Question

Mark's Consulting experienced the following transactions for 2018, its first year of operations, and 2019. Assume that all transactions involve the receipt or payment of cash.

Transactions for 2018

1.     Acquired $55,000 by issuing common stock.

2.     Received $130,000 cash for providing services to customers.

3.     Borrowed $22,000 cash from creditors.

4.     Paid expenses amounting to $59,000.

5.     Purchased land for $40,000 cash.

Transactions for 2019

Beginning account balances for 2019 are:

Cash

$

108,000

Land

40,000

Notes payable

22,000

Common stock

55,000

Retained earnings

71,000

1.     Acquired an additional $20,000 from the issue of common stock.

2.     Received $131,000 for providing services.

3.     Paid $17,000 to creditors to reduce loan.

4.     Paid expenses amounting to $66,000.

5.     Paid a $11,500 dividend to the stockholders.

6.     Determined that the market value of the land is $50,000.

1. Determine the amount of cash that is in the retained earnings account at the end of 2018 and 2019.

1. Determine the balance in the Retained Earnings account immediately after Event 2 in 2018 and in 2019 are recorded.

Answer 1

Mark's Consulting Services Accounting Equation for Year 1 Event + Liabilities Stockholders Equity Account Titles For = Notes Payable + Common Stock + Retained Earnings Retained Earnings 55000 130000 Service Revenue 22000 -59000 Paid expenses Assets Cash + Land 55000 130000 22000 -59000 - 40000 + 40000 108000 + 40000 + 3 + + + Totals 22000 71000 + 55000 148000 148000 Accounting Equation for Year 2 Event Bal. + Assets Cash + Land 108000 + 40000 20000 131000 - 17000 -66000 -11500 + + Liabilities + Stockholders Equity Account Titles For = Notes Payable + Common Stock + Retained Earnings Retained Earnings = 22000 55000 71000 20000 131000 Service Revenue -17000 -66000 Paid expenses -11500 Dividends paid No entry 5000 75000 124500 204500 + + mt + + + + + Totals + 164500 + 40000 204500

130000 Statement of Income For Period ending Year 1 Service Revenue Less: Expenses Net Income 59000 71000 Statement of Changes in Stockholders Equity For Period ending Year 1 Beginning Common Stock New issue 55000 Ending Common Stock Beginning Retained Earnings Net Income 71000 Dividends paid Ending Retained Earnings Total Stockholders Equity 55000 71000 126000 131000 Statement of Income For Period ending Year 2 Service Revenue Less: Expenses Net Income 66000 65000 75000 Statement of Changes in Stockholders Equity For Period ending Year 2 Beginning Common Stock 55000 New issue 20000 Ending Common Stock Beginning Retained Earnings 71000 Net Income 65000 Dividends paid - 11500 Ending Retained Earnings Total Stockholders Equity 124500 199500

Balance sheet As at Year 1 Assets Current Assets Amounts Amounts Amounts Amounts Liabilities Current Liabilities 108000 Notes Payable Cash 22000 Non Current Assets Land Shareholders Equity 40000 Common Stock Retained Earnings 148000 Total Liabilities 55000 71000 126000 148000 Total Assets Balance sheet As at Year 2 Assets Current Assets Cash Amounts Amounts Amounts Amounts Liabilities Current Liabilities 164500 Notes Payable 5000 Non Current Assets Land Shareholders Equity 40000 Common Stock Retained Earnings 204500 Total Liabilities 75000 124500 199500 204500 Total Assets

Statement of Cashflows For the period ending 31.12.Year1 Cashflows from Operating Activity Net Income Adjustments: Increase in Notes Payable Cash generated from Operating Activity 71000 22000 22000 93000 Cashflows from Investing Activity Land Purchased Cash used for Investing Activity -40000 -40000 55000 Cashflows from Financing Activity Common Stock issued Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 55000 108000 108000 Statement of Cashflows For the period ending 31.12. Year2 Cashflows from Operating Activity Net Income Adjustments: Decrease in Notes Payable Cash generated from Operating Activity 65000 -17000 17000 48000 Cashflows from Investing Activity Land Purchased Cash used for Investing Activity 20000 - 11500 Cashflows from Financing Activity Common Stock issued Dividends paid Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 8500 56500 108000 164500