Final answer:
The student is asked to calculate what percent of the company's assets were provided by earnings at the end of Year 2. After accounting for all transactions, the Retained Earnings were $600, and the total Assets were $2,500. Therefore, 24% of the company's assets were provided by earnings.
Step-by-step explanation:
The subject of this question is calculating the percent of the company's assets that were provided by earnings at the end of Year 2.
To find this, we can update the accounting equation with the transactions in Year 2 and find the Retained Earnings part of Stockholders' Equity, which represents the earnings that have been retained in the business.
Adjust the accounting equation with the Year 2 transactions:
- Paid off $500 of its note payable: Liabilities decrease by $500.
- Earned $700 of cash revenue: Assets increase by $700, and Retained Earnings increase by $700 (ignoring taxes and other potential deductions for simplicity).
- Paid $400 of cash expenses: Assets decrease by $400, and Retained Earnings decrease by $400.
- Paid a $100 cash dividend: Assets decrease by $100, and Retained Earnings decrease by $100.
New Retained Earnings at the end of Year 2 will be the original $400 plus $700 (earnings) minus $400 (expenses) minus $100 (dividends) = $600.
The new total assets would be the original total $2,800 plus $700 (earnings) minus $400 (expenses) minus $100 (dividends) and minus $500 (paid off note payable) = $2,500.
To determine the percentage, divide the Retained Earnings by the total Assets and multiply by 100:
($600 / $2,500) * 100 = 24%
So, 24% of the company's assets at the end of Year 2 were provided by earnings.