On January 1, 2018, the following information was drawn from the accounting reco
ID: 2334564 • Letter: O
Question
On January 1, 2018, the following information was drawn from the accounting records of Carter Company: cash of $800; land of $3,500; notes payable of $600; and common stock of $1,000.
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 $1,000 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 $1,800, paid cash expenses of $1,200, and paid a cash dividend of $500. (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?
Explanation / Answer
a. Determine the amount of retained earnings as of January 1, 2018.
The amount of retained earnings as on 1 jan 2018 =cash +land -notes payable-common stock
=$800+$3500-$600-$1000
=$2700
b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $1,000 cash dividend to the stockholders. Can the company pay this dividend?
Yes the retained earnings balance is sufficient to be able to pay off the cash dividend.Therefore the balance of the retained earnings after paying cash dividends
=$2700-$1000
=$1700
c. As of January 1, 2018, what percentage of the assets were acquired from creditors?
Total Assets =Cash +Land
=$800+$3500
=$4300
% of assets acquired by creditors : Here we do not have debts in the company.So the % of assets acquired by creditors is nil.
d. As of January 1, 2018, what percentage of the assets were acquired from investors?
Equity Ratio =Total Equity/Total Assets
= Common Stock/Total Assets
= $1000/$4300*100
=23.26%
e. As of January 1, 2018, what percentage of the assets were acquired from retained earnings?
Retained earnings/Total Assets *100
=$2700/$4300*100
=62.79%
f Create an accounting equation using percentages instead of dollar amounts on the right side of the equation.
Assets =Liabilities +Shareholders Equity
=Liabilities +(retained earnings+Owners Equity)
100% =13.96% +62.79%+23.26%
g-1. Prepare an income statement dated December 31, 2018.
Income Statement dec 31 2018
Sales $1800
Less expenses $1200
Net income $600
g-2. Prepare a statement of changes in stockholders’ equity dated December 31, 2018.
Statement of Stock holders Equity
Opening Retained Earings $2700
Add:Net Income current yr $600
Less Cash dividends -$500
Retained Earnings -End $2800
g-3. Prepare a balance sheet dated December 31, 2018.
Assets
Current Assets
Cash :$800+$1800-$1200-$500 -$900
Land : -$3500
Total Assets -$4400
Liabilities
Non Current Liab
Notes payable -$600
Common Stock -$1000
Retained Earnings -$2800
Total Liabilities and Equity -$4400
j. What is the balance in the Revenue account on January 1, 2019?
The balance of retained earnings as on 1 jan 2019 -$2800
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