Question

Mark’s Consulting experienced the following transactions for 2018, its first year of operations, and 2019. Assume...

Mark’s Consulting experienced the following transactions for 2018, its first year of operations, and 2019. Assume that all transactions involve the receipt or payment of cash.

Transactions for 2018

  1. Acquired $85,000 by issuing common stock.
  2. Received $135,000 cash for providing services to customers.
  3. Borrowed $22,000 cash from creditors.
  4. Paid expenses amounting to $53,000.
  5. Purchased land for $35,000 cash.

Transactions for 2019

Beginning account balances for 2019 are:

Cash

$

154,000

Land

35,000

Notes payable

22,000

Common stock

85,000

Retained earnings

82,000

  1. Acquired an additional $27,000 from the issue of common stock.
  2. Received $137,000 for providing services.
  3. Paid $17,000 to creditors to reduce loan.
  4. Paid expenses amounting to $68,000.
  5. Paid a $11,500 dividend to the stockholders.
  6. Determined that the market value of the land is $45,000.
  1. Determine the amount of cash that is in the retained earnings account at the end of 2018 and 2019.
  1. Determine the balance in the Retained Earnings account immediately after Event 2 in 2018 and in 2019 are recorded.

Homework Answers

Answer #1
Net income for 2018 will be the balance in retained earnings account at the end of 2018.
Service revenue 135,000
Less: expenses paid 53,000
Net income 82,000
Retained earnings at the end of 2018 = $82,000
For 2019
Service revenue 137,000
Less: expenses paid 68,000
Net income 69,000
Less: Dividend paid 11,500
Amount to be transferred to retained earnings 57,500
Retained earnings at the end of 2019 = $82,000+57,500 = 139,500
Effect of event 2
2018
Retained earnings will increase by 135,000
Retained earnings balance=$135,000
2019
Retained earnings will increase by 137,000
Beginning balance of retained earnings = 82000
Current balance = 82,000+137,000=$219,000
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