Preparing financial statements for two complete accounting cycles and careers in accounting

Susan’s Consulting Services experienced the following transactions for 2010, the first year of operations, and 2011. Assume that all transactions involve the receipt or payment of cash.

Transactions for 2010

1. Acquired $50,000 by issuing common stock.

2. Received $100,000 for providing services to customers.

3. Borrowed $15,000 cash from creditors.

4. Paid expenses amounting to $60,000.

5. Purchased land for $40,000 cash.

Transactions for 2011

Beginning account balances for 2011 are

1. Acquired an additional $20,000 from the issue of common stock.

2. Received $130,000 for providing services in 2011.

3. Paid $10,000 to reduce notes payable.

4. Paid expenses amounting to $75,000.

5. Paid a $15,000 dividend to the stockholders.

6. Determined that the market value of the land is $50,000.

Required

a. Write an accounting equation, and record the effects of each accounting event under the appropriate headings for each year. Record the amounts of revenue, expense, and dividends in the Retained Earnings column. Provide appropriate titles for these accounts in the last column of the table.

b. Prepare an income statement, statement of changes in stockholders’ equity, year end balance sheet, and statement of cash flows for each year.

c. Determine the amount of cash that is in the retained earnings account at the end of 2010 and 2011.

d. Compare the information provided by the income statement with the information provided by the statement of cash flows. Point out similarities and differences.

e. Determine the balance in the Retained Earnings account immediately after Event 2 in 2010 and in 2011 are recorded.

f. Would the financial statements for Susan’s Consulting Services be prepared by a public or a private accountant? Explain your answer.