Question

Dakota Company experienced the following events during 2018: 1. Acquired $25.000 cash from the issue of common stock. 2 Pald $25,000 cash to purchase land. 3. Borrowed $10,000 cash. 4. Provided services for $36.000 cash. 5. Pald $1,000 cash for utilities expense. 6. Paid $28.000 cash for other operating expenses. 7. Pald a $2,000 cash dividend to the stockholders. 8. Determined that the market value of the land purchased in Event 2 is now $27.500. Required a. The January 1, 2018. general ledger account balances are shown in the following accounting equation. Record the eight events in the appropriate general ledger accounts. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table. The first event is shown as an example. b-1. Prepare an Income statement for the 2018 accounting period. b-2. Prepare a statement of changes in equity for the 2018 accounting period. b-3. Prepare a year-end balance sheet for the 2018 accounting period. b-4. Prepare a statement of cash flows for the 2018 accounting period. c. Determine the percentage of assets that were provided by retained earnings. Can you determine the cash in retained earnings? Complete this question by entering your answers in the tabs below.

Answer 1

Solution:

Dakota Company

Accounting Equation for 2018

	Assets			=	Liabilities	+	Stockholders'equity
Event	Cash	+	Land	=	Notes payable	+	Common Stock	+	Retained Earnings	Account Titles for Retaining Earnings
Balance 1/1/2018	5,500	+	20,000	=	0	+	10,000	+	15,500
1.	25,000	+		=		+	25,000	+		NA
2.	-25,000	+	25,000	=		+		+		NA
3.	10,000	+		=	10,000	+		+		NA
4.	36,000	+		=		+		+	36,000	Service Revenue
5.	-1,000	+		=		+		+	-1000	Utilities expenses
6.	-28,000	+		=		+		+	-28,000	Operating expenses
7.	-2,000	+		=		+		+	-2,000	Dividends
8.										NA
Totals	20,500	+	45,000	=	10,000	+	35,000	+	20,500

b. 1

Dakota Company

Income Statement

For the Year Ended December 31, 2018

Service revenue	$36,000
Utilities expenses	$(1,000)
Operating expenses	$(28,000)
Net income	$7,000

b. 2)

Dakota Company

Statement of Changes in Stockholders'Equity

For the Year Ended December 31, 2018

Beginning common stock	$10,000
+ Common stock issued	$25,000
Ending common stock		$35,000
Beginning retained earnings	$15,500
+ Net income	$7,000
- Dividends	- $2,000
Ending retained earnings		$20,500
Total stockholders'equity		$55,500

b. 3

Dakota Company

Balance Sheet

As of December 31, 2018

Assets:
Cash	$20,500
Land	$45,000
Total assets		$65,500
Liabilities:
Notes payable	$10,000
Total liabilities		$10,000
Stockholders'equity:
Common stock		$35,000
Retained earnings		$20,500
Total stockholders'equity		$55,500
Total liabilities and stockholders'equity		$65,500

b. 4

Dakota Company

Statement of Cash Flows

For the Year Ended December 31,2018

Cash flows from operating activities:
Cash receipts from customers	$36,000
Cash payments for utilities expenses	- $1,000
Cash payments for the operating expenses	- $28,000
Net cash flows from operating activities		$7,000
Cash flows from investing activities:
Cash paid to purchase land	-$25,000
Net cash flows from investing activities		-$25,000
Cash flows from financing activities:
Cash receipts from stock issue	$25,000
Cash receipts from loan	$10,000
Cash payments for dividends	- $2,000
Net cash flows from financing activities		$33,000
Net increase in cash		$15,000
+ Beginning cash balance		$5,500
Ending cash balance		$20,500

C 1

Percentage of assets provided by retained earnings:

$20,500÷ $65,500 =31.3%

C 2

No, cash cannot be directly traced to retained earnings.