Chapter 3, Problem 3.3AP

(a)

To determine

Accounting equation:

Accounting equation represents the relationship between assets, liabilities and shareholders’ equity. It is the foundation of double entry system and it helps to analyze the business transaction. Accounting equation displays the total assets are equal to the total liabilities and shareholders’ equities. Thus, the accounting equation is,

$\boxed{\text{Assets = Liabilities + Stockholder's equity}}$

Income statement:

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

Statement of retained earnings:

This is an equity statement which shows the changes in the stockholders’ equity over a period of time.

Classified balance sheet:

This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

To show: The effect of each transaction on the accounting equation, and explanation for changes in Retained earnings.

(b)

To determine

To prepare: The income statement, statement of retained earnings, and the classified balance sheet of Company CB.