Question

Dakota Company experienced the following events during Year 2. 1. Acquired $30,000 cash from the issue of common stock. 2. Paid $10,000 cash to purchase land. 3. Borrowed $10,000 cash. 4. Provided services for $50,000 cash. 5. Paid $1.500 cash for utilities expense. 6. Paid $35,000 cash for other operating expenses. 7. Paid a $10,000 cash dividend to the stockholders. 8. Determined that the market value of the land purchased in Event 2 is now $12,500. Required a. The January 1, Year 2, 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, (Enter any decreases to account balances with a minus sign. Not all cells in the "Accounts Titles for Retained Earnings" column may require an input • leave cells blank if there is no corresponding Retained Earnings input needed.) DAKOTA COMPANY Accounting Equation for Year 2 Assets Liabilities Event Stockholders' Equity Account Titles for Cash Land Notes Common Retained Retained Earnings Payable Stock Farrings Balance /1/Year 2 15,000 25,000 17,000 10,000 13,000 30,000 30,000 2 1 3

Answer 1

Solution:

a.) Dakota Company

Accounting Equation for Year 2

		Assets		=	Liabilities		Stockholders'Equity
Event	Cash	+	Land	=	Notes Payable	+	Common stock	+	Retained Earnings	Account Titles for Retained Earnings
Balance 1/1 year 2	$15,000	+	$25,000	=	$17,000	+	$10,000	+	$13,000
1.	$30,000	+		=		+	$30,000	+		NA
2.	($10,000)	+	$10,000	=		+		+		NA
3.	$10,000	+		=	$10,000	+		+		NA
4.	$50,000	+		=		+		+	$50,000	Service Revenue
5.	($1,500)	+		=		+		+	($1500)	Utilities Expenses
6.	($35,000)	+		=		+		+	($35,000)	Operating expenses
7.	($10,000)	+		=		+		+	($10,000)	Dividends
8.		+		=		+		+		NA
Totals	$48,500	+	$35,000	=	$27,000	+	$40,000	+	$16,500

b.1) Dakota Company

Income Statement

For the Year Ended December 31, Year 2

Service revenue	$50,000
Utilities expenses	-$1,500
Operating expenses	-$35,000
Net income	$13,500

b. 2 ) Dakota Company

Statement of Changes in Stockholders Equity

For the Year Ended December 31, Year 2

Beginning common stock	$10,000
Add: Common stock issued	$30,000
Ending common stock		$40,000
Beginning retained earnings	$13,000
Add: Net income	$13,500
Less: Dividends	-$10,000
Ending retained earnings		$16,500
Total stockholders'equity		$56,500

b.3) Dakota Company

Balance Sheet

As of December 31, Year 2

Assets:
Cash	$48,500
Land	$35,000
Total assets		$83,500
Liabilities:
Notes payable	$27,000
Total liabilities		$27,000
Stockholders'equity:
Common stock	$40,000
Retained earnings	$16 500
Total stockholders'equity		$56,500
Total liabilities and stockholders'equity		$83,500

b.4) Dakota Company

Statement of Cash Flows

For the Year Ended December 31, Year 2

Cash flows from operating activities:
Cash receipts from customer	$50,000
Cash payments for utilities expenses	-$1500
Cash payments for other operating activities	-$35,000
Net cash flow from operating activities		$13,500
Cash flows from investing activities:
Cash paid to purchase land	-$10,000
Net cash flows from investing activities		-$10,000
Cash flows from financing activities:
Cash receipt from stock issue	$30,000
Cash receipts from loan	$10,000
Cash payments for dividends	-$10,000
Net cash flows from financing activities		$30,000
Net increase in cash		$33,500
Add: Beginning cash balance		$15,000
Ending cash balance		$48,500

c.1.)

Percentage of assets = 19.8%

Percentage of assets provided by retained earnings.

$16,500 / $83,500

= 19.76 or 19.8 %

C. 2)

No

d.)

Cash dividends = Net income - Dividends paid

Cash dividends = $13,500 - $10,000

Cash dividends = $3,500

* The company can pay dividends out of it's ner income since out of net income$13,500, dividends of $10,000 are already paid $3,500 is available for dividends.

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