Question

03 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 $50,000 by Issuing common stock. 2. Received $135,000 cash for providing services to customers. 3. Borrowed $23,000 cash from creditors. 4. Pald expenses amounting to $60,000 5. Purchased land for $30,000 cash. Transactions for Year 2 Beginning account balances for Year 2 are: Cash Land Notes payable Common stock Retained earnings $118,000 30,000 23,000 50,000 75,000 1. Acquired an additional $28.000 from the issue of common stock. 2. Received $130,000 for providing services 3. Pald $18,000 to creditors to reduce loan 4. Pald expenses amounting to $67,000. 5. Pald a $11,000 dividend to the stockholders. 6. Determined that the market value of the land is $40,000.

Answer 1

Mark's Consulting Services Accounting Equation for Year 1 + Event Assets Cash + Land 50000 135000 1 + + + Liabilities Stockholders Equity Account Titles For = Notes Payable + Common Stock + Retained Earnings Retained Earnings 50000 135000 Service Revenue 23000 -60000 Paid expenses 2 + + II + 3 + II + + 23000 -60000 + II + + 4 5 + + Totals -30000 + 30000 118000 + 30000 148000 = 23000 + 50000 + 75000 148000 Accounting Equation for Year 2 + Event Bal. Assets Cash + Land 118000 + 30000 Liabilities Stockholders Equity Account Titles For = Notes Payable + Common Stock + Retained Earnings Retained Earnings 23000 50000 75000 + + 1 28000 + + 28000 II + 2 130000 + + + 130000 Service Revenue 3 - 18000 + - 18000 + + 4 -67000 + + + -67000 5 - 11000 + = + + -11000 Paid expenses Dividends paid No entry 6 + + + Totals 180000 + 30000 II 5000 + 78000 + 127000 210000 210000

Statement of Income For Period ending Year 1 Service Revenue 135000 Less: Expenses 60000 Net Income 75000 Balance sheet As at Year 1 Assets Current Assets Cash Amounts Amounts Amounts Amounts Liabilities Current Liabilities 118000 Notes Payable 23000 Non Current Assets Land Statement of Retained Earnings For Period ending Year 1 Net Income 75000 Shareholders Equity 30000 Common Stock Retained Earnings 148000 Total Liabilities 50000 75000 125000 Total Assets 148000 Statement of Income For Period ending Year 2 Service Revenue 130000 Less: Expenses 67000 Net Income 63000 Balance sheet As at Year 1 Assets Current Assets Cash Amounts Amounts Amounts Amounts Liabilities Current Liabilities 180000 Notes Payable 5000 Non Current Assets Land 78000 Shareholders Equity 30000 Common Stock Retained Earnings 210000 Total Liabilities 127000 205000 Total Assets 210000 Statement of Retained Earnings For Period ending Year 2 Beginning Bal 75000 Net Income 63000 138000 Dividends paid -11000 127000

Statement of Cashflows For the period ending 31.12.Year1 Cashflows from Operating Activity Net Income Adjustments: Increase in Notes Payable Cash generated from Operating Activity 75000 23000 23000 98000 Cashflows from Investing Activity Land Purchased Cash used for Investing Activity -30000 -30000 50000 50000 Cashflows from Financing Activity Common Stock issued Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 118000 0 118000 Statement of Cashflows For the period ending 31.12.Year2 Cashflows from Operating Activity Net Income Adjustments: Decrease in Notes Payable Cash generated from Operating Activity 63000 - 18000 - 18000 45000 Cashflows from Investing Activity Land Purchased Cash used for Investing Activity 0 28000 - 11000 Cashflows from Financing Activity Common Stock issued Dividends paid Cash generated from Financing Activity Net Increase in Cash Beginning Cash Balance Ending Cash Balance 17000 62000 118000 180000