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Rina8888 [55]
3 years ago
5

At the beginning of the year (January 1), Buffalo Drilling has $10,000 of common stock outstanding and retained earnings of $7,2

00. During the year, Buffalo reports net income of $7,500 and pays dividends of $2,200. In addition, Buffalo issues additional common stock for $7,000.
Prepare the statement of stockholders’ equity at the end of the year (December 31)
Business
1 answer:
Marta_Voda [28]3 years ago
7 0

Answer:

The preparation of the statement of stockholders’ equity at the end of the year is presented below:

Explanation:

For preparing the statement of stockholders’ equity at the end of the year, first we have to determine the ending retained earning balance which is shown below:

The ending balance of retained earning = Beginning balance of retained earnings + net income - dividend paid

= $7,200 + $7,500 - $2,200

= $12,500

Now the preparation is shown below:

                                       Buffalo Drilling

                       Statement of stockholders’ equity

                     At the end of the year (December 31)

Common stock outstanding    $10,000

Add: retained earning               $12,500

Add: Issued additional

Common stock                          $7,000

Total stockholder equity           $29,500

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This first entry would increase the wages expense and increase the liability account in the adjusted trial balance. Both debit and credit side would be increased by an equal amount.

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Sr No                Account                    Debit          Credit

<u>Original Entries</u>

a.               Wages Expense            5200

                      Accounts Payable                         5200

b.             Supplies Expense          1125

                        Supplies Account                          1125

<u>Correct Entries</u>

a.                  Wages Expense          5200

                          Accrued Wages Account Payable       5200

b.             Supplies Expense          1125

                        Supplies Account                          1125

<u>Difference:</u>

<u>a)</u> We see that the first entry which was original passed the debit side is correct but the credit side would have been of accrued wages instead of accounts payable . This is to raise the amount by which wages are still outstanding by an amount 5200 at the end of the month.

This would decrease the accounts payable increase the wages payable . If the adjustment is not made it the salaries payable is understated .

<u>b)This adjusting entry is correct.</u>

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Answer:

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