Question 1: 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 assuming 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 $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 2013 are recorded.
Question 2 - Identifying and arranging elements on financial statements
The following information was drawn from the records of Paso & Associates as December 31, 2013.
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Supplies $2,500
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Unearned revenue $5,400
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Consulting revenue 120,000
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Notes payable 40,000
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Land 70,000
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Salaries payable 9,000
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Dividends 10,000
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Salary expense 58,000
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Cash flow from fin. Activities 30,000
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Common stock issued 30,000
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Interest revenue 6,000
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Beginning common stock 40,000
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Ending retained earnings 50,100
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Accounts receivable 32,000
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Cash 66,000
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Cash flow from inv. Activities (21,000)
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Interest payable 4,000
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Cash flow form oper. Activities 18,000
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Interest expense 9,000
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Prepaid rent 8,000
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Required - Use the preceding information to construct an income statement, statement of changes in stock-holders equity, balance sheet, and statement of cash flows. (Show only totals on the statement of cash flows.)