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The following information is available for Pacilio Security Services Inc
The following information is available for Pacilio Security Services Inc. for 2011, its first year of operations. Pacilio provides security services for local sporting events. The following summary transactions occurred during 2011.
1. Acquired $6,000 from the issue of common stock.
2. Borrowed $5,000 from the Small Business Government Agency. The loan is interest-free.
3. Performed security services at local sporting events during the year for $9,000 cash.
4. Paid salaries expense of $3,000 for the year.
5. Purchased land for $4,000.
6. Paid other operating expenses of $2,000 for the year.
7. Paid a cash dividend to the shareholders of $2,500.
8. The market value of the land was determined to be $4,500 at December 31, 2011.
Required
a. Record the above transactions in an accounting equation. Provide the appropriate account titles for the amounts shown in the Retained Earnings column.
b. Prepare an income statement, statement of changes in stockholder's equity, balance sheet, and statement of cash flows for 2011.
Expert Solution
a.
| Event | Cash (Assets) | Land (Assets) | Notes payable (Liabilities) | Common stock (Stockholders' equity) | Retained earnings (Stockholders' equity) | Accounts title/RE (Stockholders' equity) |
|---|---|---|---|---|---|---|
| Issued stock | 6,000 | 6,000 | ||||
| Loan | 5,000 | 5,000 | ||||
| Provided svc. | 9,000 | 9,000 | Service revense | |||
| Paid salaries | (3,000) | (3,000) | Salaries expense | |||
| Purchase land | (4,000) | 4,000 | ||||
| Paid expense | (2,000) | (2,000) | Other operating expense | |||
| Paid dividend | (2,500) | (2,500) | Dividends | |||
| No entry | ||||||
| Totals | 8,500 | 4,000 | 5,000 | 6,000 | 1,500 |
b.
Income statement:
| Particulars | Amount | |
|---|---|---|
| Service revenue | 9,000 | |
| Less: | Salaries expense | 3,000 |
| Less: | Other operating expense | 2,000 |
| Net income | 4,000 |
Stockholders' equity:
| Particulars | Amount | |
|---|---|---|
| Beginning common stock | 0 | |
| Add: | Common stock issued | 6,000 |
| Ending common stock (A) | 6,000 | |
| Beginning retained earnings | 0 | |
| Add: | Net income | 4,000 |
| Less: | Dividends | 2,500 |
| Ending retained earnings (B) | 1,500 | |
| Total stockholders' equity ((C) = (A) + (B)) | 7,500 |
Balance sheet:
| Particulars | Amount | |
|---|---|---|
| Assets: | ||
| Cash | 8,500 | |
| Add: | Land | 4,000 |
| Total assets | 12,500 | |
| Liabilities: | ||
| Notes payable | 5,000 | |
| Total liabilities (A) | 5,000 | |
| Stockholders' equity: | ||
| Common stock | 6,000 | |
| Add: | Retained earnings | 1,500 |
| Total stockholders' equity (B) | 7,500 | |
| Total liabilities and stockholders' equity ((C) = (A) + (B)) | 12,500 |
Statement of cash flows:
| Particulars | Amount | |
|---|---|---|
| Cash flows from operating activities: | ||
| Cash receipts from customers | 9,000 | |
| Less: | Cash payment for salaries expense | 3,000 |
| Less: | Cash payment for other operating expense | 2,000 |
| Net cash flows from operating activities | 4,000 | |
| Cash flows from investing activities: | ||
| Cash paid to purchase land | (4,000) | |
| Net cash flow from investing activities | (4,000) | |
| Cash flows from financing activities: | ||
| Cash receipts from stock issue | 6,000 | |
| Add: | Cash receipts from loan | 5,000 |
| Less: | Cash payment for dividends | 2,500 |
| Net cash flow from financing activities | 8,500 | |
| Net increase in cash | 8,500 | |
| Add: | Beginning cash balance | 0 |
| Ending cash balance | 8,500 |
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