The following data were taken from the records of Valley Company. Except as otherwise indicated, all balances are as of December 31, 2011, before the closing entries had been recorded.

Required

a. Identify the accounts that should be closed to the Retained Earnings account.

b. Prepare the income statement that Valley would include in its 2011 annual report.

c. Determine the Retained Earnings account balance at December 31, 2011. Explain how the company could pay cash dividends in excess of the amount of net income earned in 2011.

d. Name the stages of the accounting cycle in the order in which they normally occur.

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Consulting revenue $14,500 Cash 28,500 Cash received from common stock issued during 2011 4,500 Travel expense 1,500 Dividends 8,000 Cash flow from investing activities 3,400 Rent expense 2,100 Payment to reduce debt principal 8,000 Retained earnings, January 1, 2011 19,000 Salary expense 6,900 Cash flow from operating activities 1,500 Common stock, December 31, 2011 10,000 Other operating expenses 1,900