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Accounting Information and Decision

Making

Chapter 1

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Participation Questions
1. What is the only way to access the Connect Website?
2. When an investor provides money ($) to a corporation
for ownership, what does the corporation issue to the
investor/owner in return?
3. A Payable is always a liability. T/F
4. Which financial statement is always completed first?
5. Which financial statement is more like a movie over a
period of timeversus a camera picture?

Announcements 1/13/15
Connect Enrollment Date closes on 1/25/15 USE KNIGHTS E-MAIL ADDRESS ONLY
Dean Jarleys Leadership Development Program & Ambassador Meeting ~ Friday, January 23, 2015
Guest Speaker: Mr. Tony Jenkins, Market President, Florida Blue
Times: 1:00-2:00 pm in BA 1 Room 238 and the Ambassador Meeting will immediately follow
14 Day free access includes e-book
Connect - $81.75 includes no e-book purchase through Connect Website
Can also purchase in bookstore for less (limited quantity)
Connect Plus - $127.50 includes e-book purchase through Connect Website
Welcome to the Major
January 16 - 9:30 AM to 1:30 PM at the UCF Venue (Arena)
Assignments
January 20th
Syllabus Quiz #1 used for attendance for Federal Student Aid (Webcourses) 2 attempts
January 25th
Homework Assignment #1 (Connect) unlimited attempts
Participation Questions for Chapter #1 questions (Webcourses) 1 attempt
February 1st
Homework Assignment #2 (Connect) unlimited attempts
Participation Questions for Chapter #2 questions (Webcourses) 1 attempt
Definitions Quiz (Webcourses) 2 attempts

Announcements 1/15/15
Connect Enrollment Date closes on 1/25/15 USE KNIGHTS E-MAIL ADDRESS ONLY
Dean Jarleys Leadership Development Program & Ambassador Meeting ~ Friday, January 23, 2015
Guest Speaker: Mr. Tony Jenkins, Market President, Florida Blue
Times: 1:00-2:00 pm in BA 1 Room 238 and the Ambassador Meeting will immediately follow
14 Day free access includes e-book
Connect - $81.75 includes no e-book purchase through Connect Website
Can also purchase in bookstore for less (limited quantity)
Connect Plus - $127.50 includes e-book purchase through Connect Website
Welcome to the Major
January 16 - 9:30 AM to 1:30 PM at the UCF Venue (Arena)
Assignments
January 20th
Syllabus Quiz #1 used for attendance for Federal Student Aid (Webcourses) 2 attempts
January 25th
Homework Assignment #1 (Connect) unlimited attempts
Participation Questions for Chapter #1 questions (Webcourses) 1 attempt
February 1st
Homework Assignment #2 (Connect) unlimited attempts
Participation Questions for Chapter #2 questions (Webcourses) 1 attempt
Definitions Quiz (Webcourses) 2 attempts

Announcements 1/20/15
Handouts pgs. 20 and 21 from Chapter 2 PowerPoints AND Accounting Equation from Webcourses Tools for
Class link.
Connect Enrollment Date closes on 1/25/15 USE KNIGHTS E-MAIL ADDRESS ONLY
533 out of 1,000 already signed up

Dean Jarleys Leadership Development Program & Ambassador Meeting ~ Friday, January 23, 2015
Guest Speaker: Mr. Tony Jenkins, Market President, Florida Blue
Times: 1:00-2:00 pm in BA 1 Room 238 and the Ambassador Meeting will immediately follow
14 Day free access to Connect includes e-book
Assignments
January 20th
Syllabus Quiz #1 used for attendance for Federal Student Aid (Webcourses) 2 attempts
January 25th
Homework Assignment #1 (Connect) unlimited attempts
Participation Questions for Chapter #1 questions (Webcourses) 1 attempt
February 1st
Homework Assignment #2 (Connect) unlimited attempts
Participation Questions for Chapter #2 questions (Webcourses) 1 attempt
Definitions Quiz (Webcourses) 2 attempts

Block 1
Introduction to Accounting and Financial
Reporting
Chapter 1

Accounting Cycle analyze business


transactions to aggregate and construct
financial statements for decision makers
Chapter 2 External transactions
Chapter 3 Internal transactions
6

Overall Question to be answered this semester:

What is financial reportings role in todays


American society?
Discussion Posting:
Ifcompanies could select whatinformation to report and how toreport in their
financial statements this would greatly change American business. GAAP
gives both private and public companies guidelines so they can accurately
and honestly report finances. This helps keep these companies from making
errors and committing fraud. Basically, keeping the greedy XXX honest.

