Question

Dakota Company experienced the following events during Year 2. Acquired $30,000 cash from the issue of common stock. Paid $12,000 cash to purchase land. Borrowed $10,000 cash. Provided services for $20,000 cash. Paid $1,000 cash for utilities expense. Paid $15,000 cash for other operating expenses. Paid a $2,000 cash dividend to the stockholders. Determined that the market value of the land purchased in Event 2 is now $12,700.
Required:
a. The January 1, 2018, general ledger account balances are shown in the following accounting equation. Record the eight events in the appropriate general ledger accounts. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table. The first event is shown as an example.
b-1 Prepare an income statement for the 2018 accounting period.
b-2 Prepare a statement of changes in equity for the 2018 accounting period.
b-3 Prepare a year-end balance sheet for the 2018 accounting period.
b-4 Prepare a statement of cash flows for the 2018 accounting period.
c. Determine the percentage of assets that were provided by retained earnings. Can you determine the cash in retained earnings?

Answer 1

Question Completion:

January 1 general ledger balances: Cash = $2,000, Land $12,000, Notes Payable $0, Common Stock $6,000, and Retained $8,000.

Answer:

Dakota Company

Event      Assets           = Liabilities   + Stockholders Equity    Account Titles

              Cash   Land   = Accts Payable Common  Retained    for Retained

                                                                  Stock      Earnings      Earnings

Balance 2,000 12,000 = 0                +   6,000          8,000

1.          30,000             =                    + 30,000

2.        -10,000 +10,000

3.         10,000              =  10,000

4.        20,000              =                                          20,000 Service Revenue

5.          -1,000              =                                           -1,000 Utilities Expense

6.       -15,000               =                                        -15,000 Operating Exp.

7.        -2,000               =                                         -2,000

8.                           700 =                          +700

Bal. $34,000 $22,700 = $10,000   + $36,700     $10,000

b-1. Income Statement for the year ended December 2018:

Service Revenue      $20,000

Operating expenses   15,000

Utilities expense           1,000

Total expenses        $16,000

Net Income               $4,000

b-2. Statement of changes in equity for the year ended December 31, 2018:

Common stock, January 1    $6,000

Additional common stock    30,000

Land Revaluation                       700

Common stock, Dec. 31     $36,700

Retained earnings,

January 1                   8,000

Net Income                4,000

Dividends                 -2,000

Retained earnings             $10,000

Total equity                       $46,700

b-3. Balance Sheet as of December 31, 2018:

Assets:

Cash                                      $34,000

Land                                        22,700

Total assets                         $56,700

Liabilities and Equity:

Liabilities                              $10,000

Common stock                     36,700

Retained earnings                10,000

Total liabilities and equity $56,700

c. Percentage of assets provided by retained earnings

= $10,000/$56,700 * 100 = 17.64%

Yes.  The cash in retained earnings = $34,000 * 17.64% = $5,998.

Explanation:

a) Data and Calculations:

Analysis of Transactions during Year 2:

Cash $30,000 Common Stock $30,000

Land $12,000 Cash $12,000

Cash $10,000 Loan $10,000

Cash $20,000 Service Revenue $20,000

Utilities Expense $1,000 Cash $1,000

Operating Expenses $15,000 Cash $15,000

Dividends $2,000 Cash $2,000

Land $700 Revaluation $700