Question

At the end of Year 1, Clayton Company had $6,000 of cash, $7,000 land, $2,000 of liabilities, $3,000 of common stock, and $8,000 of retained earnings. During Year 2, Clayton experienced the following events. 1. Borrowed $1,500 cash. 2. Earned $6,500 of cash revenue. 3. Paid $4,000 of cash expenses. 4. Paid $5,000 cash to purchase land.Based on this information the amount of total assets, total liabilities, and retained earnings appearing on the Year 2 financial statements is:________. Total Assets Total Liabilities Retained Earnings A. $ 5,000 $ 5,500 $ 8,500 B. $ 17,000 $ 3,500 $ 10,500 C. $ 11,000 $ 2,000 $ 10,500 D. $ 11,000 $ 2,500 $ 5,500

Answer 1

Answer:

B. $ 17,000 $ 3,500 $ 10,500

Explanation:

First Record the transactions for year 2 as follows :

Journal 1

Cash $1,500 (debit)

Note Payable $1,500 (credit)

Journal 2

Cash $6,500 (debit)

Revenue $6,500 (credit)

Journal 3

Expenses $4,000 (debit)

Cash $4,000 (credit)

Journal 4

Land $5,000 (debit)

Cash $5,000 (credit)

The next step is to adjust the Year 1 Balances with the transactions

Assets

Cash ($6,000 + $1,500 + $6,500 -  $4,000 - $5,000)    $5,000

Land ($7,000 + $5,000)                                                   $12,000

Total Assets                                                                      $17,000

Liabilities

Calculations ($2,000 + $1,500)                                        $3,500

Total Liabilities                                                                  $3,500

Equity

Common Stock ($3,000 + $0)                                         $3,000

Retained Earnings ($8,000 + $6,500 - $4,000)            $10,500

Total Equity                                                                      $13,500

Conclusion :

The Option that gives correct totals for Assets, Liabilities and Retained Equity is B.