Why Accounting
Bank United
Suppliers

https
://www.sec.gov/cgi-bin/viewer?action=view&cik=1166126&accession_number=0001166126-14-000
017&xbrl_type=v
#
https://www.sec.gov/cgi-bin/viewer?action=view&cik=1378950&accession_number=0001193125-1
4-094601&xbrl_type=v
#

Budgets - Sales Manager - EBITDA


8

How a corporation begins

Corporation and Stock Ownership


A type of security that signifies ownership in a corporation and represents a
claim on part of the corporation's assets and earnings.
A holder of stock (a shareholder) has a claim to a part of the corporation's
assets and earnings. In other words, a shareholder is an owner of a
company. Ownership is determined by the number of shares a person owns
relative to the number of outstanding shares. For example, if a company
has 1,000 shares of stock outstanding and one person owns 100 shares,
that person would own and have claim to 10% of the company's assets.

10

Legal Forms of Business Organization


Sole Proprietorship
Owned by a single person
Partnership
Owned by more than one person
Corporation
Owned by multiple shareholders
Pros limited liability: stockholders are not personally responsible
for financial obligations of corporation.
Cons
Double taxation
Corporate income is taxed
Shareholders taxed on distributions of earnings (dividends)

11

Two Functions of Financial Accounting


To measure business activities of a
company and to communicate those
measurements to external parties for
decision-making purposes.

12

Types of Accounting
Managerial Accounting
Deals with the methods
accountants use to provide
information to an
organizations internal
users; that is, its own
managers.

Financial Accounting
Measures business
activities of a company and
communicates those
measurements to external
parties for decision-making
purposes.
Focus of the Course
13

Accounting Information - The Language of


Business

People

Make Decisions About

Communicate information
to:

Companies
Activities
Measured by:

Accountants

(WHO) Users of Accounting Information


The two primary users of accounting information for decision-making:
Investors - for present & potential capital providers
Creditors - Bonds and Banks for Investment & lending decisions
Other users include:
Customers
Suppliers
Managers
Employees
Competitors
Regulators
Tax authorities
15
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

15

What is Measured?
BUSINESS ACTIVITIES

These transaction are from the COMPANY PERSPECTIVE

Operating Activities
Involves transactions in primary operations of business

Purchase inventory (lemonade) to sell $1,000


Financing Activities
Involves funding from external sources

Individual invests $500 in a business in return for company stock.

Bank loan of $1,000.


Investing Activities
Involves purchase and sale of long-term resources

Purchased lemonade stand to operate business - $100


16

16

How to Measure Business Activities

The Accounting Equation

Assets

= Liabilities

Companys
resources

+ Stockholders Equity*

Claims to those resources

*Stockholders Equity is also known as Owners Equity

17

17

Accounting Equation
Elements
Assets

Resources owned by
company

Liabilities

Amounts owed to creditors

Stockholder
s Equity

Owners claim to resources


(stockholders of the
corporations)
18
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Claims on Assets
ASSETS
Cash
Inventory
Equipment
Building

OWNERS CLAIMS
AMOUNTS OWED
OWNERS (STOCKHOLDER)
LIABILITIES
EQUITY
Bank
Supplier
Stockholders common
Government
and preferred
Employees
Copyright 2010 Pearson Education
19

Company Profits Operating Cycle

Revenu
e
Expens
es
Net
Profit

Amounts earned from selling


products and services to
customers
Cost of providing products
and services
Difference between revenue
and expense
20
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Net Income (aka the bottom line)


Revenues
Minus

Expenses
Net Income

If
expense
s exceed
revenue
s

A net loss
results
21

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Net Income and (Net Loss) Examples

2011

2010

Revenues

1,000,000

1,000,000

Expenses

850,000

1,075,000

Net Income/(Net Loss)

150,000

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

(75,000)

23

24

Accounts - Revenues and Expense of Apple Computers


What is an Account a place to aggregate similar transactions (Chart of
Accounts)
What Constitutes Revenue?

