Question

Mark's Consulting experienced the following transactions for Year 1, its first year of operations, and Year 2. Assume that all transactions involve the receipt or payment of cash. Transactions for Year 1 1. Acquired $80,000 by issuing common stock. 2. Received $130,000 cash for providing services to customers. 3. Borrowed $21,000 cash from creditors. 4. Pald expenses amounting to $54,000. 5. Purchased land for $40,000 cash. Transactions for Year 2 Beginning account balances for Year 2 are: Cash Land Notes payable Common stock Retained earnings $137,000 40,000 21,000 80,000 76,000 1. Acquired an additional $26,000 from the issue of common stock 2. Received $136,000 for providing services. 3. Paid $16,000 to creditors to reduce loan. 4. Paid expenses amounting to $69,000. 5. Paid a $12,000 dividend to the stockholders. 6. Determined that the market value of the land is $50,000 Required a. Record the effects of each accounting event under the appropriate headings for each year. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide appropriate titles for these accounts in the last column of the table. b-1. Prepare an income statement for each year accounting period. b-2. Prepare a statement of changes in stockholders' equity for each year accounting period. b-3. Prepare a year-end balance sheet for each year accounting period. b-4. Prepare a statement of cash flows for each year accounting period,

Answer 1

Part A

MARK’S CONSULTING BUSINESS Accounting Equation for Year 1
Event	Assets	=	Liabilities	+	Stockholders’ equity	Account titles for Retained earnings
Cash	+	Land	=	Notes payable	+	Common stock	+	Retained earnings
1	80,000						80,000			NA
2	130,000								130,000	Revenue
3	21,000				21,000					NA
4	(54,000)								(54,000)	Operating expense
5	(40,000)		40,000							NA
Totals	137,000		40,000		21,000		80,000		76,000

MARK’S CONSULTING BUSINESS Accounting Equation for Year 1
Event	Assets	=	Liabilities	+	Stockholders’ equity	Account titles for Retained earnings
Cash	+	Land	=	Notes payable	+	Common stock	+	Retained earnings
Beg. bal.	137,000		40,000		21,000		80,000		76,000
1	26000						26000			NA
2	136,000								136,000	Revenue
3	(16,000)				(16,000)					NA
4	(69,000)								(69,000)	Operating expense
5	(12,000)								(12,000)	Dividends
6										NA
Totals	202,000		40,000		5,000		106,000		131,000

Part b-1

MARK’S CONSULTING BUSINESS Income statement For the year ended December Year 1
Service revenue	130,000
Expense	(54,000)
Net income	76,000

MARK’S CONSULTING BUSINESS Income statement For the year ended December Year 2
Service revenue	136,000
Expense	(69,000)
Net income	67,000

Part b-2

MARK’S CONSULTING BUSINESS Statement of changes in Stockholders’ equity For the year ended December Year 1
Beginning common stock
Plus: common stock issued	80,000
Ending common stock		80,000
Beginning retained earnings
Plus: net income	76,000
Less: dividends
Ending retained earnings		76,000
Total stockholders’ equity		156,000

MARK’S CONSULTING BUSINESS Statement of changes in Stockholders’ equity For the year ended December Year 2
Beginning common stock	80,000
Plus: common stock issued	26,000
Ending common stock		106,000
Beginning retained earnings	76,000
Plus: net income	67,000
Less: dividends	(12,000)
Ending retained earnings		131,000
Total stockholders’ equity		237,000

Part b-3

MARK’S CONSULTING BUSINESS Balance Sheet December Year 1
Assets
Cash	137,000
Land	40000
Total assets		177,000
Liabilities
Notes payable	21,000
Total liabilities		21,000
Stockholders’ equity
Common stock	80,000
Retained earnings	76,000
Total stockholders’ equity		156,000
Total liabilities and stockholders’ equity		177,000

MARK’S CONSULTING BUSINESS Balance Sheet December Year 2
Assets
Cash	202,000
Land	40,000
Total assets		242,000
Liabilities
Notes payable	5000
Total liabilities		5000
Stockholders’ equity
Common stock	106,000
Retained earnings	131,000
Total stockholders’ equity		237,000
Total liabilities and stockholders’ equity		242,000

Part b-4

Mark’s Consulting Services
Statement of cash flows
For the year ended December Year 1
Cash flows from operating activities
Cash receipts from customers	130,000
Cash payments for expenses	(54,000)
Net cash flow from operating activities		76,000
Cash flows from investing activities
Cash payment for the land	(40000)
Net cash flow from investing activities		(40000)
Cash flow from financing activities
Cash receipts from borrowing	21,000
Cash receipts from stock issues	80,000
Net cash flow from financing activities		101,000
Net increase in cash		137,000
Plus: beginning cash balance		0
Ending cash balance		137,000

Mark’s Consulting Services
Statement of cash flows
For the year ended December 31, 2017
Cash flows from operating activities
Cash receipts from customers	136,000
Cash payments for expenses	(69,000)
Net cash flow from operating activities		67,000
Cash flows from investing activities
Cash flow from financing activities
Cash receipts from stock issue	26000
Cash payment on debt	(16,000)
Cash payment for dividends	(12,000)
Net cash flow from financing activities		(2,000)
Net increase in cash		65,000
Plus: beginning cash balance		137,000
Ending cash balance		202,000

Part c

	Year 1	Year 2
Retained earnings	0	0

Part e

	Year 1	Year 2
Retained earnings	0	76,000