Problem 1-34 Interrelationships among financial statem ents Prat Corp. started t

Question

Problem 1-34 Interrelationships among financial statem ents Prat Corp. started the 2018 accounting period with $30,000 of assets (all cash), $12,000 of liabilities of common stock. During the year, the Retained Earnings account increased by $7,550 he bookkeeper reported that Pratt paid cash expenses of $26,000 and paid a $2,000 cash dividend to cord of the amount of cash that Pratt received for perform- ing services. Pratt also paid $3,000 cash to reduce the liability owed to the bank, and the business the stockholders, but she could not find a re acquired $4,000 of additional cash from the issue of common stock. Required a. Prepare an income statement, statement of changes in stockholders' equity, period-end balance sheet, and statement of cash flows for the 2018 accounting period. (Hint: Determine the amount of beginning retained earnings before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements.) b. Determine the percentage of total assets that were provided by creditors, investors, and earnings. Round to three decimal places. c. Determine the balance in the Revenue, Expense, and Dividends accounts as of January 1,2019

Explanation / Answer

1 Determination of beginning retained earnings Assets= Liabilities +Common Stock+Retained Earnings $30000= $12000+$13000+Retained Earnings Retained Earnings $30000-$25000 $5,000 2 Computation of Net Income Beginning Retained earnings $5,000 Add Income Less Dividend Paid ($2,000) Ending Retained Earnings $12,550 Therefore Net Income $12550 +$2000-$5000 $9,550 Preparation of Income Statement Sales Expenses $26,000 Net income $9,550 Therefore Sales $35,550 Since Prat did not receive any cash for performing services ie all sales are account receivables only Therefore Accounts Receivable $35,550 Cash Date Particulars Amount Date Particulars Amount To Bal B/D $30,000 By Expenses $26,000 To Common Stock $4,000 By Dividend $2,000 By Liabilities $3,000 By Bal C/D $3,000 $34,000 $34,000 Common Stock Date Particulars Amount Date Particulars Amount By Bal B/D $13,000 To Bal C/D $17,000 By Cash $4,000 Liabilities Date Particulars Amount Date Particulars Amount To Cash $3,000 By Bal B/D $12,000 To bal C/D $9,000 Balance Sheet For the yr ended 2018 Cash $3,000 Accounts Receivable $35,550 $38,550 Liabilities $9,000 Common Stock $17,000 Retained Earnings $12,550 $38,550 Statement of cash Flows for the yr ended 2018 cash flow from operating activties Net Income $9,550 Adjustment to Net Income Increase in Acc Receivable ($35,550) Decrease in Liabilities ($3,000) ($38,550) cash used in Operating Activities ($29,000) Cash Flow from Financing Activities Proceeds from issue of common Stock $4,000 Dividends Paid ($2,000) Cash Provided by financing $2,000 Activties Net Increase /(Dec) of Cash ($27,000) Beginning Cash $30,000 Ending Cash $3,000 b Percentage of total Assets Provided by creditors ,investors and earnings Total Assets $38,550 Total Liabilities-Assumed Creditors $9,000 % of Creditors to Total Assets 23.35 Common Stock-Investors $17,000 % of Investors to Total Assets 44.10 Earnings $12,550 %of Earnings to Total Assets 32.55 Excerice 3-15 Single Step Statement Sales Revenue $5,600 Expenses Cost of Good Sold $2,950 Advertising Exp $600 Interest Exp $120 Salaries Exp $960 Rent Exp $510 Gain on sale of land $200 Total Cost and Expense $5,340 Net Income $260 Multi Step Statement Sales revenue $5,600 Cost of Goods Sold $2,950 Gross Profit $2,650 Operating Expenses Advertising Exp $600 Interest Exp $120 Salaries Exp $960 Rent Exp $510 Gain on Sale of land $200 Total Operating expense $2,390 Net Income $260

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