Question

Required information 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 $20,000 by issuing common stock 2. Received $35,000 for providing services to customers. 3. Borrowed $25,000 cash from creditors. 4. Paid expenses amounting to $22,000. 5. Purchased land for $30,000 cash. Transactions for Year 2 Beginning account balances for Year 2 are: Cash Land Notes payable Common stock Retained earnings $28,000 30,000 25,000 20,000 13, 000

Answer 1

Liabilities + Stockholders Equity Account Titles for = Notes Payable + Common Stock + Retained Earnings Retained Earnings 20,000 + 35,000 Service Revenue 25,000 (22,000) Expenses + + Mark's Consulting Services Assets Event No. Cash Land 20,000 2 35,000 3 25,000 (22,000) (30,000) 30,000 Year 1 Bal 28,000 30,000 Year 2 24,000 95,000 (15,000) (71,500) (3,000) + 25,000 + 20,000 + 13,000 + 24,000 + + + 95,000 Service Revenue + + (15,000) + + + + (71,500) Expenses (3,000) Dividends + + + Year 2 Bal 57,500 30,000 = 10,000 + 44,000 + 33,500 Note Upward revaluation of asset is not allowed under US Gaap

Mark's Consulting Services Income Statement For the Year Ended December 31, Year 1 & Year 2 Service Revenue Expenses Net Income Year 1 35,000 (22,000) 13,000 Year 2 95,000 (71,500) 23,500 20,000 20,000 Statement of Changes in Stockholders Equity For the Year Ended December 31, Year 1 & Year 2 Beginning Common Stock Plus : Common Stock issued Ending Common Stock Beginning Retained Earnings Plus: Net Income Less : Dividends Ending Retained Earnings Total Stockholders Equity 20,000 24,000 44,000 13,000 23,500 (3,000) 33,500 77,500 13,000 13,000 33,000

Mark's Consulting Services Balance Sheet As of December 31, Year 1 & Year 2 Assets Current Assets Cash Year 1 Year 2 Land 28,000 30,000 58,000 57,500 30,000 87,500 Total Assets Liabilities & Stockholders Equity Liabilities Notes Payable 25,000 10,000 Stockholders Equity Common Stock Retained earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 20,000 13,000 33,000 58,000 44,000 33,500 77,500 87,500

Mark's Consulting Services Cashflow Statement For the Year Ended December 31, Year 1 & Year 2 Year 1 Year 2 Cash flows from from Operating Activities Cash received from customers Cash paid for expenses Net Cash Provided/(Used) by Operating Activities 35,000 95,000 (22,000) (71,500) 13,000 23,500 Cash flows from from Investing Activities Purchase of Land Net Cash Provided/(Used) by Investing Activities (30,000) (30,000) Cash flows from from Financing Activities Proceeds from issue of common stock Borrowings (Repayment) of notes Dividends paid Net Cash Provided/(Used) by Financing Activities 20,000 25,000 24,000 (15,000) (3,000) 6,000 45,000 28,000 Net Change in Cash Cash at Beginning of Period Cash at End of Period 29,500 28,000 57,500 28,000

Retained Earnings Year 1 13,000 Year 2 Calculation 33,500 Since all are cash, same as in balance sheet Reqc Cash in Retained Earnings