a.
Calculate the amount of
a.
Explanation of Solution
Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
Amount of retained earnings is calculated as follows:
Company C | ||||||||
Accounting Equation | ||||||||
As of January 1, 2018 | ||||||||
Assets | = | Liabilities | + | |||||
Cash | + | Land | = | Notes payable | + |
Common Stock | + |
Retained Earnings (1) |
$800 | $3,500 | $600 | $1,000 | 2,700 |
Table (1)
Working note:
1. Calculate the amount of retained earnings:
Note:
Therefore, the amount of retained earnings is $2,700.
b.
Explain with reason whether the dividend can be paid or cannot be paid by Company C.
b.
Explanation of Solution
Dividends:
Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.
The company has only
c.
Ascertain the percentage of assets acquired from creditors
c.
Explanation of Solution
Debt to Asset Ratio: Debt to asset ratio is the ratio that measures the difference between total asset and total liability of the company. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk.
Calculate the percentage of assets acquired from creditors:
Note: Total
Therefore, The Percentage of total assets acquired from creditors is 14%.
d.
Ascertain the percentage of assets acquired from investors
d.
Explanation of Solution
Stockholders’ equity to asset ratio: Stockholders ‘equity to asset ratio is the ratio that measures the difference between total asset and stockholders ‘equity of the company. Stockholders’ equity ratio reflects the amount of assets that can be claimed by the stockholders in proportion to the value of shares owned by them.
Percentage of total assets acquired from investors is calculated as follows:
Therefore, The Percentage of total assets acquired from investors is 23.3%.
e.
Ascertain the percentage of assets acquired from retained earnings.
e.
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.
Percentage of total assets acquired from retained earnings:
Therefore, The Percentage of total assets acquired from retained earnings is 62.8%.
f.
Create an
f.
Explanation of Solution
Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
Accounting equation is created as follows:
Company C | ||||||||
Accounting Equation | ||||||||
As of January 1, 2018 | ||||||||
Assets | = | Liabilities | + | Stockholders’ Equity | ||||
Cash | + | Land | = | Notes payable | + |
Common Stock | + |
Retained Earnings (2) |
$800 | $3,500 | 13.9% | 23.3% | 62.8% |
Table (2)
Working note:
2. Calculate Percentage of total assets acquired from retained earnings:
g.
Prepare income statement, statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows.
g.
Explanation of Solution
Accounting equation:
Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
Accounting equation is created as follows:
Company C | |||||||||
Accounting Equation | |||||||||
As of December 31, 2018 | |||||||||
Assets | Liabilities | Stockholders’ Equity | |||||||
Cash | + | Land | = |
Notes Payable | + |
Common Stock | + |
Retained Earnings | Account title |
$800 | $3,500 | $600 | $1,000 | 2,700 | |||||
1,800 | NA | NA | NA | 1,800 | Revenue | ||||
(1,200) | NA | NA | NA | (1,200) | Expenses | ||||
(500) | NA | NA | NA | (500) | Dividends | ||||
900 | $3,500 | $600 | $1,000 | $2,800 |
Table (3)
Income statement: Income statement is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.
Income statement is prepared as follows:
Company C | |
Income Statement | |
For the year Ended December 31, 2018 | |
Particulars | Amount ($) |
Revenues | 1,800 |
Expenses | (1,200) |
Net Income | $600 |
Table (4)
Statement of changes in the stockholders’ equity: This statement reflects whether the components of stockholders’ equity have increased or decreased during the period.
Statement of changes in stockholders’ equity is prepared as follows:
Company C | ||
Statement of Changes in Stockholders’ Equity | ||
For the Year Ended December 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Beginning Common Stock | 1,000 | |
Add: Common Stock Issued | 0 | |
Ending Common Stock | 1,000 | |
Beginning Retained Earnings | 2,700 | |
Add: Net Income | 600 | |
Less: Dividends | (500) | |
Ending Retained Earnings | 2,800 | |
Total Stockholders’ Equity | $3,800 |
Table (5)
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
The Balance sheet is prepared as follows:
Company C | ||
Balance Sheet | ||
As of December 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Assets: | ||
Cash | 900 | |
Land | 3,500 | |
Total Assets | 4,400 | |
Liabilities: | ||
Notes Payable | 600 | |
Total Liabilities | 600 | |
Stockholders’ Equity: | ||
Common Stock | 1,000 | |
Retained Earnings | 2,800 | |
Total Stockholders’ Equity | 3,800 | |
Total Liabilities and Stockholders’ Equity | $4,400 |
Table (6)
Statement of cash flows: Statement of cash flows is one among the financial statement of a Company statement that shows aggregate data of all
Statement of cash flows is prepared as follows:
Company C | ||
Statement of Cash Flows | ||
For the Year Ended December 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Cash Flows From Operating Activities: | ||
Cash Receipts from Customers | 1,800 | |
Cash Payments for Expenses | (1,200) | |
Net Cash Flow from Operating Activities | 600 | |
Cash Flows From Investing Activities: | 0 | |
Cash Flows From Financing Activities: | ||
Cash Payments for Dividends | (500) | |
Net Cash Flow from Financing Activities | (500) | |
Net Increase in Cash | 100 | |
Add: Beginning Cash Balance | 800 | |
Ending Cash Balance | $900 |
Table (7)
h.
Comment on the terminology used to date each statement.
h.
Explanation of Solution
Comment on the terminology used is as follows:
- The statements of income, changes in stockholders’ equity and cash flows explain about the happening of the company over a span of time. The span of time in this case is one year. Therefore, these statements use terminology “For the year ended December 31, 2018”.
- On the other hand, the balance sheet is prepared at a specific point of time. Therefore this statement use terminology “As of December 31, 2018 “
i.
