Question

Prat Corp. started the 2018 accounting period with $34,000 of assets (all cash), $14,000 of liabilities, and $19,000 of common stock. During the year, the Retained Earnings account increased by $18,050. The bookkeeper reported that Prat paid cash expenses of $33,000 and paid a $3,400 cash dividend to the stockholders, but she could not find a record of the amount of cash that Prat received for performing services. Prat also paid $8,500 cash to reduce the liability owed to the bank, and the business acquired $7,700 of additional cash from the issue of common stock. Required (Hint: Determine the amount of beginning retained earnings before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements.)

a-1. Prepare an income statement for the 2018 accounting period.

a-2. Prepare a statement of changes in stockholders’ equity for the 2018 accounting period.

a-3. Prepare a period-end balance sheet for the 2018 accounting period.

a-4. Prepare a statement of cash flows for the 2018 accounting period.

Answer 1

	Assets (Cash) =	Liabilties	+ Common stock	+ Retained earnings
Opening balance	34,000	14,000	19,000	1,000
Cash expenses paid	(33,000)			(33,000)
Dividend paid	(3,400)			(3,400)
Paid liabilties to bank	(8,500)	(8,500)
Common stock issued	7,700		7,700
Earned revenue [18,050 + 3,400 + 33,000]	54,450			54,450
Ending balance	51,250	5,500	26,700	19,050

Part a1 Income Statement

Revenue		54,450
Less: Expenses paid		(33,000)
Net Income		21,450

Part a2 Statement of changes in stockholders equity

Opening balance of retained earnings	1,000
Add: Net Income	21,450
Less: Dividends paid	(3,400)
Closing balance	19,050

Part a3 Balance Sheet

Assets		Liabilties
Cash	51,250	Liablities	5,500
		Stockholders Equity
		Common stock	26,700
		Retained earnings	19,050
Total	51,250	Total	51,250

Part a4 Cash flow statement

Cash flow from operating activities
Net Income		21,450
Less: Reduction in liabilties		(8,500)
Net cash from operating activites		12,950
Cash flow from investing activities		NIL
Cash flow from financing activities
Issuance of common stock	7,700
Dividend paid	(3,400)	4,300
Net increase in cash and cash equivalents		17,250
Add: Opening balance		34,000
Closing balance		51,250