Exercise 1-7 Missing information and recording events
As of December 31, 2018, Moss Company had total cash of $195,000, notes payable of $90,500, and common stock of $84,500. During 2019, Moss earned $42,000 of cash revenue, paid $24,000 for cash expenses, and paid a $3,000 cash dividend to the stockholders.
Required
a. Determine the amount of
b. Create an
c. Record the revenue, expense, and dividend events under the appropriate elements of the accounting equation created in Requirement b.
d. Prove the equality of the accounting equation as of December 31, 2019.
e. Identify the beginning and ending balances in the Cash and Common Stock accounts. Explain why the beginning and ending balances in the Cash account are different, but the beginning and ending balances in the Common Stock account remain the same.
a.
Calculate the amount of retained earnings as of December 31, 2018.
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:
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.
The amount of retained earnings is calculated as follows:
Assets | = | Liabilities | + | Stockholders’ Equity | ||
Cash | = | Note Payable | + | Common Stock | + | Retained Earnings |
$195,000 | = | $90,500 | + | $84,500 | + | $20,000 (1) |
Table (1)
Working notes:
1. Calculate the value of retained earnings:
b.
Create an accounting equation by recording the beginning account balance under appropriate elements.
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 and the beginning account balances, revenue, expense, and dividend events are recorded in the following manner:
Company M | |||||||
Effect of 2019 Transactions on the Accounting Equation | |||||||
Event | Assets | = | Liabilities | + | Stockholders’ Equity | ||
Cash | = | Notes Payable | + | Common Stock | + | Retained Earnings | |
Beginning Balances | $195,000 | = | $90,500 | + | $84,500 | + | $20000 (1) |
Table (2)
c.
Record the revenue, expense, and dividend events under appropriate elements of accounting equation that is created in the part b.
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 and the beginning account balances, revenue, expense, and dividend events are recorded in the following manner:
Company M | |||||||
Effect of 2019 Transactions on the Accounting Equation | |||||||
Event | Assets | = | Liabilities | + | Stockholders’ Equity | ||
Cash | = | Notes Payable | + | Common Stock | + | Retained Earnings | |
Beginning Balances | $195,000 | = | $90,500 | + | $84,500 | + | $20000 (1) |
1. Earned Revenue | $42,000 | = | NA | + | NA | + | $42,000 |
2. Paid expenses | ($24,000) | = | NA | + | NA | + | ($24,000) |
3. Paid dividend | ($3,000) | = | NA | + | NA | + | ($3,000) |
Ending Balance | $210,000 | = | $90,500 | + | $84,500 | + | $35,000 |
Table (2)
d.
Prove the quality of the accounting equation as of December 31, year 2019.
Explanation of Solution
Accounting equation:
Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
Prove the quality of the accounting equation:
The quality of the accounting equation is proved as the assets side equals the liabilities and stockholders’ equity side.
Asset ($) | = | Liabilities ($) + Stockholders' equity ($) |
210,000 | = | 210,000 (90,500+84,500+35,000) |
Table (3)
e.
Identify the beginning and ending balances in the cash and common stock accounts and explain the reason for the beginning and ending balances of cash account being different and the beginning and ending balances of common stock being same.
Explanation of Solution
Cash:
Cash represents the cash reserves available with the company at a point of time.
Common stock:
These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend
The reason for the beginning and ending balances of cash account being different and the beginning and ending balances of common stock being same is explained as follows:
The cash account had the beginning and the ending balance of $195,000 and $ 210,000. The common stock account had the beginning balance of $84,500, and this was not changed during the period. The accounting events of Company M during the year 2019 affected only the cash account and did not affect the common stock account.
Want to see more full solutions like this?
