 | |
Total liabilities (B) | $250 | |
Net Worth
|
$1,550 |
Table (1)
The Net worth of J as on September 30, is shown below:
J | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $6,000 | |
Play Station Console | $250 | |
Total assets (A) | $6,250 | |
Liabilities | ||
Liabilities | ||
Tuition payable | $800 | |
Loan payable | $4,800 | |
Total liabilities (B) | $5,600 | |
Net Worth
|
$650 |
Table (2)
The Net worth of A as on September 30, based on fair value is shown below:
A | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $1,000 | |
Art work | $1,400 | |
Total assets (A) | $2,400 | |
Liabilities | ||
Liabilities | ||
Loan payable | $250 | |
Total liabilities (B) | $250 | |
Net Worth
|
$2,150 |
Table (3)
The Net worth of J as on September 30, is shown below:
J | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $6,000 | |
Play Station Console | $180 | |
Total assets (A) | $6,180 | |
Liabilities | ||
Liabilities | ||
Tuition payable | $800 | |
Loan payable | $4,800 | |
Total liabilities (B) | $5,600 | |
Net Worth
|
$580 |
Table (2)
Explanation of Solution
The financial report that compares what A and J own and owe, could be balance sheet as it summarizes the assets and the liabilities on a given date.
The above comparisons were made on the basis to:
- To estimate the net worth of both the individuals;
- Use both the Historical Cost and Fair Value to make an acceptable comparison;
- The potential assets have not been included in the report.
2.
To Identify: The better off character amongst A and J and justify as a creditor to whom one would rather lend money.
2.
Explanation of Solution
The financial position of A is better off than J as has a greater net worth. Also being a creditor lending money to A would be far more advisable as A has greater ability to repay the loan and also has less loan when compared to J.
3.
To Prepare: The financial report that compares what A and J earned in October along with a list of any decisions made while preparing the report.
3.
Answer to Problem 1.6SDC
The Net income of A in October, is shown below:
A | ||
Particulars | Amount ($) | Amount ($) |
Revenues | ||
Part Time Job (for October) | $1,500 | |
Expenses | ||
Rent expense (for October) | $470 | |
Living expenses (for October) | $950 | |
Total expenses | $1,420 | |
Net income | $80 |
Table (5)
The Net income of J in October, is shown below:
J | ||
Particulars | Amount ($) | Amount ($) |
Revenues | ||
Part Time Job (for October) | $1,950 | |
Expenses | ||
Rent expense (for October) | $800 | |
Living expenses (for October) | $950 | |
Total expenses | $1,750 | |
Net income | $200 |
Table (6)
Explanation of Solution
Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.
The above report was made on the following basis:
- Income tax for both the individuals is not calculated;
- Winning of lottery may not recur.
4.
To Identify: The successful character amongst A and J and justify as a creditor to whom one would rather lend money as a three year loan.
4.
Explanation of Solution
J is more successful than A in the month of October. However, being a creditor lending money to A would be far more advisable as A has a stable income which ensures a greater ability to repay the loan and also has less loan when compared to J.
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Chapter 1 Solutions
Fundamentals of Financial Accounting
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