Question

Susan’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:

• Acquired $50,000 by issuing common stock.
• Received $100,000 cash for providing services to customers.
• Borrowed $15,000 cash from creditors.
• Paid expenses amounting to $60,000.
• Purchased land for $40,000 cash.

Transactions for Year 2:

• Acquired an additional $20,000 from the issue of common stock.
• Received $130,000 for providing services.
• Paid $10,000 to creditors to reduce loan.
• Paid expenses amounting to $75,000.
• Paid a $15,000 dividend to the stockholders.
• Determined that the market value of the land is $50,000.

1. What is Susan's Net Income for Year 1?

2. What is the Total Stockholders' Equity on the Year 1 Statement of Changes in Stockholders' Equity?

3. What is Susan's Total Assets on the Year 1 Balance Sheet?

4. What is Susan's Year 1 Net Cash Flow from Financing Activities?

5. What is Susan's Net Income for Year 2?

6. What is the ending Retained Earnings balance on the Year 2 Statement of Changes in Stockholders' Equity?

7. What is Susan's Total Liabilities & Stockholders' Equity for the Year 2 Balance Sheet?

8. What is Susan's Net Increase in Cash for Year 2?

Answer 1

Assets 1= Liabilities Stockholders' Equity Cash + Land = Notes payable + common stock |+ Retained earnings Explanation Year 1 1 50,000 + 50,000 + 2 100,000 + 100,000 Revenue 3 15,000 + 15,000 + 4 -60,000+ -60,000 Expenses 5 -40,000 + 40,000 = End. Bal. 65,000 + 40,000/= 15,000+ 50,000+ 40,000 + + FA 50,000 OA 100,000 FA 15,000 OA-60,000 FA-40,000 + + 15,000 40,000 50,000 20,000 + 130,000 - Revenue Year 2 Beg. Bal. 65,000 40,000 1 20,000 + 2 130,000 + 31-10,000+ 4 -75,000 + 5 -15,000 + End. Bal. 115,000 + 40,000 = - 10,000+ : + FA 20,000 OA 130,000 FA -10,000 OA -75,000 FA-15,000 -75,000 - Expenses - 15,000 - Dividend 80,000 - 5,000 + 70,000+ 1. Year 1 net income = 100,000-60,000 = 40,000 2. Year 1 Total stockholders' equity = 50,000 + 40,000 = 90,000 3. Year 1 Total assets = 65,000 + 40,000 = 105,000 4. Year 1 Net cash flow from financing activity = 50,000+15,000-40,000 = 25,000 5. Year 2 Net income = 130,000-75,000 = 55,000 6. Year 2 Ending retained earnings = 80,000 7. Year 2 Total liabilities and stockholders' equity = 5,000+70,000+80,000 = 155,000 8. Year 2 net increase in cash = 20,000+130,000-10,000-75,000-15,000 = 50,000