1. Determine the amount of retained earnings as of December 31, Year 1.
As of December 31, Year 1, Bruno Company had total cash of $78,000, notes payable of $42,800, and common stock of $26,200. During Year 2, Bruno earned $18,000 of cash revenue, paid $10,000 for cash expenses, and paid a $1,500 cash dividend to the stockholders.
Required
Determine the amount of retained earnings as of December 31, Year 1.
Create an accounting equation and record the beginning account balances under the appropriate elements.
Record the revenue, expense, and dividend events under the appropriate elements of the accounting equation created in Requirement b .
Prove the equality of the accounting equation as of December 31, Year 2.
Identify the beginning and ending balances in the Cash and Common Stock accounts. Explain why the beginning and ending balances in the Cash account are different, but the beginning and ending balances in the Common Stock account remain the same.
In this exercise, we will record the events under an accounting equation. We will calculate the missing amount of retained earnings in the beginning of the period. Also, we will prove the equality of the accounting equation as of December 31, Year 2.