Question

A company has the following accounts and account balances at the end of its first year:
   Accounts payable, $4,000
   Cash, $22,000
   Common stock, Not given
   Dividends, $4,000
   Expenses, $17,000
   Notes payable, $3,000
   Prepaid insurance, $5,000
   Revenues, $28,000
What is the balance of its common stock account at the end of the first year?

Answer 1

a)Income statement is as follows:

	$
Revenues	28,000
Less: Expenses	(17,000)
Net Income	11,000
Less: Dividend	(4,000)
Retained Earnings	$7,000

b) Balance sheet is prepared as follows:

	$		$
Current assets:
Cash	22,000
Prepaid insurance	5,000
Total Current Assets			27,000
Property,Plant and Equipment:
Property,Plant and Equipment			-
Total Assets			$27,000
Liability and Stockholder's Equity
Current Liability:
Accounts payable			4,000
Notes payable			3,000
Common stock ( Balancing Figure)			$13,000
($27,000 - $4,000 - $3,000 - $7,000)
Retained Earnings			7,000
Liability and Stockholder's Equity			$27,000

The balance of its common stock account at the end of the first year is $13,000.