Chapter 1, Problem 23E

As of December 31, 2018, Flowers Company had total assets of $130,000, total liabilities of $50,000, and common stock of $70,000. The company’s 2018 income statement contained revenue of $30,000 and expenses of $18,000. The 2018 statement of changes in stockholders’ equity stated that $3,000 of dividends were paid to investors.

Required

1. a. Determine the before-closing balance in the Retained Earnings account on December 31, 2018.
2. b. Determine the after-closing balance in the Retained Earnings account on December 31, 2018.
3. c. Determine the before-closing balances in the Revenue, Expense, and Dividend accounts on December 31, 2018.
4. d. Determine the after-closing balances in the Revenue, Expense, and Dividend accounts on December 31, 2018.
5. e. Explain the difference between common stock and retained earnings.
6. f. On January 1, 2019, Flowers Company raised $30,000 by issuing additional common stock. Immediately after the additional capital was raised. Flowers reported total equity of $110,000. Are the stockholders of Flowers in a better financial position than they were on December 31, 2018?