Question

On January 1, 2018, the following information was drawn from the accounting records of Carter Company: cash of $225; land of $1,875; notes payable of $525; and common stock of $945. Required a. Determine the amount of retained earnings as of January 1, 2018. b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $325 cash dividend to the stockholders. Can the company pay this dividend? c. As of January 1, 2018, what percentage of the assets were acquired from creditors? d. As of January 1, 2018, what percentage of the assets were acquired from investors? e. As of January 1, 2018, what percentage of the assets were acquired from retained earnings? f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation. g. During 2018, Carter Company earned cash revenue of $520, paid cash expenses of $310, and paid a cash dividend of $51. (Hint: It is helpful to record these events under an accounting equation before preparing the statements.) g-1. Prepare an income statement dated December 31, 2018. g-2. Prepare a statement of changes in stockholders’ equity dated December 31, 2018. g-3. Prepare a balance sheet dated December 31, 2018. g-4. Prepare a statement of cash flows dated December 31, 2018. j. What is the balance in the Revenue account on January 1, 2019?

Answer 1

Since, multiple questions have been posted, I have answered the first five.

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Part a)

The value of retained earnings is arrived as follows:

Retained Earnings as of January 1, 2018 = Cash + Land - Notes Payable - Common Stock

Substituting values in the above formula, we get,

Retained Earnings as of January 1, 2018 = 225 + 1875 - 525 - 945 = $630

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Part b)

Yes, the company can pay dividends as it has sufficient amount of retained earnings of $630. After payment of dividends of $325, the company will still have $305 (630 - 325) in retained earnings.

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Part c)

In the given case, we will have to calculate the total debt to total assets ratio to determine the percentage of assets acquired from creditors as below:

Percentage of Assets Acquired from Creditors = Total Debt/Total Assets = 525/(225 + 1,875) = 25%

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Part d)

The percentage of assets acquired from investors is arrived as follows:

Percentage of Assets Acquired from Investors = 1 - Percentage of Assets Acquired from Creditors = 1 - 25% = 75%

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Part e)

The percentage of assets acquired from retained earnings (before dividend is paid) is arrived as follows:

Percentage of Assets Acquired from Retained Earnings = Retained Earnings/Total Assets = 630/(225 + 1875) = 30%