SEATWORK 5

Application

A. Owner’s Equity

Consider what you have learned and answer the following:

Case 1. The owner’s initial capital to the business is ₱50 000.00. If the business has
₱150 000.00 revenue and ₱110 000.00 expenses, how much is owner’s equity?

Revenue 150 000.00

Less: Expenses 110 000.00
Net Income 40 000.00

Capital 50 000.00
Add: Net Income 40 000.00

Owner’s Equity 90 000.00

Case 2. Initial capital of the owner to the business is ₱80 000.00. At the end of the year,
the total assets of the business amounted to ₱90 000.00, ₱40 000.00 of which
is cash and ₱50 000.00 is total cost of equipment. By then, the only obligation
of the business is the outstanding balance for the equipment amounting to ₱25
000.00. How much is the owner’s equity at year-end?

Cash 40 000.00
Equipment 50 000.00
90 000.00

Less: Equipment 25 000.00

Owner’s Equity 65 000.00

B. SCE Concept

Compute the missing amounts in the SCE of the owner. Write your answers on the blanks.

Amount I II III IV V

Beginning ₱200 000.00 ₱117 000.00 ₱325 000.00 ₱400 000.00 5.₱_________
175 000.00
Capital

Additional

Investment 50 000.00 20 000.00 40 000.00 4. 24

________
000.00 25 000.00

Net Income 30 000.00 18 000.00 3. 55

________
000.00 50 000.00 50 000.00

Drawing 25 000.00 2. 15 000.00

________ 30 000.00 16 000.00 20 000.00

Ending

Capital 1. 255
________
000.00 140 000.00 390 000.00 458 000.00 230 000.00

Amount VI VII VIII IX X

Beginning

Capital ₱140 000.00 ₱120 000.00 ₱125 000.00 ₱50 000.00 ₱24 000.00

Additional

Investment 60 000.00 0.00 18 000.00

8. ________ 16 000.00 4 000.00

Net Income 30 000.00 7. ________

60 000.00 40 000.00 20 000.00 30 000.00

Drawing 20 000.00 50 000.00 73 000.00 62 000.00

9. ________ 2 000.00

Ending

Capital 6. 210
________
000.00 130 000.00 110 000.00 24 000.00 56 000.00
10. _________

ENGAGEMENT

Now that you are equipped with the knowledge about the Statement of Changes in Equity,
let us now attempt to prepare an SCE of the following exercises.

Exercise 1. The information below is available from the books of Quijano Hauling Company as
of 31 March 2019, the end of its accounting period. Prepare the SCE of the owner.

Mr. Q, Capital, 1 April 2018 ₱500 000.00

Mr. Q, Personal 25 000.00
Hauling Income 267 000.00
Rent 48 000.00
Repairs and Maintenance 36 000.00
Utilities 12 450.00
Gas and Oil 76 000.00
 Insurance 25 000.00
Rental Income 12 000.00
Taxes and Licenses 8 450.00

Note: Mr. Q gave an additional investment of ₱20 000.00 during the year.

Quijano Hauling Company

“Statement of Comprehensive Income”
For the Year Ended of 31 March 2019

Revenues:
Hauling Income 267 000.00
Rental Income 12 000.00

Net Revenues: 279 000.00

Less: Expenses:
Rent 48 000.00
Repairs and Maintenance 36 000.00
Utilities 12 450.00
Gas and Oil 76 000.00
Insurance 25 000.00
Taxes and Licenses 8 450.00

Net Expenses: 205 900.00

Net Income 73 100.00

Quijano Hauling Company

“Statement of Changes in Equity”
For the Year Ended of 31 March 2019

Mr. Q, Capital, 1 April 2018 500 000.00

Add: Mr. Q, Additional Investment 20 000.00

Net Income 73 100.00

Total 593 100.00

Less: Mr. Q, Personal 25 000.00

Mr. Q, Capital, 31 March 2019 568 100.00

 BIG IDEA
The SCI, the SCE, and SFP are interrelated. Figures of certain accounts are
needed in preparing other accounts.

Fundamental Relationship among the Financial Statements: SFP, SCI, and SCE

The SCI shows the net income of the business. Net income is then reflected in the
SCE as an addition to beginning balance of capital. From the total of beginning capital and net
income, withdrawals of the owner are deducted to arrive at ending balance of capital. The ending
balance of capital is then transferred to the SFP.

Application of the SFP, SCI, and SCE

Exercise 2: Below is the preliminary trial balance of Jayar’s Service Center for the calendar
year 2019. Prepare the SCI, SCE, and SFP.

Mr. J, Capital ₱85 000.00 Notes Receivable ₱1 200.00

Office Equipment 12 000.00 Notes Payable 8 000.00
Accounts Payable 16 600.00 Interest Income 360.00
Cash 18 540.00 Communications Expense 1 250.00
Tools 21 500.00 Interest Expense 220.00
Mr. J, Drawing 10 000.00 Postage and Stamps Expense 50.00
Accounts Receivable 21 460.00 Insurance Expense 4 100.00
Mortgage Payable 30 000.00 Service Vehicle 84 700.00
Loan Payable (short-term) 20 000.00 Utilities Expense 160.00
Service Income 78 560.00 Supplies Expense 3 150.00
Furniture and Fixtures 8 900.00 Shop Equipment 36 290.00
Salaries Expense 21 000.00 Rental Income 6 000.00

