Chapter 1, Problem 19E

a.

To determine

Record the eight events in the accounting equation.

Explanation of Solution

The eight events are recorded using accounting equation:

Table (1)

b.

To determine

Prepare an income statement, statement of changes in equity, year-end balance sheet, and statement of cash flows for the 2014.

Explanation of Solution

Income statement: Income statement is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Income statement for the 2014 is prepared as follows:

Company C
Income Statement
For the Year Ended December 31, 2014
Particulars	Amount ($)
Service Revenue	60,000
Utilities Expense	(12,000)
Operating Expense	(22,000)
Net Income	$26,000

Table (2)

Statement of changes in stockholders' equity: Statement of changes in stockholders' equity records the changes in the owners’ equity during the end of an accounting period by explaining about the increase or decrease in the capital reserves of shares.

Statement of changes in equity for the 2014 is prepared is as follows:

Company C
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2014
Particulars	Amount ($)	Amount ($)
Beginning Common Stock	20,000
Add: Common Stock Issued	50,000
Ending Common Stock		70,000
Beginning Retained Earnings	5,000
Add: Net Income	26,000
Less: Dividends	(5,000)
Ending Retained Earnings		26,000
Total Stockholders’ Equity		$96,000

Table (3)

Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Balance sheet for the 2014 is prepared as follows:

Company C
Balance Sheet
As of December 31, 2014
Particulars	Amount ($)	Amount ($)
Assets:
Cash	96,000
Land	25,000
Total Assets		$121,000
Liabilities:
Notes Payable	25,000
Total Liabilities		25,000
Stockholders’ Equity:
Common Stock	70,000
Retained Earnings	26,000
Total Stockholders’ Equity		96,000
Total Liabilities and Stockholders’ Equity		$121,000

Table (4)

Statement of cash flows: Statement of cash flows is one among the financial statement of a Company statement that shows aggregate data of all cash inflows and cash outflows that is received and paid by the Company from its ongoing business operations.

Statement of cash flows for the 2014 is prepared as follows:

Company C
Statement of Cash Flows
For the Year Ended December 31, 2014
Particulars	Amount ($)	Amount ($)
Cash Flows From Operating Activities:
Cash Receipts from Customers	60,000
Cash Payment for Utilities Expense	(12,000)
Cash Payments for Other Operating Expense	(22,000)
Net Cash Flow from Operating Activities		26,000
Cash Flows From Investing Activities:
Cash Paid to Purchase Land	(15,000)
Net Cash Flow from Investing Activities		(15,000)
Cash Flows From Financing Activities:
Cash Receipts from Stock Issue	50,000
Cash Receipts from Loan	25,000
Cash Payments for Dividends	(5,000)
Net Cash Flow from Financing Activities		70,000
Net Increase in Cash		81,000
Add: Beginning Cash Balance		15,000
Ending Cash Balance		$96,000

Table (5)

c.

To determine

Ascertain the percentage of assets provided by the retained earnings and find out the amount of cash in the retained earnings account.

Explanation of Solution

Retained earnings:

Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

Calculate the percentage of assets provided by retained earnings:

 $\begin{array}{c}\begin{array}{l}\text{Percantage}\text{of}\text{assets}\\ \text{provided}\text{by}\text{retained}\text{earnings}\end{array})\text{=}\frac{\text{Retained}\text{earnings}}{\text{Total}\text{Assets}}\text{×100}\\ \text{=}\frac{\text{\$26,000}}{\text{\$121,000}}\text{×100}\\ \text{=21}\text{.5\%}\end{array}$

Retained earnings are used to purchase assets or to pay liabilities. Therefore, the amount of cash in the retained earnings accounts cannot be determined directly.

Conclusion

Therefore, the percentage of assets provided by retained earnings is 21.5%.