Question

Check my work 8. Pratt Corp. started the Year 2 accounting period with total assets of $30,000 cash $12,000 of liabilities, and $5,000 of retained earnings. During the Year 2 accounting period, the Retained Earnings account increased by $7,550. The bookkeeper reported that Pratt paid cash expenses of $26,000 and paid a $2,000 cash dividend to stockholders, but she could not find a record of the amount of cash revenue that Pratt received for performing services. Pratt also paid $3,000 cash to reduce the liability owed to a bank, and the business acquired $4,000 of additional cash from the issue of common stock. Assume all transactions are cash transactions Part 1 of 2 11.11 points Problem 1-33A Part a eBook Print Required a. Prepare the Year 2 income statement References PRATT CORP Income Statement For the Year Ended December 31, Year 2 Revenues Expenses Net income $

Answer 1

In Example itself following things has been already given  

Cash $ 30000 , Liability $ 12000 , Retained Earning $ 5000.

From all above data available we will first find out missing figure by using the accounting equation of assets are equal to liabilites.

As per accounting equation Assets = Libilities + Qwner's Capital  

Owner's capital consist of two things Retained Earning and Stock  

We will put above data avaialble in this equation .

Assets = Laibilities + Retained Earning + Stock  

30,000 = 12,000 + 5000 + Stock  

So We Will Get the Figure of Stock at the begining of Year 02  

Stock = 30,000 - 12000 - 5000

Stock = 13000

So Value of Stock at the Begining of Year 02 Will Be $ 13000

In Example it has been mentioned that that Retained Earning has been increased by $ 7550.

Now We will find out closing balance of of retained earniong for year 02.

Retained earning Increased during the period ( $ 7500 ) will be added to the opening balance ($5000 ) of the reatined earning.

So Closing Retained Earning will be $ 12550 ( $ 5000 + $ 7500 ) .

Further in Example it has been clearly mentioned that business acquired $ 4000 cash from issue of stock. On the base of this information we will find out closing balance of Stock .

Closing Balance of Stock = Opening Balance Of Stock + Stock Issued  

Opening Balance of Stock we had already find out $ 13000 as per above working  

Closing Balance of Stock = 13000 + 4000

Closing balance of Stock = 17000

So Closing Balance of Stock at the End of Year 02 will be $ 17000

Now we will find out closing balance of laibility at the end of year 02.

In example it has been given that cash paymewnt of $ 3000 has been made towards reducing laibility .

So , Liability wiil be rduced to that extent.

Liability at the begining of year was $ 12000 ,

out of that $ 3000 has been paid during the year means Liability remain at he end of year 02 will be $ 9000 ( $ 12000 - $ 3000)

So , Laibility balance at the End of Year 02 will be $ 9000.

Now we had all the laibility side value at the end of year . We will put it in the accounting equation and find out the assets value at the end of year.

Asstes = Laibility + Retained Earning + Stock  

= 9000 + 12550 + 17000

= 38550

So, Assets is $ 38550

In Example itself it has been mentioned that assume all the trnasaction are in cash .

Furhter any assets has been not provided separately due to that, all closing balance we had find out regarding assets will be Cash Balance at the end of Year 02.

We will prepare cash balance ledger from which we will find out amount of cash ravanue.

Particulars ( Receipts )	Amount $	Particulars ( Payments )	Amount $
Baalnce Brought Down ( Opening Baalnce )	30,000	Laibility of Bank	3,000
Issue of Stock	4,000	Dividend	, 2,000
Cash Ravanue ( Balancing Figure )	35,550	Expenses	26,000
		Baalcne Carried Forward ( Closing Balance )	38,550
	69,550	Total	69,550

Cash Ravanue will be find out as follow :  

Total of Payments Side of Cash = $ 69,550

Out of that 69550 Opening balance of Cash $ 30,000 and Stock Issue receipt of $ 4,000 will get deducted.

So Cash Ravanue = 69,550 - 30,000 - 4000

Cash Ravanue   = 35,550

Now we will prepare Income Statement.

PRATT CORP.

Income Statement

For the Year Ended December 31.

Particulars	Amount $
Ravanues	35,550
Expenses	26,000
Net Ravnue	9,550
Dividend	2,000
Retained Earning	7,550