What constitutes Expenses?

25

Revenues and Expenses of Apple


What Constitutes Revenue?
Products
Repairs
Itunes
Iphone contracts
Iwatch???
What constitutes Expenses?
Rent
Employee wages
Insurance
Furniture and fixtures
Utilities
Supplies
Marketing
26

http://www.sec.gov/cgi-bin/viewer?action=view&cik=320193&accession_number=0001193125-14-383437&xbrl_type=v
The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative
expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly
linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale
of specific products, for example telephone expenses, Internet, and postal charges. General and administrative
expenses include salaries of non-sales personnel, rent, utilities, communication, etc.

27

Reality Check
____ Assets
A. Costs of selling products and services
____ Liabilities
B. Amounts received from sales of
products or services
____ Owners Equity C. Amounts owed to creditors
____ Revenues D. Owners claims to company resources
____ Expenses E. Resources owned

28

28

The Basic Financial Statements

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

The Basic Financial Statements


Fiscal or Calendar Year
1.) Income
Statement

2.)
Statement of
Stockholder
s Equity

3.) Balance
Sheet

4.) Cash
Flow
Statement

Data flows from one financial


statement to the other based on the
order above.
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Income Statement
Revenues Expenses = Net Income
Reports how the company performed operationally based
on the companys revenues and expenses over a period
of time.
MOVIE
Income Statement flows to Statement of Stockholders
Equity Flows

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Balance Sheet

Shows resources and obligations (account balances)


at ONE point in time.
SNAPSHOT

Summarized using the basic ACCOUNTING EQUATION


Assets = Liabilities + Stockholders Equity

Statement of Stockholders Equity Flows to Balance


Sheet

ASSETS Sample of Accounts


Cash liquid assets
Accounts Receivable amounts the company expects to
collect from customers.
Notes Receivable amounts company expects to collect from
a party who has a signed promissory note with company
Inventory items for sale by company
Supplies items that will be consumed by the company
during the operation of the business such as office supplies.
Prepaid expenses prepayments for advertisements, rent,
insurance, and supplies.
Property, plant, and equipment land, buildings,
computers, store fixtures, manufacturing equipment.

LIABILITIES Sample of Accounts


Accounts Payable amounts owed to vendors
for the purchase of materials or services.
Salaries Payable amounts due employees
Interest Payable - amounts owed to lenders
based on loans
Utilities Payable amounts owed to utility
companies
Notes payable amounts due to another party
for loaning money to the company

Receivable versus Payable


Receivable the firm will receive dollars, so it is a
resource to the firm that can be utilized in the
future. ALWAYS AN ASSET
Payable the firm owes money to creditors, such
as suppliers or the bank. ALWAYS AN LIABILITY

STOCKHOLDERS EQUITY Two Primary Accounts

Paid-in-Capital
Stock external source
Amount shareholders have invested in
the business
Retained Earnings internal source
Cumulative amount of net income earned
and kept in business less dividends paid
out.

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Financial Statements
Income Statement

Activity over a period of time


(performance)
One Month
One Quarter
One Year

Balance Sheet

Resources and obligations at


a point in time
As of a certain date
such as December 31,
20XX

ACCOUNTING EQUATION
Assets = Liabilities + Stockholders
Equity
Retained Earnings
Paid in Capital (Stock)

Revenue

Expenses

Dividends

Statement of Stockholders
Equity
Summarizes the changes to Stockholders Equity
over an interval of time.
Common Stock Account
Retained Earnings Account
Net income
Dividends

Net income (or net loss) flows from the Income


Statement to Stockholders Equity
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Components of Common Stock (CS)


Beginning
Balance of
CS

Plus

Issuance of
Stock ($
received)

