Question

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Milea Inc. experienced the following events in Year 1, its first year of operations:

1. Received $14,000 cash from the issue of common stock.
2. Performed services on account for $45,000.
3. Paid the utility expense of $1,450.
4. Collected $30,030 of the accounts receivable.
5. Recorded $8,550 of accrued salaries at the end of the year.
6. Paid a $1,450 cash dividend to the stockholders.

b-1. Prepare the income statement.

MILEA, INC. Income Statement For the Year Ended December 31, Year 1 Expenses Total expenses

b-2. Prepare the statement of changes in stockholders’ equity.


b-3. Prepare the balance sheet.

b-4. Prepare the statement of cash flows for the Year 1 accounting period.

Answer 1

we will first pass journal

1	cash	14000
	common stock		14000
2	account receivable	45000
	service revenue		45000
3	utility expense	1450
	cash		1450
4	cash	30030
	account receivable		30030
5	salary	8550
	salary payable		8550
6	retained earnings (dividend)	1450
	cash		1450

b-1

sales		$45000
expenses
utility expense	1450
salary	8550
Total expense		$10000
Net income [45000-10000]		$35000

b-2

changes in stock holder equity

beginning common stock	0
issued during year	$14000
ending common stock		$14000
beginning retained earnings	0
profit during year	$35000
less dividend paid	$1450
ending retained earnings [35000-1450]		$33,550
Total stock holder's equity [14000+33550]		$47,550

b-3

balance sheet

assets
cash [14000-1450+30030-1450]	41130
account receivable	14970
total assets [41130+14970]		56100
liabilities
salary payable	8550
total liabilities		8550
stock holder's equity
common stock	14000
retained earnings	33550
Total stock holder's equity		47550
Total liabilities and stockholder's equity [8550+47550]		56100

b-4

cash flow from operating activities
net income	35000
Increase in account receivable	(14970)
increase in salary payable	8550
net cash flow from operating activities [35000-14970+8550]		$28580
cash flow from investing activities
Cash flow from financing activities
issue of common stock	$14000
dividends paid	(1450)
net cash flow from financing		12550
net change in cash [28580+12550]		$41130
beginning cash		0
Emding cash		$41130