Dakota Company experienced the following events during 2018:
1) Acquired $10,000 cash from the issue of common stock.
2) Paid $10,000 cash to purchase land.
3) Borrowed $5,000 cash.
4) Provided services for $38,000 cash.
5) Paid $1,000 cash for utilities expense.
6) Paid $30,000 cash for other operating expenses.
7) Paid a $2,000 cash dividend to the stockholders.
8) Determined that the market value of the land purchased in Event 2 is now $17,500.
Required
(a) Prepare an income statement, statement of changes in equity, year-end balance sheet, and statement of cash flows for the 2018 accounting period.
(b) Determine the percentage of assets that were provided by retained earnings. How much cash is in the retained earnings account?

Dakota Company

a1) Income Statement for 2018:

Service Revenue                   $38,000

Operating Expenses             ($30,000)

Utilities Expenses                  ($1,000)

Net Income                            $7,000

Dividend                                 ($2,000)

Retained Earnings                $5,000

a2) Statement of Changes in Equity:

Common Stock                     $10,000

Retained Earnings                $5,000

Total Equity                           $15,000

a3)  Balance Sheet at 2018 year-end:

Assets:

Cash                                                $10,000

($10,000 - 10,000 - 1,000 + 5,000 + 38,000 - 30,000 - 2,000)

Land                                                $10,000

Total Assets                                    $20,000

Liabilities + Equity

Loan                                                 $5,000

Common Stock                               $10,000

Retained Earnings                           $5,000

Total Liabilities and Equity             $20,000

a4) Statement of Cash Flows:

Operating Activities:

Cash from customers        $38,000

Cash to suppliers              ($30,000)

Utilities                                ($1,000)

Net cash from operations                         $7,000

Financing Activities:

Cash from common stock   $10,000

Loan                                       $5,000

Cash Dividend                     ($2,000)

Net cash from financing                           $13,000

Investing Activities:

Purchase of Land                                     ($10,000)

Net cash flows                                          $10,000

b) Percentage of assets provided by Retained Earnings:

Retained Earnings = $5,000

Total Assets  = $20,000

Percentage = $5,000/20,000 x 100 =  25%

Explanation:

a) An income statement is a financial statement prepared for a period, which shows the difference between the revenue and the expenses.  This difference is called the income or profit.

b) A statement of changes in equity shows the changes that occurred in the equity section of the balance sheet at the end of a period.  The equity section includes the common stock and the retained earnings, including other reserves, e.g. Additional Paid-in Capital.

c) The Balance Sheet is a financial statement that shows the resources (Assets) of an entity and the sources of finance for the assets (Liabilities and Equity).

d) The Statement of Cash Flows is another financial statement that shows the sources and the uses of cash for a period.  It is classified into three main segments: the operating activities section, the financing activities section, and the investing activities section.

e) The percentage of assets provided by retained earnings shows the ratio of retained earnings and total assets.  It depicts how much in percentage terms of the assets is provided through earnings.  Earnings are an important source of financing operations.

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