Entity Theory And Financial Statements Essay

1204 Words May 10th, 2016 5 Pages
Financial Statements
“The essence of the entity theory is that creditors, as well as stockholders, contribute resources to the firm, and the firm exists as a separate and distinct entity apart from these groups,” (Schroeder, Clark, & Cathey, 2014, p. 517).
Entity Theory Income Statement:
Revenues: $450,000
Cost of Goods Sold: $220,000
Gross Profit: $230,000
Operating Expenses: $64,000
Net Income: $166,000
Entity Theory Balance Sheet:
Assets Equities
Current Assets: $87,000 Current Liabilities: $19,000
Noncurrent Assets: $186,000 Bonds Payable: $100,000
Preferred Stock: $20,000
Common Stock: $50,000
Pic in Excess of Par: $48,000
Retained Earnings: $36,000
__________________________ __________________________
Total Assets: $273,000 Total Equities: $273,000

“Under the proprietary theory, financial reporting is based on the premise that the owner is the primary focus of a company’s financial statements. The proprietary theory is particularly applicable to sole proprietorships where the owner is the decision maker,” (Schroeder, Clark, & Cathey, 2014, p. 516).
Proprietary Theory Income Statement:
Revenues: $450,000
Cost of Goods Sold: $220,000
Gross Profit: $230,000
Operating Expenses: $64,000
Operating Income: $166,000
Interest Expense: $10,000
Net Income: $156,000
Proprietary Theory Balance Sheet:
Assets Liabilities
Current Assets: $87,000 Current Liabilities: $19,000
Noncurrent Assets:…

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