Survey Of Accounting
Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
Question
Book Icon
Chapter 1, Problem 21E

a.

To determine

Calculate the amount of retained earnings as of January, 2018.

a.

Expert Solution
Check Mark

Explanation of Solution

Accounting equation:

Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Stockholders’ equity

Amount of retained earnings is calculated as follows:

Company C
Accounting Equation
As of January 1, 2018
Assets=Liabilities+Stockholders’ Equity
Cash+Land=Notes payable+

Common

Stock

+

Retained

Earnings (1)

$800  $3,500  $600  $1,000  2,700

Table (1)

Working note:

1. Calculate the amount of retained earnings:

Retainedearnings=[AssetLiabilities(Notespayable)Stockholders'equity(Commonstock)]=$4,300$600$1,000=$2,700

Note: Asset($4,300)=Cash($800)+Land($3,500)

Conclusion

Therefore, the amount of retained earnings is $2,700.

b.

To determine

Explain with reason whether the dividend can be paid or cannot be paid by Company C.

b.

Expert Solution
Check Mark

Explanation of Solution

Dividends:

Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.

The company has only $800 as cash balance. Therefore, it cannot pay $1,000 as dividend. The cash balance of retained earnings is zero and this balance denotes the stockholders’ equity claim on assets.

c.

To determine

Ascertain the percentage of assets acquired from creditors

c.

Expert Solution
Check Mark

Explanation of Solution

Debt to Asset Ratio: Debt to asset ratio is the ratio that measures the difference between total asset and total liability of the company. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk.

Calculate the percentage of assets acquired from creditors:

Percentageoftotalassets=Creditor's loanTotalassets×100=$600$4,300×100=14.0%

Note: Total Asset($4,300)=Cash($800)+Land($3,500)

Conclusion

Therefore, The Percentage of total assets acquired from creditors is 14%.

d.

To determine

Ascertain the percentage of assets acquired from investors

d.

Expert Solution
Check Mark

Explanation of Solution

Stockholders’ equity to asset ratio: Stockholders ‘equity to asset ratio is the ratio that measures the difference between total asset and stockholders ‘equity of the company. Stockholders’ equity ratio reflects the amount of assets that can be claimed by the stockholders in proportion to the value of shares owned by them.

Percentage of total assets acquired from investors is calculated as follows:

Percentageoftotalassets=Investor'scontributionTotalassets×100=$1,000$4,300×100=23.3%

Conclusion

Therefore, The Percentage of total assets acquired from investors is 23.3%.

e.

To determine

Ascertain the percentage of assets acquired from retained earnings.

e.

Expert Solution
Check Mark

Explanation of Solution

Retained earnings: Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

Percentage of total assets acquired from retained earnings:

  Percentageoftotalassets=RetainedearningsTotalassets×100=$2,700$4,300×100=62.8%

Conclusion

Therefore, The Percentage of total assets acquired from retained earnings is 62.8%.

f.

To determine

Create an accounting equation using percentage for the right side of the accounting equation.

f.

Expert Solution
Check Mark

Explanation of Solution

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Stockholders’ equity

Accounting equation is created as follows:

Company C
Accounting Equation
As of January 1, 2018
Assets=Liabilities+Stockholders’ Equity
Cash+Land=Notes payable+

Common

Stock

+

Retained

Earnings (2)

$800  $3,500  13.9% 23.3% 62.8%

Table (2)

Working note:

2. Calculate Percentage of total assets acquired from retained earnings:

Percentageoftotalassets=RetainedearningsTotalassets×100=$2,700$4,300×100=62.8%

g.

To determine

Prepare income statement, statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows.

g.

Expert Solution
Check Mark

Explanation of Solution

Accounting equation:

Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Stockholders’ equity

Accounting equation is created as follows:

Company C
Accounting Equation
As of December 31, 2018
AssetsLiabilitiesStockholders’ Equity
Cash+Land=

Notes

Payable

+

Common

Stock

+

Retained

Earnings

Account title
$800 $3,500 $600 $1,000 2,700 
1,800 NA NA NA 1,800Revenue
(1,200) NA NA NA (1,200)Expenses
(500)NANANA(500)Dividends
900$3,500$600$1,000$2,800 

Table (3)

Income statement: Income statement is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Income statement is prepared as follows:

Company C
Income Statement
For the year Ended December 31, 2018
ParticularsAmount ($)
Revenues1,800
Expenses(1,200)
Net Income$600

Table (4)

Statement of changes in the stockholders’ equity: This statement reflects whether the components of stockholders’ equity have increased or decreased during the period.

