Preparing financial statements for two complete accounting cycles
Webster Consulting experienced the following transactions for 2012, its first year of operations, and 2013. Assume that all transactions involve the receipt or payment of cash.
Transactions for 2012
1.Acquired $20,000 by issuing common stock.
2.Received $35,000 cash 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 2013
Beginning account balances for 2013 are:
Cash | $28,000 |
Land | 30,000 |
Notes payable | 25,000 |
Common stock | 20,000 |
Retained earnings | 13,000 |
1.Acquired an additional $24,000 from the issue of common stock.
2.Received $95,000 for providing services.
3.Paid $15,000 to creditors to reduce loan.
4.Paid expenses amounting to $71,500.
5.Paid a $3,000 dividend to the stockholders.
6.Determined that the market value of the land is $47,000.
Required
a. Write an accounting equation, and 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. Prepare an income statement, statement of changes in stockholders’ equity, year-end balance sheet, and statement of cash flows for each year.
c. Determine the amount of cash that is in the retained earnings account at the end of 2012 and 2013.
d. Examine the balance sheets for the two years. How did assets change from 2012 to 2013?
e. Determine the balance in the Retained Earnings account immediately after Event 2 in 2012 and in 2013 are recorded.
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