Question

Required information

[The following information applies to the questions displayed below.]

Packard Company engaged in the following transactions during Year 1, its first year of operations: (Assume all transactions are cash transactions.)

1. 1) Acquired $1,800 cash from the issue of common stock.
2. 2) Borrowed $1,270 from a bank.
3. 3) Earned $1,450 of revenues.
4. 4) Paid expenses of $420.
5. 5) Paid a $220 dividend.

During Year 2, Packard engaged in the following transactions: (Assume all transactions are cash transactions.)

1. 1) Issued an additional $1,175 of common stock.
2. 2) Repaid $815 of its debt to the bank.
3. 3) Earned revenues of $1,600.
4. 4) Incurred expenses of $700.
5. 5) Paid dividends of $270.

What was the balance of Packard's Retained Earnings account before closing in Year 1?

Multiple Choice

• $810

• $0

• $1,030

• $1,050

with the information above....

What is the after-closing amount of retained earnings that will be reported on Packard’s balance sheet at the end of Year 2? (Assume that closing entries have been made).

Multiple Choice

• $2,080

• $1,710

• $1,440

• $2,275

_______________________________________________________________

The following entry is taken from the journal of a merchandising company:

Cost of Goods Sold	6,000
Merchandise Inventory		6,000

What is the effect of this entry on the company’s financial statements?

Multiple Choice

• Assets and stockholders’ equity increase.

• Assets and liabilities increase.

• Assets and stockholders’ equity decrease.

• Assets decrease and stockholders’ equity increases.

Answer 1

1	Year 1	$
	Revenue	1,450
	Less: Expenses	(420)
	Net income	1,030
	Less: Dividend paid	(220)
	Balance in Retained Earnings in year 1	810
2	Year 2
	Revenue	1,600
	Less: Expenses	(700)
	Net income	900
	Less: Dividend paid	(270)
	Net income after dividend	630
	Add: Beginning balance of Retained Earnings	810
	Ending Balance of Retained Earnings in Year 2	1,440
3	The effect of cost of goods sold adjustment entry is;
	Assets and stockholders’ equity decrease.
	Debit cost of goods sold then the gross income is reduced . Therefore, stockholder's liability is decrease.
	Credit Inventory then the asset is decreases.