Equals

Ending
Balance of
CS
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Retained Earnings
Net Income (Net Loss)
Inflows (outflows) to retained
earnings based on the profits
retained by the company.
Dividends
Outflow of cash from retained
earnings.
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

43

Net
Income
Increase

Net Loss
decreas
e

Retain
ed
earnin
gs

Dividen
ds
decreas
e

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Components of Retained Earnings (Example Apple for 2013)


Beginning
Balance of RE
Plus or
Minus

Minus

Equals

http://www.sec.gov/cgi-bin/viewer?action=view&cik=320
193&accession_number=0001193125-13-416534&xbrl_type=v
#

Net Income (or


Net Loss) for
the Period
Dividends for
the Period
Ending
Balance of RE
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Components of RE Example 1 Net Income


100,000

Plus

Beginning of
Period RE

Net Income
150,000

Minus

Dividends
50,000

Equals

200,000

End of Period
RE

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Components of RE Example 2 Net


Loss
100,000

Minus

Beginning of
Period RE

Net Loss
(250,000)

Minus

Dividends
0

Equals

(150,000)

End of Period
RE

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

The Statement of Cash


Flows

Measures cash receipts and cash payments


Investors & creditors like this statement
Categorizes into three types of activities:
Operating
Investing
Financing
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Cash Flow Categories

Operating
Cash receipts and payments from selling goods
and services

Investing

Purchasing & selling long-term assets

Financing
Issuing stock and borrowing
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

How Do You Use Financial Statements to Evaluate Performance?

Copyright 2014 Pearson Education,


Inc. publishing as Prentice Hall

1-51

The Basic Financial Statements


Fiscal or Calendar Year
1.) Income
Statement

2.)
Statement of
Stockholder
s Equity

3.) Balance
Sheet

4.) Cash
Flow
Statement

Data flows from one financial


statement to the other based on the
order above.
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Relationships between Financial Statements


Income Statement
For the year ended December 31, 2010

Revenues

$$$,$$$

Expenses

($$,$$$)

Net income

$$,$$$
Statement of Stockholders Equity
For the year ended December 31, 2010

Beginning retained earnings


Net income

$$$,$$$
$$,$$$

Cash dividends

($$,$$$)

Ending retained earnings


Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

$$,$$$
53

Statement of Stockholders Equity


For the year ended December 31, 2010

Beginning retained earnings


Net income

$$,$$$

Cash dividends

($$,$$$)

Ending retained earnings

Changes to
Common
Stock shown
from above
statement
also

$$$,$$$

$$,$$$

Balance Sheet
December 31, 2010

Assets

$$$,$$$

Liabilities

$$$,$$$

Stockholders equity:
Common stock

$$$,$$$

Retained earnings

$$$,$$$

Total liabilities and equity


Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

$$$,$$$

Balance Sheet
December 31, 2010

Assets
Liabilities

$$$,$$$
$$$,$$$

Stockholders equity:
Common stock

$$$,$$$

Retained earnings

$$$,$$$

Total liabilities and equity

$$$,$$$

Statement of Cash Flows


For the year ended December 31, 2010

Cash flows from operating activities

$$$,$$$

Cash flows from investing activities

$$,$$$

Cash flows from financing activities

$$,$$$

Net cash flows

$$,$$$

Cash balance, December 31, 2009

$$,$$$

Cash balance, December 31, 2010

$$,$$$

Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Cash from
the Asset
section of
the Balance
Sheet
equals
ending
Cash on
the
Statement
of Cash
Flows

Next four slides show Apples


1. Income Statement (Statement of Operations)
2. Statement of Stockholders Equity
3. Balance Sheet
4. Statement of Cash Flows

56

57

58

59

60

How Do You Analyze A Transaction?


Smart Touch performs computer training.
1.

2.
3.
4.
5.

