Question

The following transactions apply to Walnut Enterprises for 2018, its first year of operations:

1. Received $50,000 cash from the issue of a short-term note with a 6 percent interest rate and a one-year maturity. The note was made on April 1, 2018.
2. Received $130,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Paid $62,000 cash for other operating expenses during the year.
4. Paid the sales tax due on $110,000 of the service revenue for the year. Sales tax on the balance of the revenue is not due until 2019.
5. Recognized the accrued interest at December 31, 2018.

The following transactions apply to Walnut Enterprises for 2019:

1. Paid the balance of the sales tax due for 2018.
2. Received $201,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Repaid the principal of the note and applicable interest on April 1, 2019.
4. Paid $102,500 of other operating expenses during the year.
5. Paid the sales tax due on $185,000 of the service revenue. The sales tax on the balance of the revenue is not due until 2020.

Required

1. Organize the transaction data in accounts under an accounting equation.
2. Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for 2018 and 2019.

WALNUT ENTERPRISES Effect of Events on the Accounting Equation 2018 and 2019 Assets Liabilities Event Accounts Titles / Retained Earnings Sales Tax Payable Cash Interest Payable Notes Payable Stockholders' Equity Common , Retained Stock " Earnings . " " 2018 + + + + + + + + + This is a numeric cell, so please enter numbers only. + + + + + + 0 + 0 1 + + 0 + 5. Bal. 2019 Beg. bal. + + + + + + + + + + + + + + + + + + + + + + + + + + + + End. bal. + + + +

Answer 1

a.

Walnut Enterprises Effect of Events on the Accounting Equation 2018 and 2019
	Assets	Liabilities	Stockholders Equity
Event	Cash	Sales Tax Payable	Interest Payable	Notes Payable	Common Stock	Retained Earnings	Account Titles / Retained Earnings
2018
1.	50,000			50,000
2.	137,800	7,800				130,000	Service Revenue
3.	(62,000)					(62,000)	Other Operating Expenses
4.	(6,600)	(6,600)
5.			2,250			(2,250)	Interest Expense
Bal.	119,200	1,200	2,250	50,000		65,750
2019
Beg. bal.	119,200	1,200	2,250	50,000	0	65,750
1.	(1,200)	(1,200)
2.	213,060	12,060				201,000	Service Revenue
3.a	(50,000)			(50,000)
3.b.	(3,000)		(2,250)			(750)	Interest Expense
4	(102,500)					(102,500)	Other Operating Expenses
5.	(11,100)	(11,100)
End. bal.	164,460	960	0	0	0	163,500

b.

Income Statement For the years ended December 31
	2018	2019
Services Revenue	$ 130,000	$ 201,000
Other Operating Expenses	(62,000)	(102,500)
Income from Operations	68,000	98,500
Interest Expense	(2,250)	(750)
Net Income	$ 65,750	$ 97,750

Statement of Changes in Stockholders Equity
	Common Stock	Retained Earnings	Total
Beg. bal. 2018	$ 0	$ 0	$ 0
Add: 2018 Net Income		65,750	65,750
End. bal. 2018	0	65,750	65,750
Add: 2018 Net Income		97,750	97,750
End. bal. 2019	0	163,500	$ 163,500

Balance Sheet December 31
	2018	2019		2018	2019
Cash	$ 119,200	$ 164,460	Sales Tax Payable	1,200	960
			Interest Payable	2,250	0
			Notes Payable	50,000	0
			Common Stock	0	0
			Retained Earnings	65,750	163,500
Total Assets	$ 119,200	$ 164,460		$ 119,200	$ 164,460