The following data were taken from the records of Wathen Company. Except as otherwise indicated, all balances are as of December 31, 2013, before the closing entries had been recorded.
Consulting revenue .............. $18,200
Cash ..................... 35,600
Cash received from common stock issued during 2013 . 6,000
Travel expense ................. 2,100
Dividends ................... 4,000
Cash flow from investing activities ......... 5,200
Rent expense ................... 3,500
Payment to reduce debt principal ......... 10,000
Retained earnings, January 1, 2013 ......... 16,200
Salary expense ................. 7,200
Cash flow from operating activities ......... 2,600
Common stock, December 31, 2013 ........ 16,000
Other operating expenses ............. 2,300
Required:
a. Identify the accounts that should be closed to the Retained Earnings account.
b. Prepare the income statement that Wathen would include in its 2013 annual report.
c. Determine the Retained Earnings account balance at December 31, 2013. Explain how the company could pay cash dividends in excess of the amount of net income earned in 2013.
d. Name the stages of the accounting cycle in the order in which they normally occur.