1. Simpson Company experienced the following events during Year 1.
1. Acquired $25,000 cash from the issue of common stock.
2. Paid $7,500 cash to purchase land.
3. Borrowed $12,500 cash.
4. Provided services for $30,000 cash.
5. Paid $11,000 cash for operating expenses.
6. Paid a $2,500 cash dividend to the stockholders.
7. Determined that the market value of the land purchased in Event 2 is now $8,250.
Required
The January 1, Year 1, general ledger account balances are shown in the following accounting equation. Record the eight events in the appropriate general ledger accounts. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate titles for these accounts in the last column of the table.
Prepare an income statement, statement of changes in equity, year-end balance sheet, and statement of cash flows for the Year 1 accounting period.
Determine the percentage of assets that were provided by retained earnings. How much cash is in the retained earnings account?
SIMPSON COMPANY
Accounting Equation
In this exercise, we will record the transactions under an accounting equation. We will also prepare the financial statements for Year 1.
Event
Assets =
Liabilities +
Stockholders’ Equity
Acct. Titles for RE
Cash
Land
Notes Payable
Common Stock
Retained
Earnings
Balance
1/1/Year 1
7,500
5,000
-0-
5,000
7,500