Question

Pratt Corp. started the Year 2 accounting period with total assets of $37,000 cash, $15,500 of liabilities, and $12,000 of retained earnings. During the Year 2 accounting period, the Retained Earnings account increased by $14,550. The bookkeeper reported that Pratt paid cash expenses of $29,500 and paid a $2,700 cash dividend to stockholders, but she could not find a record of the amount of cash revenue that Pratt received for performing services. Pratt also paid $10,000 cash to reduce the liability owed to a bank, and the business acquired $8,500 of additional cash from the issue of common stock. Assume all transactions are cash transactions.Requried:a. Prepare an income statement for the 2018 accounting period.b. Prepare a statement of changes in stockholders’ equity for the 2018 accounting period.c. Prepare a period-end balance sheet for the 2018 accounting period.d. Prepare a statement of cash flows for the 2018 accounting period.

Answer 1

Answer:

a) Revenue = $46,750

b) Stockholder's equity $35,050

c) Net Total Assets = Stockholder's equity = $35,050

d) Net cash generated for the year is $13,050; and Ending cash balance is $50,050

Explanation:

a. Prepare an income statement for the 2018 accounting period

To prepare this, cash revenue is first determined as follows:

Revenue = Retained earning for the year + Expenses + dividend = $46,750

The income statement can now be prepared as follows:

Pratt Corp.

Income statement

For the 2018 accounting period

Particulars                                                      $        

Revenue                                                     46,750

Expenses                                                  (29,500)  

Net income                                                 17,250

Dividend paid                                            (2,700)  

Retained Earnings for the year                14,550  

b. Prepare a statement of changes in stockholder's equity for the 2018 accounting period

Pratt Corp.

Statement of changes in stockholder's equity

For the 2018 accounting period

Particulars                                                      $        

Issue of common stock                              8,500

Beginning retained earnings                    12,000

Retained Earnings for the year                 14,550  

Stockholder's equity                                35,050  

c. Prepare a period-end balance sheet for the 2018 accounting period

Pratt Corp.

Balance Sheet

For the 2018 accounting period

Particulars                                                    $        

Total Assets

Ending cash balance                              50,050

Total Liability

Liability                                                   (15,500)  

Net Total Assets                                     35,050

Financed By:

Issue of common stock                            8,500

Beginning retained earnings                  12,000

Retained Earnings for the year               14,550  

Stockholder's equity                              35,050  

Note: Since both the Net Total Assets and Stockholder's equity are both equal to $35,050 as normally require, it shows the balance sheet is accrurately prepared.

d. Prepare a statement of cash flows for the 2018 accounting period

Pratt Corp.

Statement of Cash Flows

For the 2018 accounting period

Particulars                                                    $                      $        

Net income                                             17,250  

Cash flow from operating activities                                 17,250

Changes in Financing Activities:

Decrease in liability                                (10,000)

Issue of common stock                            8,500

Dividend paid                                         (2,700)  

Cash flow from financing activities                                (4,200)  

Net cash generated for the year                                     13,050

Beginning cash balance                                                  37,000  

Ending cash balance                                                      50,050