Question

Majka Company was started on January 1, Year 1. During Year 1, the company experienced the following three accounting events: (1) earned cash revenues of $28,600, (2) paid cash expenses of $13,200, and (3) paid a $1,500 cash dividend to its stockholders. These were the only events that affected the company during Year 1.
Required
a. Create an accounting equation and record the effects of each accounting event under the appropriate general ledger account headings.
b. Prepare an income statement, statement of changes in stockholders' equity, and a balance sheet.
c. Explain why the income statement uses different terminology to date the income statement than is used to date the balance sheet.

Answer 1

Answer:

See the explanation below:

Explanation:

a. Create an accounting equation and record the effects of each accounting event under the appropriate general ledger account headings.

Assets = Liabilities + Stockholders' Equity  ......... (1)

Cash is a component of Asset, therefore the transaction will affect assets or cash as follows:

Asset: +  $28,600,  - $13,200, - $1,500

Cash balance = Asset = $28,600  - $13,200 - $1,500 = $13,900

Retained Earnings  is a component of Stockholders' Equity , therefore the transaction will affect Stockholders' Equity  or Stockholders' Equity as follows:

Retained Earnings;   +  $28,600,  - $13,200, - $1,500

Retained Earnings = $28,600  - $13,200 - $1,500 = $13,900 = Stockholders' Equity

Liabilities = 0. This is because the three transactions does not affect liabilities

Substituting the values into the equation (1), we have:

$13,900 = 0 + $13,900

b. Prepare an income statement, statement of changes in stockholders' equity, and a balance sheet.

1. Income statement

Details                                  Amount ($)

Revenues                                 28,600

Expenses                                 (13,200)  

Profit                                          15,400

Dividend                                    (1,500)  

Retained earning                    13,900  

2. Statement of changes in stockholders' equity

Details                                         Amount ($)

Common stock                                   0

Retained b/f                                        0        

Retained earning for the year        13,900  

Stockholders' equity                      13,900  

3. Balance sheet.

Details                                         Amount ($)

Assets

Cash                                                  13,900

Other assets                                         0    

                                                         13,900  

Stockholders' equity

Common stock                                     0

Retained earning                              13,900  

                                                         13,900  

c. Explain why the income statement uses different terminology to date the income statement than is used to date the balance sheet.

The reason is the income statement shows the performance of a company during a particular period, while the balance sheet shows the assets and liabilities of the company at a specific point in time.