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$4$

Sentry, Incorporated was started on January $1,$ Year $1.$

$4$ points

Year $1$ Transactions

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

Earned $$62,000$ of revenue on account.

On October $1,$ Year $1,$ borrowed $$12,000$ cash from the local bank.

Incurred $$3,700$ of operating expenses on account.

Collected $$5,000$ cash from accounts receivable.

Paid $$2,900$ cash to pay off a portion of the accounts payable.

On December $31,$ Year $1,$ Sentry recognized accrued interest expense. The note had a one$-$year term and an $8$ percent annual interest rate.

Year $2$ Transactions

Collected cash for the remaining balance in accounts receivable.

Paid cash to settle the remaining balance of accounts payable.

On September $30,$ Year $2,$ recognized accrued interest expense.

On September $30.$ Year $2,$ paid cash to settle the balance of the interest payable account.

On September $30,$ Year $2,$ paid cash to settle the notes payable.

Required:

a$.$ Record the events for Year $1$ and Year $2$ in an accounting equation. At the end of Year $1,$ total the columns to determine the Year $1$ account balances. The Year $1$ ending balances become the Year $2$ beginning balances. At the end of Year $2,$ total the columns to determine the account balances for Year $2.$

b$.$ Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for Year $1$ and Year $2.$

c$.$ If the company were liquidated at the end of Year $2,$ how much cash would be distributed to creditors? How much cash would be distributed to investors?

Answer is not complete.