Smart Touch Learning starts a new business. The company issues


$30,000 of Common Stock. How does this impact the Accounting
Equation?
Next, Smart Touch purchases land for $20,000 cash.
In Transaction #3, Smart Touch buys $500 of office supplies,
offering to pay in 30 days.
In Transaction #4, Smart Touch provides training services to
customers for $5,500 cash.
In Transaction #5, Smart Touch performs $3,000 of services for a
customer who will pay in one month.
1-61

Assets = Liabilities + Equity


Paid-in-Capital + Retained Earnings

62

Part B
Financial Accounting
Information

1-63

Misconceptions about Accounting

It is not an exact science differing treatments can yield differing


results.
Receivables Allowances
Inventory valuation
Depreciation methods

Revenue
Cost of goods sold
Gross Profit

Less: Expenses
Operating Income

LIFO
100,000
33,000
67,000

60,000
7,000

7.0%

FIFO

100,000
30,000
70,000

60,000
10,000

10.0%

1-64

The Accounting Profession


Certified Public Accountants CPAs are
licensed professional accountants that serve
the general public.
Certified Management Accountants CMAs
are certified professionals who specialize in
accounting and financial management, usually
for private industry.
65

The Organizations That Govern Accounting


SEC
Securities and
Exchange Commission
(SEC)
Securities Act of 1934
Oversees the US
financial markets
Oversees FASB

FASB
Financial Accounting
Standards Board
(FASB)
Privately funded
Creates the rules and
standards that govern
financial accounting

Copyright 2014 Pearson Education,


Inc. publishing as Prentice Hall

1-66

Generally Accepted Accounting


Principles (GAAP)
Relevant = The info
Issued by the FASB.
allows users to make
Establishes the rules for
a decision.
recording transactions and
preparing financial statements.
Published online as part of the
Accounting Standards
Codification.
Requires that information be
useful.

Faithfully
Representative =
The info is complete,
neutral, and free
from material error.
1-67

Role of Auditors
Auditors are trained individuals hired by a company
as an independent party to express a professional
opinion of the accuracy of that companys financial
statements.
Role of auditors
Help ensure that
management has in fact
appropriately applied GAAP
in preparing the companys
financial statements

Help investors and


creditors in their decisions
by adding credibility to the
financial statements.
68

1-68

Income
Statement

Statement
Flowofof
Retained
Earnings

Accounting
Balance
Sheet

Statement of
Cash Flows

Accounting Equation: Assets =


Liabilities + Owners Equity
GAAP (Rules) formulated by FASB

69
Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Part C
Careers in Accounting

1-70

Accounting Profession
http://fortune.com/2014/08/06/15-mos
t-profitable-business-sectors
/
Kramer at work
http://www.youtube.com/watch?v
=bU6m5UqLx9M&list=RDXEL65gywwH
71

Careers in Accounting
Private Accounting

Clients:
Clients:

Public Accounting
(Big
(Big 44 and
and Non
Non-Big
-Big 4)
Corporations
Governments
Nonprofit organizations
Individuals

Traditional
Traditional
roles:
roles:

Auditors
Tax preparers/planners
Business consultants

Financial accountants
Managerial
accountants
Managerial
accountants
Budget
analysts
Budget analysts
Internal
auditors
Internal
auditors
Tax preparers
Tax preparers
Payroll
managers
Payroll managers

Your employer

72

1-72

Careers in Accounting (cont.)


Expanding
Expanding
roles:
roles:

Financial planners
Info. tech. developers
Financial analysts
Forensic accountants
Information risk
managers
Investment bankers
Environmental
accountants
Financial advisors
Tax lawyers

Information managers
Management advisors
Tax planners
Acquisition specialists
FBI agents
Sports agents

Other career options : Governmental accounting, sole proprietorship,


and education.
73

1-73

The Audit - Monty Python's The Flying Circus

https://
www.youtube.com/watch?v=cFW7yTOmRM
8
$1.00 = 1.50 British pound currency
1 shilling = $0.08 today
74

Chapter 1 Practice Set from Connect


Descriptions

Account Classifications

Amounts earned from sale of products or services

Owners claims to resources

Distributions to shareholders

Amounts owed to creditors


Costs of selling products or services

Resources owned

1.
2.
3.
4.
5.
6.

