Exercise $1-21$A

On January $1,$ Year $2,$ the following information was drawn from the accounting records of Carter Company: cash of $$800$; land of $$3,500$; notes payable of $$600$; and common stock of $$1,000.$

Required

a$.$ Determine the amount of retained earnings as of January $1,$ Year $2.$

b$.$ After looking at the amount of retained earnings, the chief executive officer $($CEO$)$ wants to pay a $$1,000$ cash dividend to the stockholders. Can the company pay this dividend? Why or why not?

c$.$ As of January $1,$ Year $2,$ what percentage of the assets were acquired from creditors?

d$.$ As of January $1,$ Year $2,$ what percentage of the assets were acquired from investors?

e$.$ As of January $1,$ Year $2,$ what percentage of the assets were acquired from retained earnings?

f$.$ Create an accounting equation using percentages instead of dollar amounts on the right side of the equation.

g$.$ During Year $2,$ Carter Company earned cash revenue of $$1,800,$ paid cash expenses of $$1,200,$ and paid a cash dividend of $$500.$ Prepare an income statement, statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows dated December $31,$ Year $2.($Hint: It is helpful to record these events under an accounting equation before preparing the statements.$)$

h$.$ Comment on the terminology used to date each statement.

i$.$ An appraiser determines that, as of December $31,$ Year $2,$ the market value of the land is $$4,200.$ How will this fact change the financial statements?

j$.$ What is the balance in the Revenue account on January $1,$ Year $3?$

Exercise $1-23$A Retained earnings and the closing process

As of December $31,$ Year $1,$ Flowers Company had total assets of $$130,000,$ total liabilities of $$50,000,$ and common stock of $$70,000.$ The company's Year $1$ income statement contained revenue of $$30,000$ and expenses of $$18,000.$ The Year $1$ statement of changes in stockholders' equity stated that $$3,000$ of dividends were paid to investors.

Required

a$.$ Determine the before$-$closing balance in the Retained Earnings account on December $31,$ Year $1.$

b$.$ Determine the after$-$closing balance in the Retained Earnings account on December $31,$ Year $1.$

c$.$ Determine the before$-$closing balances in the Revenue, Expense, and Dividend accounts on December $31,$ Year $1.$

d$.$ Determine the after$-$closing balances in the Revenue, Expense, and Dividend accounts on December $31,$ Year $1.$

e$.$ Explain the difference between common stock and retained earnings.

f$.$ On January $1,$ Year $2,$ Flowers Company raised $$30,000$ by issuing additional common stock. Immediately after the additional capital was raised. Flowers reported total equity of $$110,000.$ Are the stockholders of Flowers in a better financial position than they were on December $31,$ Year $1?$