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Mark's Consulting experienced the following transactions for Year 1, its first year of operations, and Year 2. Assume that all transactions involve the receipt
Mark's Consulting experienced the following transactions for Year 1, its first year of operations, and Year 2. Assume that all transactions involve the receipt or payment of cash. Transactions for Year 1 1. Acquired $20,000 by issuing common stock. 2. Received $35,000 cash for providing services to customers. 3. Borrowed $25,000 cash from creditors. 4. Paid expenses amounting to $22,000. 5. Purchased land for $30,000 cash. Transactions for Year 2 Beginning account balances for Year 2 are: Cash Land Notes payable Common stock $28,000 30,000 25,000 20,000 Retained earnings 13,000 1. Acquired an additional $24,000 from the issue of common stock. 2. Received $95,000 for providing services. 3. Paid $15,000 to creditors to reduce loan. 4. Paid expenses amounting to $71,500. 5. Paid a $3,000 dividend to the stockholders. 6. Determined that the market value of the land is $47,000. Required a. Record the effects of each accounting event under the appropriate headings for each year. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide appropriate titles for these accounts in the last column of the table. b-1. Prepare an income statement for each year accounting period. b-2. Prepare a statement of changes in stockholders' equity for each year accounting period. b-3. Prepare a year-end balance sheet for each year accounting period. b-4. Prepare a statement of cash flows for each year accounting period. MARK'S CONSULTING SERVICES Accounting Equation for Year 1 Assets Event Cash + Land 1. 20,000+ = Liabilities + Stockholders' Equity Account Titles for Notes Common + + Payable Stock Retained Earnings Retained Earnings + 20,000+ 23 35,000+ + + 35,000 Revenue 25,000+ 25,000+ + 4. (22,000) + (22,000) Operating expense 5. (30,000)+ 30,000 = + Totals 28,000+ 30,000 = 25,000+ 20,000 + 13,000 MARK'S CONSULTING SERVICES Accounting Equation for Year 2 Assets Liabilities + Stockholders' Equity Event Account Titles for Cash + Land Notes Payable Common Stock Retained Earnings Retained Earnings Beg. bal. 28,000+ 1. 24,000+ + 24,000+ 2. 95,000+ + 95,000 Revenue 3. (15,000) (15,000) + + 4. (71,500)+ 5. (3,000)+ = (71,500) Operating expense (3,000) Dividends 6. 0+ 0 = + Totals 57,500+ 0 = (15,000) + 24,000+ 20,500 MARK'S CONSULTING SERVICES Income Statement For the Year Ended December 31, Year 1 Service revenue Expenses Net income $ 35,000 (22,000) $ 13,000 MARK'S CONSULTING SERVICES Income Statement For the Year Ended December 31, Year 2 Service revenue Expenses Net income 69 $ 95,000 MARK'S CONSULTING SERVICES Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 1 Beginning common stock Plus: Common stock issued Ending common stock 20,000 $ 20,000 Beginning retained earnings Plus: Net income 13,000 Ending retained earnings Total stockholders' equity 13,000 $ 33,000 MARK'S CONSULTING SERVICES Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Beginning common stock Plus: Common stock issued Ending common stock Beginning retained earnings Plus: Net income Less: Dividends Ending retained earnings Total stockholders' equity 24,000 $ 24,000 (3,000) (3,000) $ 21,000 Assets Cash Land MARK'S CONSULTING SERVICES Balance Sheet As of December 31, Year 1 Total assets Liabilities Notes payable Total liabilities Stockholders' Equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 30,000 $ 25,000 20,000 13,000 $ 30,000 $ 25,000 33,000 69 $ 58,000 Assets Cash Land MARK'S CONSULTING SERVICES Balance Sheet As of December 31, Year 2 Total assets Liabilities Notes payable Total liabilities Stockholders' Equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity EA $ 0 $ (15,000) $ (15,000) 24,000 20,500 44,500 $ 29,500 MARK'S CONSULTING SERVICES Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flows from operating activities Cash receipts from customers Cash payments for expenses Net cash flow from operating activities Cash flows from investing activities Cash payment for land Net cash flow from investing activities Cash flows from financing activities Net cash flow from financing activities Ending cash balance $ 0 $ 69 0 0 0 MARK'S CONSULTING SERVICES Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flows from operating activities Cash receipts from customers Cash payments for expenses Net cash flow from operating activities $ 0 Cash flows from investing activities Cash flows from financing activities Net cash flow from financing activities Ending cash balance 0 $ 0 Determine the amount of cash that is in the retained earnings account at the end of Year 1 and Year 2. Retained earnings Year 1 Year 21 Determine the balance in the Retained Earnings account immediately after Event 2 in Year 1 is recorded and after Event 2 in Year 2 is recorded. Year 1 Year 2 Retained earnings
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