u are siding with John You are siding with Maroy i. Yo Cases 543 ko! ncial State
ID: 2584415 • Letter: U
Question
u are siding with John You are siding with Maroy i. Yo Cases 543 ko! ncial Statements under Various Theories of Equity 15-2 Financial statements under Vae 2- ompany reported the following for 2014 et e C Current assets Current liabilities $87,000 19,000 Revenues Cost of goods sold 450,000 220,000 186,000 400,000 20:000 50,000 Noncurrent assets Bonds payable ( 10%, issuedatT Preferred stock, $5, $100 par Common stock, $10 par Paid-in capital in excess of par 48,000 64,000 36,000 Operating expenses Retained earnings stockholders reccived a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating. Required a. Ignoring income taxes, prepare an income statement and balance sheet for Drake Company at December 31, 2014, that is consistent with each of the following theories of equity: i. Entity theory i. Proprietary theory ili. Residual equity theory b. For each theory cited above, compute the December 31, 2014, debt- c to-equity ratio. If none would be computed, discuss whyExplanation / Answer
1) Equity theory:
Income statement
Revenues
$450,000
COGS
$220,000
Gross profit
$230,000
Operating expenses
$64,000
Net profit
$166,000
Retained earnings
Balance
$36,000
Net income
$166,000
Retained earnings
$202,000
ASSETS
Non-current assets
$186,000
Current assets
$87,000
Total assets
$273,000
LIABILITIES
Current liabilities
$19,000
Bonds payable
$100,000
Total liabilities
$119,000
Stockholder's equity
Common stock
$50,000
Prefered stock
$20,000
Paid in capital in excess of par
$48,000
Retained earnings
$202,000
Total Stockholder's equity
$320,000
2) Proprietary theory
Income statement
Revenues
$450,000
COGS
$220,000
Gross profit
$230,000
Operating expenses
$64,000
Net profit
$166,000
ASSETS
Non-current assets
$186,000
Current assets
$87,000
Total assets
$273,000
LIABILITIES
Current liabilities
$19,000
Bonds payable
$100,000
Total liabilities
$119,000
Proprietor's equity
$154,000
3) Residual equity theory
Income statement
Revenues
$450,000
COGS
$220,000
Gross profit
$230,000
Operating expenses
$64,000
Net profit
$166,000
Retained earnings
Balance
$36,000
Net income
$166,000
Minus: Preferred divided
$10,000
Bonds payable
$10,000
Retained earnings
$191,000
ASSETS
Non-current assets
$186,000
Current assets
$87,000
Total assets
$273,000
LIABILITIES
Current liabilities
$19,000
Bonds payable
$100,000
Total liabilities
$119,000
Stockholder's equity
Common stock
$50,000
Prefered stock
$20,000
Paid in capital in excess of par
$48,000
Retained earnings
$191,000
Total Stockholder's equity
$309,000
PART-2) Equity theory=119,000/320,000 =0.37
Proprietary theory=119,000/15,400,000 =0.007
Residual equity =119,000/309,000 = 0.385
Income statement
Revenues
$450,000
COGS
$220,000
Gross profit
$230,000
Operating expenses
$64,000
Net profit
$166,000
Retained earnings
Balance
$36,000
Net income
$166,000
Retained earnings
$202,000
ASSETS
Non-current assets
$186,000
Current assets
$87,000
Total assets
$273,000
LIABILITIES
Current liabilities
$19,000
Bonds payable
$100,000
Total liabilities
$119,000
Stockholder's equity
Common stock
$50,000
Prefered stock
$20,000
Paid in capital in excess of par
$48,000
Retained earnings
$202,000
Total Stockholder's equity
$320,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.