State the way the fact of appraised value of land will change the financial statements.
i.
Explanation of Solution
Historical cost principle: Historical cost principle refers to the original cost of an asset at the time, when the asset is acquired.
Generally, the market value of the asset is not recorded in the fianancial statements since, the assets are reported by the amount paid for them regardless of the increase in the market value of the asset according to the historical cost concept.
j.
Ascertain the balance in the revenue account on January 1, 2019.
j.
Explanation of Solution
The revenue account had zero balance on January 1, 2019 because the balance in this account is transferred to retained earnings account during December 31, 2018 closing process.
Want to see more full solutions like this?
Chapter 1 Solutions
SURVEY OF ACCOUNT.(LL)-W/ACCESS>CUSTOM<
- Assume that as of January 1, 20Y8, Sylvester Con- suiting has total assets of $500,000 and total assets of $150,000. As of December 31, 20Y8, Sylvester has total liabilities of $200,000 and total stockholders’ equity of $400,000. (a) What was Sylvester’s stockholders’ equity as of January 1, 20Y8? (b) Assume that Sylvester did not pay any dividends during 20Y8. What was the amount of net income for 20Y8?arrow_forwardDiscuss how each of the following transactions for Watson, International, will affect assets, liabilities, and stockholders equity, and prove the companys accounts will still be in balance. A. An investor invests an additional $25,000 into a company receiving stock in exchange. B. Services are performed for customers for a total of $4,500. Sixty percent was paid in cash, and the remaining customers asked to be billed. C. An electric bill was received for $35. Payment is due in thirty days. D. Part-time workers earned $750 and were paid. E. The electric bill in C is paid.arrow_forwardProvide journal entries to record each of the following transactions. For each, identify whether the transaction represents a source of cash (S), a use of cash (U), or neither (N). A. Paid $22,000 cash on bonds payable. B. Collected $12,600 cash for a note receivable. C. Declared a dividend to shareholders for $16,000, to be paid in the future. D. Paid $26,500 to suppliers for purchases on account. E. Purchased treasury stock for $18,000 cash.arrow_forward
- Josue Fabricating, Inc.s accountant has the following information available to prepare the Statement of Stockholders Equity for the year just ended. What is the total balance on the companys Statement of Stockholders Equity? What is the amount of the contributed capital?arrow_forwardYou are the accountant for Kamal Fabricating, Inc. and you oversee the preparation of financial statements for the year just ended 6/30/2020. You have the following information from the companys general ledger and other financial reports (all balances are end-of-year except for those noted otherwise: Prepare the companys Statement of Retained Earnings.arrow_forwardAnalyzing Transactions. Using the analytical framework, indicate the effect of the following related transactions of a firm. a. January 1: Issued 10,000 shares of common stock for 50,000. b. January 1: Acquired a building costing 35,000, paying 5,000 in cash and borrowing the remainder from a bank. c. During the year: Acquired inventory costing 40,000 on account from various suppliers. d. During the year: Sold inventory costing 30,000 for 65,000 on account. e. During the year: Paid employees 15,000 as compensation for services rendered during the year. f. During the year: Collected 45,000 from customers related to sales on account. g. During the year: Paid merchandise suppliers 28,000 related to purchases on account. h. December 31: Recognized depreciation on the building of 7,000 for financial reporting. Depreciation expense for income tax purposes was 10,000. i. December 31: Recognized compensation for services rendered during the last week in December but not paid by year-end of 4,000. j. December 31: Recognized and paid interest on the bank loan in Part b of 2,400 for the year. k. Recognized income taxes on the net effect of the preceding transactions at an income tax rate of 40%. Assume that the firm pays cash immediately for any taxes currently due to the government.arrow_forward
- Provide journal entries to record each of the following transactions. For each, identify whether the transaction represents a source of cash (S), a use of cash (U), or neither (N). A. Declared and paid to shareholders, a dividend of $24,000. B. Issued common stock at par value for $12,000 cash. C. Sold a tract of land that had cost $10,000, for $16,000. D. Purchased a company truck, with a note payable of $38,000. E. Collected $8,000 from customer accounts receivable.arrow_forwardNet income and dividends The income statement of a corporation for the month of February indicates a net income of $32,000. During the same period, $40,000 in cash dividends were paid. Would it be correct to say that the business Incurred a net loss of $8000 during the month? Discuss.arrow_forwardYou are the accountant for Trumpet and Trombone Manufacturing, Inc. and you oversee the preparation of financial statements for the year just ended 6/30/2020. You have the following information from the companys general ledger and other financial reports (all balances are end-of-year except for those noted otherwise): Prepare the companys Statement of Retained Earningsarrow_forward
- Using the January 1 and December 31, 20Y8, data given in Question 10, answer the following question: If Sylvester Consulting paid $18,000 of dividends during 20Y8, what was the amount of net income for 20Y8?arrow_forwardFinancial statements The assets and liabilities of Global Travel Agency on December 31, 20Y5, and its revenue and expenses for the year are as follows: Common stock was 525,000 and retained earnings was 1,250,000 as of January 1, 20Y5. During the year, additional common stock of 50,000 was issued for cash, and dividends of 90,000 were paid. Instructions 1. Prepare an income statement for the year ended December 31, 20Y5. 2. Prepare a statement of stockholders equity for the year ended December 31, 20Y5. 3. Prepare a balance sheet as of December 31, 20Y5. 4. What items appears on both the statement of stockholders equity and the balance sheet?arrow_forwardJesse and Mason Fabricating, Inc. general ledger has the following account balances at the end of the year: What is the total ending balance as reported on the companys Statement of Stockholders Equity?arrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub