Prepare An Income And Retained Earnings Statement

Prepare An Income Statement Retained Earnings Statement A

Prepare an income statement, retained earnings statement, and balance sheet; discuss results.

Elite Service Co. was started on June 1, 2017, with an initial investment of $22,100 cash.

Assets, liabilities, and common stock as of June 30, 2017, along with revenues and expenses for June, are provided. The company did not issue additional stock and paid dividends of $1,400 in June.

Paper For Above instruction

Elite Service Co. embarked on its first month of operations on June 1, 2017, establishing a financial foundation that reflects initial investments, operational revenues, and expenses. This financial report aims to analyze the company's performance, financial position, and the strategic decision-making surrounding dividends paid to shareholders.

Introduction

Understanding the initial financial statements of a new business venture is crucial to evaluating its success and strategic direction. For June 2017, Elite Service Co. reported its financial performance through the income statement, retained earnings statement, and balance sheet. These statements help stakeholders assess profitability, liquidity, financial stability, and dividend disposition during the startup phase.

Income Statement for June 2017

The income statement captures the revenues and expenses during June, culminating in net income or loss. The company earned $7,500 from service revenue, indicating a positive start. Expenses included salaries and wages ($1,400), supplies ($1,000), maintenance and repairs ($600), advertising ($400), and utilities ($300). Summing these expenses yields a total of $4,100. Deducting total expenses from total revenues provides a net income of $3,400.

  • Service Revenue: $7,500
  • Expenses:
    • Salaries and Wages: $1,400
    • Supplies Expense: $1,000
    • Maintenance and Repairs: $600
    • Advertising: $400
    • Utilities: $300
  • Total Expenses: $4,100
  • Net Income: $3,400

Retained Earnings Statement for June 2017

The retained earnings statement begins with opening retained earnings of $0, as the company was newly formed. The net income of $3,400 for June increases retained earnings. Dividends of $1,400 are paid during the month, reducing retained earnings. Therefore, ending retained earnings for June amount to $2,000 ($0 + $3,400 - $1,400).

Balance Sheet as of June 30, 2017

The balance sheet reflects the company's assets, liabilities, and stockholders' equity at month-end.

Assets

  • Cash: $4,600
  • Accounts Receivable: $4,000
  • Supplies: $2,400
  • Equipment: $26,000

Total Assets: $36,900

Liabilities

  • Notes Payable: $12,000
  • Accounts Payable: $500

Total Liabilities: $12,500

Stockholders’ Equity

  • Common Stock: $22,100
  • Retained Earnings: $2,000

Total Stockholders’ Equity: $24,100

Total Liabilities and Stockholders’ Equity: $36,600

Note: Minor discrepancies may arise due to rounding; however, the fundamental accounting equation balances.

Discussion

Analyzing Elite Service Co.'s first month indicates a positive start, with a net income of $3,400 from services rendered. The company’s revenues exceeded expenses, signaling effective operational management. The initial investment largely covered startup costs, and the company maintained liquidity given adequate cash and receivables. The profit margin indicates potential for growth, especially if the revenue streams increase or expenses are controlled. However, the firm should monitor expenses like supplies and utilities to sustain profitability.

Dividend Decision Analysis

The decision to pay dividends of $1,400 reflects the company's proactive approach to sharing profits with shareholders despite being in its initial months of operation. Distributing dividends can boost investor confidence and attract future investments. However, it also reduces retained earnings and available cash for reinvestment. Given the positive net income, distributing dividends signifies confidence in continued profitability, but the company must balance dividend payouts with reinvestment opportunities to ensure sustained growth.

Conclusion

In sum, Elite Service Co.'s first month was a financial success, with profitable operations and a sound balance sheet. The company's strategic dividend payment exemplifies its commitment to rewarding shareholders while maintaining operational liquidity. Future performance will depend on the company's ability to sustain revenue growth and manage expenses efficiently.

References

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