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alex41 [277]
3 years ago
6

As of December 31, Year 1, Flowers Company had total assets of $220,000, total liabilities of $66,000, and common stock of $110,

000. The company’s Year 1 income statement contained revenue of $40,000 and expenses of $23,000. The Year 1 statement of changes in stockholders’ equity stated that $3,200 of dividends were paid to investors. Required a. Determine the before-closing balance in the Retained Earnings account on December 31, Year 1. b. Determine the after-closing balance in the Retained Earnings account on December 31, Year 1. c. Determine the before-closing balances in the Revenue, Expense, and Dividend accounts on December 31, Year 1. d. Determine the after-closing balances in the Revenue, Expense, and Dividend accounts on December 31, Year 1.
Business
1 answer:
liberstina [14]3 years ago
6 0

Answer:

(b) After-closing balance in the Retained Earnings account on December 31, Year 1,

Total Stockholder's equity = Total assets - Total liabilities

                                            =  $220,000 - $66,000

                                            = $154,000

After-closing balance of Retained Earnings = Total Stockholder's equity - Common stock

                                                                        = $154,000 - $110,000

                                                                        = $44,000

(a) Before-closing balance in the Retained Earnings account on December 31, Year 1.

Net Income = Revenue - Expenses

                   = $40,000 -  $23,000

                   = $17,000

Before-closing balance of Retained Earnings:

= After-closing balance of Retained Earnings + Dividend paid - Net Income

= $44,000 + $3,200 - $17,000

= $30,200

(c) Before-closing balances in the following accounts:

Revenue = $40,000

Expenses = $23,000

Dividend = $3,200

(d) After-closing balances in the following accounts:

Revenue = $0

Expenses = $0

Dividend = $0

Because revenue and expenses are transferred to income statement and dividend are transferred to retained earnings.

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Trial Income Statement:

Service revenue         $17,000

Rent expense            ($3,500)

Insurance expense      ($350)

<u>Wages expense       ($10,500)</u>

Net income                $2,650

*We need to adjust other expenses like supplies or utilities. I assumed the salaries paid were for a 10 days period since no one pays salaries in advance.

Trial Balance Sheet

Assets:

Cash $62,200

Supplies $1,000

Prepaid insurance $3,850

<u>Equipment $10,000           </u>

Total Assets $77,050

Liabilities and Equity:

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Wages payable $7,000

Common Stock $60,000

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Total Liabilities and Equity $77,050

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Dr Cash 60,000

    Cr Common stock 60,000 (6,000 stocks $10 par value)

July 3

<u>Rent expense 3,500</u>

    Cr Cash 3,500

July 5

Dr Prepaid insurance 4,200

    Cr Cash 4,200

Adjusting entry July 31

Dr Insurance expense 350

    Cr Prepaid insurance 350

July 7

Dr Supplies 1,000

    Cr Accounts payable 1,000

July 10

Dr Wages expense 3,500

    Cr Cash 3,500

Adjusting entry July 31

Dr Wages expense 7,000 ($3,500 x 2 10 day periods)

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July 14

Dr Equipment 10,000

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    Cr Accounts payable 7,500

July 15

Dr Cash 8,000

    Cr Service revenue 8,000

July 19

Dr Accounts payable 500

    Cr Cash 500

July 31

Dr Cash 9,000

    Cr Service revenue 9,000

Dr Retained earnings 600

    Cr Dividends payable 600

Dr Dividends payable 600

    Cr Cash 600

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