Statement of changes in stockholders’ equity is prepared as follows:

Company C
Statement of Changes in Stockholders’ Equity
For the Year Ended December 31, 2018
ParticularsAmount ($)Amount ($)
Beginning Common Stock1,000  
Add: Common Stock Issued0 
Ending Common Stock 1,000
Beginning Retained Earnings2,700  
Add: Net Income600  
Less: Dividends(500) 
Ending Retained Earnings 2,800
Total Stockholders’ Equity $3,800

Table (5)

Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

The Balance sheet is prepared as follows:

Company C
Balance Sheet
As of December 31, 2018
ParticularsAmount ($)Amount ($)
Assets:  
Cash900  
Land3,500 
Total Assets4,400
Liabilities:  
Notes Payable600 
Total Liabilities 600
Stockholders’ Equity:  
Common Stock1,000 
Retained Earnings2,800 
Total Stockholders’ Equity3,800
Total Liabilities and Stockholders’ Equity $4,400

Table (6)

Statement of cash flows: Statement of cash flows is one among the financial statement of a Company statement that shows aggregate data of all cash inflows and cash outflows that is received and paid by the Company from its ongoing business operations.

Statement of cash flows is prepared as follows:

Company C
Statement of Cash Flows
For the Year Ended December 31, 2018
ParticularsAmount ($)Amount ($)
Cash Flows From Operating Activities:  
Cash Receipts from Customers1,800  
Cash Payments for Expenses(1,200) 
Net Cash Flow from Operating Activities 600
Cash Flows From Investing Activities: 0
Cash Flows From Financing Activities:  
Cash Payments for Dividends(500) 
Net Cash Flow from Financing Activities (500)
Net Increase in Cash 100
Add: Beginning Cash Balance 800
Ending Cash Balance $900

Table (7)

h.

To determine

Comment on the terminology used to date each statement.

h.

Expert Solution
Check Mark

Explanation of Solution

Comment on the terminology used is as follows:

  • The statements of income, changes in stockholders’ equity and cash flows explain about the happening of the company over a span of time. The span of time in this case is one year. Therefore, these statements use terminology “For the year ended December 31, 2018”.
  • On the other hand, the balance sheet is prepared at a specific point of time. Therefore this statement use terminology “As of December 31, 2018 “

i.

To determine

State the way the fact of appraised value of land will change the financial statements.

i.

Expert Solution
Check Mark

Explanation of Solution

Historical cost principle: Historical cost principle refers to the original cost of an asset at the time, when the asset is acquired.

Generally, the market value of the asset is not recorded in the fianancial statements since, the assets are reported by the amount paid for them regardless of the increase in the market value of the asset according to the historical cost concept.

j.

To determine

Ascertain the balance in the revenue account on January 1, 2019.

j.

Expert Solution
Check Mark

Explanation of Solution

The revenue account had zero balance on January 1, 2019 because the balance in this account is transferred to retained earnings account during December 31, 2018 closing process.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
On January 1, Year 2, the following information was drawn from the accounting records of Carter Company: cash of $475; land of $2,625; notes payable of $775; and common stock of $1,705. Required a. Determine the amount of retained earnings as of January 1, Year 2. b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $575 cash dividend to the stockholders. Can the company pay this dividend? c. As of January 1, Year 2, what percentage of the assets were acquired from creditors? d. As of January 1, Year 2, what percentage of the assets were acquired from investors? e. As of January 1, Year 2, what percentage of the assets were acquired from retained earnings? f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation. g. During Year 2, Carter Company earned cash revenue of $720, paid cash expenses of $410, and paid a cash dividend of $61. (Hint. It is helpful to record these events under…
On January 1, Year 2, the following information was drawn from the accounting records of Carter Company: cash of $475; land of $2,625; notes payable of $775; and common stock of $1,705. Required a. Determine the amount of retained earnings as of January 1, Year 2. b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $575 cash dividend to the stockholders. Can the company pay this dividend? c. As of January 1, Year 2, what percentage of the assets were acquired from creditors? d. As of January 1, Year 2, what percentage of the assets were acquired from investors? e. As of January 1, Year 2, what percentage of the assets were acquired from retained earnings? f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation. g. During Year 2, Carter Company earned cash revenue of $720, paid cash expenses of $410, and paid a cash dividend of $61. (Hint. It is helpful to record these events under…
On January 1, Year 2, the following information was drawn from the accounting records of Carter Company: cash of $475; land of $2,625; notes payable of $775; and common stock of $1,705. Required a. Determine the amount of retained earnings as of January 1, Year 2. b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $575 cash dividend to the stockholders. Can the company pay this dividend? c. As of January 1, Year 2, what percentage of the assets were acquired from creditors? d. As of January 1, Year 2, what percentage of the assets were acquired from investors? e. As of January 1, Year 2, what percentage of the assets were acquired from retained earnings? f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation. g. During Year 2, Carter Company earned cash revenue of $720, paid cash expenses of $410, and paid a cash dividend of $61. (Hint. It is helpful to record these events under…

