Instructions 1. Determine the amount of retained earnings as of November 1. 2. S
ID: 2329322 • Letter: I
Question
Instructions 1. Determine the amount of retained earnings as of November 1. 2. State the assets, liabilities, and stockholders' equity as of November 1 in equation form similar to that shown in this chapter. In tabular form below the equation, indicate increases and decreases resulting from each transaction and the new balances after each transaction. 3. Prepare an income statement for November, a retained earnings statement for November, and a balance sheet as of November 30. 4. (Optiona) Prepare a statement of cash flows for November.Explanation / Answer
Answer: Requirement 1 The amount of retained earning is calculated as follows: Asset = Liabilities+Commomn stock+ Retained earning Retained Earning =Asset-Liabilities-Common stock =$180,000-31,500-50,000 $ 98,500 where, total assets are Cash +Accounts receivable+ Supplies+ Land =39,000+11,000+80,000+50,000 180000 Therefore, retained earning as of Nov1 would be $98,500. Requirement 2 Date Asset = Liabilities + Stockholder's Equity + Retained earning Cash Inventory Office Supplies Accounts receivable Land = Accounts payable + Commom Stock Nov-01 $ 39,000.00 $ 11,000.00 $ 80,000.00 $50,000.00 $31,500.00 $50,000.00 $ 98,500.00 Explanation Receipt of common stock in cash would increase both cash and common stock. The effect on accounting equiation and balance after this transaction would be as follows: A 21000 = + 21000 Balance $ 60,000.00 $ 11,000.00 $ 80,000.00 $50,000.00 = $31,500.00 + $71,000.00 $ 98,500.00 Explanation Land purchased in cash would decrease cash by $35,000 and increase land by $35,000. The effect on accounting equiation and balance after this transaction would be as B -35000 35000 = + Balance 25000 $ 11,000.00 $ 80,000.00 $85,000.00 = $31,500.00 + $71,000.00 $ 98,500.00 Explanation Rent paid in cash would decrease cash by $4000 and retained earning by $4000. The effect on accounting equiation and balance after this transaction would be as C -4000 = + -4000 Balance 21000 $ 11,000.00 $ 80,000.00 85000 = $31,500.00 + 71000 $ 94,500.00 Explanation Revenue earned on account would increase both accounts receivable and retained earning by $72,000. D 72000 = + 72000 Balance 21000 0 $ 11,000.00 $ 1,52,000.00 85000 = 31500 + 71000 $1,66,500.00 Explanation Cash paid to creditor would decrease both cash and accounts payable by $20,000. E -20000 = -20000 + Balance 1000 0 $ 11,000.00 $ 1,52,000.00 85000 = 11500 + 71000 166500 Explanation Purschase of office supplies on credit would increase both office supplies and accounts payable by $8000. The effect on accounting equiation and balance after this transaction would be as follows: F 8000 = 8000 + Balance 1000 0 $ 19,000.00 $ 1,52,000.00 85000 = 19500 + 71000 166500 Explanation Revenue earned would increase both cash and retained earning by $38,000. = G 38000 = + 38000 Balance 39000 0 19000 $ 1,52,000.00 85000 = 19500 + 71000 204500 Explanation Cash received from customer would increase cash and decrease accounts receivable by $77,000. H 77000 -77000 = + Balance 116000 0 19000 $ 75,000.00 85000 = 19500 + 71000 204500 Explanation Outstanding expenses would increase accounts payable and decrease retained earning by $29,450 I = 29450 + -29450 Balance 116000 0 19000 $ 75,000.00 85000 = 48950 + 71000 175050 Explanation Expenses paid in cash would decrease Cash and retained earning $29200 (i.e. $24,000+$2,100+$1,800+1,300) J -29200 = + -29200 Balance 86800 0 19000 $ 75,000.00 85000 = 48950 + 71000 145850 Explanation Cost of supplies used would decrease both supplies and retained earning by $7,200. K -7200 = 0 + -7,200 Balance 86800 0 11800 75000 85000 = 48950 + 71000 1,38,650 Explanation Dividend paid would decrease both cash and retained earning by $5000. L -5000 = + -5000 Balance 81800 0 11800 75000 85000 = 48950 + 71000 1,33,650 Requirement 3 Income statement $ - For the month of November Dry cleaning Revenue $ 1,10,000 Less: Expenses Dry cleaning expenses $ 29,450 Cost of supplies $ 7,200 Rent expense $ 4,000 Wages expense $ 24,000 Truck expense $ 2,100 Utilities expense $ 1,800 Miscellaneous expense $ 1,300 $ 69,850 Net income $ 40,150 (110000-69850) Retained earning As on Nov 30 Opening balance, as on Nov 1 $ 98,500 Add: Net income $ 40,150 Less: Divivend paid $ -5,000 Ending balance, as on Nov 30 $ 1,33,650 (98500+40150-5000) Balance Sheet As on Nov 30 Asset Cash $ 81,800 Accounts receivable $ 75,000 Supplies $ 11,800 Land $ 85,000 Total asset $ 2,53,600 Liabilities and Stockholder's Equity Liabilities Accounts Payable $ 48,950 Total liabilities $ 48,950 Stockholder's equity Common Stock $ 71,000 Retained earning $ 1,33,650 Total stockholder's equity $ 2,04,650 Total liabilities and stockholder's equity $ 2,53,600