Marks Consulting experienced the following transactions for Year 1, its first year of operations, and Year 2.

Question:

Mark’s Consulting experienced the following transactions for Year 1, its first year of operations, and Year 2. Assume that all transactions involve the receipt or payment of cash.

Transactions for Year 1

1. Acquired $20,000 by issuing common stock.

2. Received $35,000 for providing services to customers.

3. Borrowed $25,000 cash from creditors.

4. Paid expenses amounting to $22,000.
5. Purchased land for $30,000 cash.

Transactions for Year 2
Beginning account balances for Year 2 are:

Cash ..............................$28,000
Land ............................... 30,000
Notes payable ...............25,000
Common stock ..............20,000
Retained earnings ........13,000


1. Acquired an additional $24,000 from the issue of common stock.

2. Received $95,000 for providing services in Year 2.

3. Paid $15,000 to reduce notes payable.

4. Paid expenses amounting to $71,500.

5. Paid a $3,000 dividend to the stockholders.

6. Determined that the market value of the land is $47,000.


Required
a. Write an accounting equation, and record the effects of each accounting event under the appropriate headings for each year. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide appropriate titles for these accounts in the last column of the table. Total the amounts in the accounts as of December 31, Year 1, and December 31, Year 2.

b. Prepare an income statement, statement of changes in stockholders’ equity, year-end balance sheet, and statement of cash flows for Year 1 and Year 2. Use a multi-cycle format with Year 1 and Year 2 information shown in side-by-side columns.

c. Determine the amount of cash in the Retained Earnings account at the end of Year 1 and Year 2.

d. Compare the information provided by the income statement with the information provided by the statement of cash flows. Point out similarities and differences.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For  book-img-for-question

Introductory Financial Accounting for Business

ISBN: 978-1260299441

1st edition

Authors: Thomas Edmonds, Christopher Edmonds

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