Q24E - Horngren'S Financial And Managerial Accounting

Question

The records of Felix Company show the following at December 31, 2018:

Assets & Liabilities: Equity:

Beginning: Common Stock \( 11,000

Assets \) 67,000 Dividends 8,000

Liabilities 11,000 Revenues 205,000

Ending: Expenses ?

Assets $ 46,000 Retained Earnings, January 1, 2018 45,000

Liabilities 34,000

Requirements 1. Compute the missing amount for Felix Company. You will need to determine Retained Earnings, December 31, 2018, and total stockholders’ equity, December 31, 2018. 2. Did Felix earn a net income or suffer a net loss for the year? Compute the amount.

Step-by-Step Solution

Answer

(1) Expenses equals $241,000. 

(2) Felix earned loss in 2018 of $(236,000).

Step-by-Step-Solution Step 1: Calculation of total stockholders’ equity for 2018 end

Total Stockholders’ equity for 2018 End is calculated as follows:

$\begin{array}{c}\mathbf{TotalStockholders}\mathbf{\text{'}}\mathbf{Equity}\text{ }\mathbf{onDecember}\mathbf{31}\text{, }\mathbf{2018}\mathbf{=}\mathbf{Assets}-\mathbf{Liabilities}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{46}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{34}\mathbf{,}\mathbf{000}\\ =\$12,000\end{array}$

Step 2: Calculation of retained earnings for 2018 end

Retained Earnings for 2018 is calculated as follows:

$\begin{array}{c}\mathbf{RetainedEarningsonDecember}\mathbf{31}\mathbf{,}\mathbf{2018}\mathbf{=}\mathbf{TotalStockholders}\mathbf{\text{'}}\mathbf{Equity}\text{}\mathbf{onDecember}\mathbf{31}\mathbf{,}\mathbf{2018}-\mathbf{CommonStock}\\ \mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{11}\mathbf{,}\mathbf{000}\\ =\$1,000\end{array}$

Step 3: Calculation of expenses

(1) Expenses is calculated as follows: 

$\begin{array}{c}\mathbf{Expenses}\mathbf{=}\mathbf{RetainedEarningsonJanuary}\mathbf{1}\mathbf{,}\mathbf{2018}-\mathbf{RetainedEarningsonDecember}\mathbf{31}\mathbf{,}\mathbf{2018}+\mathbf{Revenues}-\mathbf{Dividends}\\ \mathbf{=}\mathbf{\$}\mathbf{45}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000}+\mathbf{\$}\mathbf{205}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{000}\\ =\$241,000\end{array}$

Step 4: Calculation of net income (loss)

(2) Net income (loss) is calculated as follows:  

$\begin{array}{c}\mathbf{NetIncome}\left(\mathbf{Loss}\right)\mathbf{=}\mathbf{Revenues}-\mathbf{Expenses}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{205}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{241}\mathbf{,}\mathbf{000}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}(\mathbf{236}\mathbf{,}\mathbf{000})\end{array}$

Thus, expenses is $241,000 and net loss equals $(236,000).