Assets
Revenues
Dividends
Liabilities
Expenses
StockholdersEquity
75

Financial Statements
Descriptions

Financial
Statements

Change to Owners claim to resources

Profitability of the company

Change in cash as a result of operating, investing, and


financing activities

Resources equal creditors and owners claims to the


resources

1.
2.
3.
4.

BalanceSheet
StatementofCashFlows
IncomeStatement
StatementofStockholdersEquity
76

Accounts
Balances
Cash
$4,370
Salaries expense
1,590
Accounts payable
2,390
Retained earnings 3,610
Utilities expense
970
Supplies
12,250
Service revenue
8,560
Common stock
4,620

Cowboy Law Firm


Income Statement

Service Revenue

Expenses:

Total expense

Net income (loss)

77

Accounts
Balances
Cash
$4,370
Salaries expense
1,590
Accounts payable
2,390
Retained earnings 3,610
Utilities expense
970
Supplies
12,250
Service revenue
8,560
Common stock
4,620

Cowboy Law Firm


Income Statement

Service Revenue

$8,560

Expenses:

Salaries expense

$1,590

Utilities expense

970

Total expense

2,560

Net income (loss)

$6,000

78

Eagle Corp. operates Magnetic Resonance Imaging (MRI) clinics throughout the
Northeast. At the end of the current period, the company reports the following
amounts:
Assets = $41,900
Liabilities = $21,100
Dividends = $2,100
Revenues = $11,100
Expenses = $8,200.
Net Income = ?

79

At the beginning of the year (January 1), Buffalo Drilling has $9,400 of common stock outstanding and
retained earnings of $7,100. During the year, Buffalo reports net income of $7,400 and pays dividends of
$2,340. In addition, Buffalo issues additional common stock for $6,800.
Buffalo Drilling
Statement of Stockholders Equity

Common Stock

Retained
Earnings

Total Stockholders
Equity

Beginning Balance
Issuance of Common Stock
Add: Net Income
Less: Dividends
Ending Balance
80

At the beginning of the year (January 1), Buffalo Drilling has $9,400 of common stock outstanding and
retained earnings of $7,100. During the year, Buffalo reports net income of $7,400 and pays dividends of
$2,340. In addition, Buffalo issues additional common stock for $6,800.
Buffalo Drilling
Statement of Stockholders Equity

Common Stock
$9,400

Retained
Earnings
$7,100

Total Stockholders
Equity
$16,500

6,800

6,800

Add: Net Income

7,400

7,400

Less: Dividends

(2,340)

(2,340)

Ending Balance

$16,200

$12,160

$28,360

Beginning Balance
Issuance of Common Stock

81

Accounts and Balances at Year End


Equipment
$21,300
Servicerevenue 30,800
Accountspayable(A/P) 2,060 Cash
10,920
Salariesexpense 26,300
Retainedearnings ?
Commonstock 16,200

Land
14,150

Notespayable(N/P)
15,950

Buffalo Drilling
Balance Sheet
Assets

Liabilities

TotalLiabilities

Stockholders Equity

TotalStockholdersEquity
Total Assets

TotalLiabilitiesandStockholdersEquity

82

Accounts and Balances at Year End


Equipment
$21,300
Servicerevenue 30,800
Accountspayable(A/P) 2,060 Cash
10,920
Salariesexpense 26,300
Retainedearnings ?
Commonstock 16,200

Land
14,150

Notespayable(N/P)
15,950

Wolfpack Construction
Balance Sheet
Assets
Cash

Liabilities
$10,920 AccountsPayable

$2,060

Land

14,150 NotesPayable

15,950

Equipment

21,300 TotalLiabilities

18,010

CommonStock

Total Assets

Stockholders Equity
16,200

RetainedEarnings

12,160

TotalStockholdersEquity

28,360

$46,370 TotalLiabilitiesandStockholdersEquity

83

$46,370

During its first five years of operations, Red Raider Consulting reports net income and pays dividends as follows.
Calculate the balance of retained earnings at the end of each year of Red Raider Consulting. Note that retained
earnings will always equal $0 at the beginning of year 1.

Year
1

Net Income
$1,100

Dividends
$500

1,900

400

2,150

1,050

3,450

1,100

4,150

850

Retained Earnings

84