Question

ecord the transactions in the accounting equation for Year 2. 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.

As of December 31, Year 2, determine the total amount of assets, liabilities, and stockholders’ equity and present this information in the form of an accounting equation.

What is the amount of total assets, liabilities, and stockholders’ equity as of January 1, Year 3?

Answer 1

Answer:

BETTER CORP.

Event        Assets   =    Liabilities    +   Stockholders’ Equity   Accounting Titles

                                                                                              for Retained

                                                                                                Earnings

                 Cash   +   Land   =   Notes    +  Common   + Retained

                                             Payable      Stock          Earnings

Balance

1/1/Yr 1      20,000     30,000     13,000       8,000      29,000

1.              (10,000)    10,000

2.             35,000                                   35,000

3.             74,000                                                      74,000 Service Revenue

4.            (41,000)                                                     (41,000) Operating exp.

5.            20,000                    20,000

6.            (10,000)                                                     (10,000)

7.                             N/A                                              N/A       N/A

b. Balance 31/12

Yr 2     88,000 +  40,000 = 33,000  + 43,000 +  52,000

c. The amount of total assets as of January 1, Year 3 = $128,000; liabilities = $33,000; and stockholders' equity = $95,000.

Explanation:

The accounting equation states that total assets are equal to total liabilities and stockholders' equity.  This equation gives accounting two sides to every transaction.  This is known as the double-entry system of accounting.  And the two sides are always in agreement before and after each transaction.  The equation also implies that an entity's assets are funded by the creditors and the owners (stockholders).