1. Assume that Blitzkrieg Realty Inc. borrowed $25,000 from First Union Bank and Trust. In recording the transaction, Blitzkrieg erroneously recorded the receipt of $25,000 as an increase in cash, $25,000, and an increase in fees earned, $25,000.
(a) How would this error affect the equality of the accounting equation?
(b) How would this error affect the income statement, retained earnings statement, balance sheet, and statement of cash flows?
2. Assume that as of January 1, 2004, Palmetto Consulting has total assets of $450,000 and total liabilities of $280,000. As of December 31, 2004, Palmetto has total liabilities of $300,000 and total stockholders’ equity of $225,000.
(a) What was Palmetto’s stockholders’ equity as of December 31, 2003?
(b) Assume that Palmetto did not pay any dividends during 2004. What was the amount of net income for 2004?