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Homework answers / question archive / Using the following table and the equations underlying each of the four basic financial statements, show (a) that the balance sheet is in balance, (b) that net income is properly calculated, (c) what caused changes in the retained earnings account, and (d) what caused changes in the cash account
Using the following table and the equations underlying each of the four basic financial statements, show (a) that the balance sheet is in balance, (b) that net income is properly calculated, (c) what caused changes in the retained earnings account, and (d) what caused changes in the cash account. (Cash outflows should be indicated with a minus sign.)
Assets$20,100 Liabilities 14,700 Stockholders' Equity 5,400 Revenue 12,400 Expenses 10,150 Net Income 2,250 Dividends 950 Beginning Retained Earnings 5,400 Ending Retained Earnings 6,700 Cash Flows from Operating Activities 3,500 Cash Flows from Investing Activities (2,900)Cash Flows from Financing Activities (1,850)Beginning Cash 2,900 Ending Cash 1,650
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Answer:
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Explanation
a) Computation of Balance sheet is in Balance with equation:
Assets = Liabilities + Stockholders' Equity
= $20,100 = $14,700+$5,400
Assets reported on the balance sheet.
b) Computation of Net Income:
Net Income = Revenue - Expenses
$2,250 = $12,400 - $10,150
Net income reported on the income statement.
c) Changes in Retained Earnings:
Beginning Retained Earnings (R/E) + Net Income - Dividends = Ending Retained Earnings (R/E)
$5,400 + $2,250 - $950 = $6,700
d) Changes in Cash Account:
Beginning Cash + Cash Flows from Operating Activities + Cash Flows from (Used in) Investing Activities + Cash Flows from (Used in) Financing Activities = Ending Cash
$2,900 + $3,500 + ($2,900) + ($1,850) = $1,650