Jayar’s Service Center

Statement of Comprehensive Income
For the Year Ended of 2019

Revenues:
Service Income 78 560.00
Interest Income 360.00
Rental Income 6 000.00

Net Revenues: 84 920.00

Less: Expenses
Salaries Expense 21 000.00
Interest Expense 220.00
Communications Expense 1 250.00
 Postage and Stamps Expense 50.00
Insurance Expense 4 100.00
Utilities Expense 160.00
Supplies Expense 3 150.00

Net Expenses: 29 930.00

Net Income 54 990.00

Jayar’s Service Center

Statement of Changes in Equity
For the Year Ended of 2019

Mr. J, Capital 85 000.00

Add: Net Income 54 990.00

Total 139 990.00

Less: Mr. J, Drawing 10 000.00

Mr. J, Capital, 2019 129 990.00

Jayar’s Service Center

Statement of Financial Position
For the Year Ended of 2019

Assets:

Current Assets:
Cash 18 540.00
Accounts Receivable 21 460.00
Notes Receivable 1 200.00

Total Current Assets 41 200.00

Non-current Assets:
Office Equipment 12 000.00
Tools 21 500.00
Shop Equipment 36 290.00
Furniture and Fixtures 8 900.00
Service Vehicle 84 700.00

Total Non-current Assets 163 390.00

 Total Assets 204 590.00

Liabilities and Owner’s Equity

Current Liabilities:
Accounts Payable 16 600.00
Notes Payable 8 000.00
Mortgage Payable 30 000.00
Loan Payable 20 000.00

Total Liabilities 74 600.00

Owner’s Equity:
Mr. J, Capital 85 000.00
Add: Net Income 54 990.00

Total 139 990.00

Less: Mr. J, Drawing 10 000.00

Total Owner’s Equity: 129 990.00

Total Liabilities and Owner’s Equity 204 590.00

Exercise 3: Below is the adjusted trial balance of Bolbok Hardware for the year ending
December 2019. Prepare the SCI, SCE, and SFP.

Cash ₱130 115.00 Purchases ₱1 320.00

Notes receivable 30 000.00 Freight-in 30 875.00
Accounts Receivable 98 750.00 Purchase Returns and 2 585.00
Allowances
Allowance for Impairment Loss 4 835.00 Purchase Discount 20 000.00
Merchandise Inventory,1/1 785 345.00 Sales Salaries 115 600.00
Prepaid Insurance 6 000.00 Advertising Expense 18 000.00
Unused Supplies 3 750.00 Freight-out 12 260.00
Store Equipment 120 000.00 Depreciation- Store Equipment 12 000.00
Accumulated Depreciation- 36 000.00 Miscellaneous Selling Expenses 17 650.00
Store Equipment
Office Equipment 60 000.00 Office Salaries 65 900.00
Accumulated Depreciation- 18 000.00 Rent Expense 48 000.00
Office Equipment
Accounts Payable 371 535.00 Insurance Expense 9 000.00
Notes Payable 50 000.00 Supplies Expense 8 650.00
Mr. Z, Capital 527 030.00 Depreciation- Office Equipment 6 000.00
Mr. Z, Drawing 48 000.00 Impairment Loss 2 515.00
Sales 1 950 345.00 Miscellaneous General 1 800.00
Expenses
Sales Returns 4 020.00 Interest Income 1 200.00
Sales Discount 20 800.00 Interest Expense 6 000.00
Note: Ending inventory of merchandise, ₱715 250.00
ASSIMILATION

REFLECTIVE WRITING

1. If you have limited funds, would you start a single proprietorship, join a partnership, or buy
stocks of a corporation? Explain your choice.

If I were to start a business and only have limited funds, I would join a partnership.
______________________________________________________________________
Because in a partnership, I would have a hand in managing the funds in the business
______________________________________________________________________
and I would not have to worry about limited funds. Having a partnership can also
______________________________________________________________________
widen the scope on future investors. And having a partnership helps you improve the
______________________________________________________________________
success of the business without having to worry about the financial burdens it would
______________________________________________________________________
entail.
______________________________________________________________________
2. Which form of business organization would you advise a retiree with huge retirement funds
to put up? Explain your answer.

I would advise a retiree on what type of business organization would be based on the
______________________________________________________________________
retiree’s previous profession and passion. For example, if the retiree’s previous
______________________________________________________________________
profession is about business or managing a business, I would advise them to start
______________________________________________________________________
running a small store or shop selling items that are convenient. It would be easier and
______________________________________________________________________
more profitable because they have experience on how the flow of the business works.
______________________________________________________________________
That is why it is important to know the passions and previous experiences of the
______________________________________________________________________
retiree to successfully run a stress-free and profitable business.
______________________________________________________________________
3. Is it wise to reinvest a company’s earnings into a business by not withdrawing funds from
it? Explain your answer.
If you invest all of the business’ profit and revenue back to the business, it will grow
______________________________________________________________________
and profit. By reinvesting the profits, the quality and customer base will improve. The
______________________________________________________________________
business will persist to develop, and future shareholders and investors will begin to
______________________________________________________________________
take notice and be interested to fund the business. Reinvesting all profits into the
______________________________________________________________________
business, will also allow the company to rethink more strategies to expand the
______________________________________________________________________
business. This will help expand and improve the business’ marketing campaign and
______________________________________________________________________
strategies. There are also tax benefits, by reinvesting all of the business’ revenue the
______________________________________________________________________
company can avoid paying taxes like income tax.
______________________________________________________________________