Chapter 1 Solutions

Survey Of Accounting

Ch. 1 - Prob. 11QCh. 1 - 12. Distinguish between elements of financial...Ch. 1 - Prob. 13QCh. 1 - 14. To whom do the assets of a business belong?Ch. 1 - 15. Describe the differences between creditors and...Ch. 1 - Prob. 16QCh. 1 - Prob. 17QCh. 1 - Prob. 18QCh. 1 - 19. What does a double-entry bookkeeping system...Ch. 1 - 22. How does acquiring capital from owners affect...Ch. 1 - Prob. 21QCh. 1 - Prob. 22QCh. 1 - 25. What are the three primary sources of assets?Ch. 1 - 26. What is the source of retained earnings?Ch. 1 - 27. How does distributing assets (paying...Ch. 1 - 28. What are the similarities and differences...Ch. 1 - Prob. 27QCh. 1 - 30. Which of the general-purpose financial...Ch. 1 - 31. What causes a net loss?Ch. 1 - 35. What three categories of cash receipts and...Ch. 1 - Prob. 31QCh. 1 - 37. Discuss the term articulation as it relates to...Ch. 1 - 38. How do temporary accounts differ from...Ch. 1 - Prob. 34QCh. 1 - 41. Identify the three types of accounting...Ch. 1 - Prob. 36QCh. 1 - Prob. 37QCh. 1 - Prob. 1ECh. 1 - Prob. 2ECh. 1 - Exercise 1-3A Identifying the reporting entities...Ch. 1 - Exercise 1-4A Define Terms and Identify Missing...Ch. 1 - Exercise 1-5 Effect of events on the accounting...Ch. 1 - Exercise 1-6 Effect of transactions on general...Ch. 1 - Exercise 1-7 Missing information and recording...Ch. 1 - Prob. 8ECh. 1 - Exercise 1-9A Record events and interpret...Ch. 1 - Exercise 1-10 Interpreting the accounting equation...Ch. 1 - Prob. 11ECh. 1 - Exercise 1-12A Differences between interest and...Ch. 1 - Exercise 1-13A Classifying events as asset source,...Ch. 1 - Prob. 14ECh. 1 - Exercise 1-15 Preparing an income statement and a...Ch. 1 - Prob. 16ECh. 1 - Prob. 17ECh. 1 - Prob. 18ECh. 1 - Prob. 19ECh. 1 - Riley Company paid 60,000 cash to purchase land...Ch. 1 - Prob. 21ECh. 1 - As of January 1, 2018, Room Designs, Inc. had a...Ch. 1 - As of December 31, 2018, Flowers Company had total...Ch. 1 - Prob. 24ECh. 1 - Critz Company was started on January 1, 2018....Ch. 1 - The Candle Shop experienced the following events...Ch. 1 - Prob. 27ECh. 1 - Prob. 28PCh. 1 - Prob. 29PCh. 1 - Match the terms (identified as a through r) with...Ch. 1 - Problem 1-30A Classifying events as asset source,...Ch. 1 - Problem 1-31A Relating titles and accounts to...Ch. 1 - Marks Consulting experienced the following...Ch. 1 - Prat Corp. started the 2018 accounting period with...Ch. 1 - Maben Company was started on January 1, 2018, and...Ch. 1 - Required Use the Target Corporations Form 10-K to...Ch. 1 - ATC 1-5 Writing Assignment Elements of financial...
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Text book image
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Text book image
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Text book image
Century 21 Accounting General Journal
Accounting
ISBN:9781337680059
Author:Gilbertson
Publisher:Cengage
Text book image
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Text book image
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College