Question

Assume that PROCTER & GAMBLE  has net sales of $250, cost of goods sold of $200, admin...

Assume that PROCTER & GAMBLE  has net sales of $250, cost of goods sold of $200, admin expenses of $20, a depreciation expense of $10, an interest expense of $70, and no (ZERO)  tax liabilities.  Dividends are 0.  What effect does this have on the balance sheet?  (ASSUME ALL ELSE CONSTANT).

a.  it has no effect on the balance sheet

b.  it increases owner's equity on the balance sheet

c.  it decreases owner's equity on the balance sheet

d.  it decreases the market value of the assets on the balance sheet

e.  it increases the market value of the assets on the balance sheet

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Answer #1

ANS:   INCOME STATEMENT (Currency in $)

Particulars Amount
Net Sales 250
TOTAL (A) 250
Cost of Goods Sold 200
Admin Expenses 20
Depreciation expense 10
Interest Expense 70
TOTAL (B) 300
NET LOSS (A-B) -50

ABSTRACT OF BALANCESHEET

EQUITY & LIABILITIES AMOUNT
Equity Share capital / Shareholders' Fund XXX
Less: Net loss transferred from P&L -50

Thus, Net loss decreases the Shareholders' fund. In other words, it decreases owner's equity on the balance sheet.

So, OPTION C IS CORRECT.

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