Chapter 1 Solutions
Survey Of Accounting
- Exercise 1-51 Relationships Among the Financial Statements Zachary Corporations December 31, 2018 balance sheet included the following amounts: Required: Calculate the amount of cash and retained earnings at the end of 2019.arrow_forwardProblem 1-563 Applying the Fundamental Accounting Equation At the beginning of 2019, KJ Corporation had total assets of $525,100, total liabilities of $290,800. common stock of $100000. and retained earnings of $134,900. During 2019. KJ had net income of $205,500. paid dividends of $70,000. and 1ssued additional common stock for $36,000 KJs total assets at the end of 2019 were $10,100. Required: Calculate the amount of Liabilities that KJ must have at the end of 2019 in order for the balance sheet equation to balance.arrow_forwardExercise 1-53 Relationships Among the Financial Statements During 2019, Moore Corporation paid $20,000 of dividends. Moores assets, liabilities, and common stock at the end 012018 and 2019 were: Required: Using the information provided. compute Moores net income for 2019.arrow_forward
- Cornerstone Exercise 1-18 Balance Sheet An analysis of the transactions of Cavernous Homes Inc. yields the following totals at December 31, 2019: cash, $3,200; accounts receivable, $4,500; notes payable, $5,000; supplies, $8,100; common stock, $7,000; and retained earnings, 9,800. Required: Prepare a balance sheet for Cavernous Homes Inc. at December 31 , 2019.arrow_forward(Appendix 21.1) Visual Inspection The following changes in account balances were taken from Walson Companys adjusted trial balance at the end of 2019: In addition, the following information was obtained from the companys records: Land was sold, at cost, for 1,900. Dividends of 4,000 were declared and paid. Equipment was purchased for 10,400. Common stock was issued for 9,000. Beginning cash balance was 17,000. Required: Using visual inspection and the direct method, prepare Walsons 2019 statement of cash flows. (A separate schedule reconciling net income to cash provided by operating activities is not necessary.)arrow_forwardProblem 1-56A Applying the Fundamental Accounting Equation At the beginning of 2019 Huffer Corporation had total assets of $232,400 total liabilities of $94,200 common stock of 5501000. and retained earnings of $88,200. During 2019, Huffer had net income of $51,1501 paid dividends of 510,000. and issued additional common stock for $15,000. Huffers total assets at the end 01'2019 were $285,500. Required: Calculate the amount of liabilities that Huffer must have at the end of 2019 m order for the balance sheet equation to balance.arrow_forward
- Problem 1-65A Relationships Among Financial Statements Carson Corporation reported the following amounts for assets and liabilities at the beginning and end of a recent year. Required: Calculate Carsons net income or net loss for the year in each of the following independent situations: Carson declared no dividends. and its common stock remained unchanged. Carson declared no dividends and issued additional common stock for $40,000 cash. Carson declared dividends totaling $5000 and its common stack remained unchanged. Carson declared dividends totaling $20,000 and issued additional common stock for $35,000.arrow_forwardFinancial statements 1. Net income: 10,900 Jose Loder established Bronco Consulting on August 1, 20Y1. The effect of each transaction and the balances after each transaction for August follow: Instructions 1. Prepare an income statement for the month ended August 31, 20Y1. 2. Prepare a statement of stockholders equity for the month ended August 31, 20Y1. 3. Prepare a balance sheet as of August 31, 20Y1. 4. (Optional) Prepare a statement of cash flows for the month ending August 31, 20Y1.arrow_forwardBalance sheets, net income Financial information related to Ebony Interiors for February and March 2018 is as follows: February 28, 2018 March 31, 2018 Cash 320,000 380,000 Accounts receivable 800,000 960,000 Supplies 30,000 35,000 Accounts payable 310,000 400,000 Common stock 200,000 200,000 Retained earnings ? ? A. Prepare balance sheets for Ebony Interiors as of February 28 and March 31, 2018. B. Determine the amount of net income for March, assuming that no additional common stock was issued and no dividends were paid during the month. C. Determine the amount of net income for March, assuming that no additional common stock was issued, but dividends of 50,000 were paid during the month.arrow_forward
- Financial statements Jose Loder established Bronco Consulting on August 1, 2016. The effect of each transaction and the balances after each transaction for August follow: Instructions 1. Prepare an income statement for the month ended August 31, 2016. 2. Prepare a retained earnings statement for the month ended August 31, 2016. 3. Prepare a balance sheet as of August 31, 2016. 4. (Optional) Prepare a statement of cash flows for the month ending August 31, 2016.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_forward(Appendix 3.1) Cash-Basis Accounting Puntarelli Contracting keep its accounting records on a cash basis during the year. At year end, it adjusts its books to the accrual basis for preparing its financial statements. At the end of 2018, Puntarelli reported the following balance sheet items. It is now the end of 2019. The companys checkbook shows a balance of 4,700, which includes cash receipts from customers of 51,300 and cash payments of 49,300. An examination of the cash payments shows that: (1) 30,600 was paid to suppliers, (2) 12,700 was paid for other operating costs (including 7,200 paid on January 1 for 2 years annual rent), and (3) 6,000 was withdrawn by T. Puntarelli. On December 51, 2019, (1) customers owed Puntarelli Contracting 55,900, (2) Puntarelli owed suppliers and employees 7,000 and 900, respectively, and (3) the ending inventory was 6,300. Puntarelli is depreciating the equipment using straight line depreciation over a 10-year life (no residual value). Required: 1. Using accrual based accounting, prepare a 2019 income statement (show supporting calculations). 2. Using accrual-based accounting, prepare a December 31, 2019, balance sheet (show supporting calculations).arrow_forward
- Intermediate 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,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFundamentals of Financial Management (MindTap Cou...FinanceISBN:9781285867977Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning