Question

Exercise 1-12A Prepare balance sheets for two accounting periods using a vertical format LO 1-5, 1-6

Specifically, the Better Corp. Year 1 ending balances become the Year 2 beginning balances. These balances are shown in the accounting equation that appear next.

BETTER CORP. Accounting Equation
Event	Assets		=	Liabilities	+	Stockholders’ Equity		Accounting Titles for Retained Earnings
	Cash	Land		Notes Payable		Common Stock	Retained Earnings
Beg. Bal.	8,000	20,000		12,000		7,000	9,000

Better Corp. completed the following transactions during Year 2:

1. Purchased land for $5,000 cash.
2. Acquired $25,000 cash from the issue of common stock.
3. Received $75,000 cash for providing services to customers.
4. Paid cash operating expenses of $42,000.
5. Borrowed $10,000 cash from the bank.
6. Paid a $5,000 cash dividend to the stockholders.
7. Determined that the market value of the land on December 31, Year 2, is $35,000.

Required
a. Record the transactions in the appropriate general ledger accounts under an accounting equation. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table. (Enter any decreases to account balances with a minus sign. Not all cells in the "Accounts Titles for Retained Earnings" column may require an input - leave cells blank if there is no corresponding Retained Earnings input needed.)

b. Prepare balance sheets for Year 1 and Year 2. These statements should be presented in the vertical format with Year 1 and Year 2 shown in side-by-side columns. Recall that the Year 1 ending balances become the Year 2 beginning balances. These ending/beginning balances can be found on the first row of the table shown earlier. More specifically, the Year 1 ending balances include $8,000 cash, $20,000 land, $12,000 notes payable, $7,000 common stock, and $9,000 retained earnings.

c. & d. How much cash is in the notes payable and common stock accounts at the end of Year 2?

e. How much cash is in the retained earnings account? What is the balance of the cash account at the end of Year 2?

f. What is the amount of the land shown on December 31, Year 2, balance sheet?

Answer 1

a.

BETTER CORP.
Accounting Equation
For Year 2
Event	Assets		=	Liabilities	+	Stockholders' Equity		Accounting Titles for Retained Earnings
	Cash	Land		Notes Payable		Common Stock	Retained Earnings
Beg. Bal.	8000	20000		12000		7000	9000
1	-5000	5000
2	25000					25000
3	75000						75000	Service revenue
4	-42000						-42000	Operating expenses
5	10000			10000
6	-5000						-5000	Dividends
7
End. Bal.	66000	25000		22000		32000	37000

b.

BETTER CORP.
Balance Sheet
December 31, Year 1 & Year 2
	Year 1	Year 2
Assets
Cash	8000	66000
Land	20000	25000
Total assets	28000	91000
Liabilities
Notes payable	12000	22000
Total liabilities	12000	22000
Stockholders' Equity
Common stock	7000	32000
Retained earnings	9000	37000
Total stockholders' equity	16000	69000
Total liabilities and stockholders' equity	28000	91000

c. & d.	Cash in the notes payable account:	$ 22,000
	Cash in the common stock account:	$ 32,000
e.	Cash in the retained earnings account:	$ 12,000
	Balance of the cash account:	$ 66,000
f.	Balance in the land account:	$ 25,000