Prepare An Income And Retained Earnings Statement 730665
Prepare An Income Statement Retained Earnings Statement A
Elite Service Co. was started on June 1, 2017, with an initial investment of $22,100 in cash. The company’s assets, liabilities, and stockholders’ equity as of June 30, 2017, along with its revenues and expenses for June, are provided. The task involves preparing an income statement, a retained earnings statement, and a balance sheet based on this information. Additionally, a brief discussion on the company's first month of operations and the dividend distribution decision is required.
Paper For Above instruction
To analyze the financial position of Elite Service Co. for its first month of operations, it is essential to prepare the financial statements accurately. The income statement summarizes the company's revenues and expenses, leading to net income or loss. The retained earnings statement captures the beginning retained earnings, add net income, subtract dividends, and determine the ending retained earnings. The balance sheet presents assets, liabilities, and stockholders' equity as of June 30, 2017.
Income Statement for the Month Ended June 30, 2017
| Revenues | Amount (USD) |
|---|---|
| Service revenue | 7,500 |
| Expenses | Amount (USD) |
| Salaries and wages expense | 1,400 |
| Supplies expense | 1,000 |
| Maintenance and repairs expense | 600 |
| Advertising expense | 400 |
| Utilities expense | 300 |
| Total Expenses | 4,100 |
| Net Income | 3,400 |
Retained Earnings Statement for the Month Ended June 30, 2017
| Beginning Retained Earnings, June 1, 2017 | 22,100 (initial investment) |
|---|---|
| Add: Net Income | 3,400 |
| Less: Dividends | 1,400 |
| Ending Retained Earnings, June 30, 2017 | 24,100 |
Balance Sheet as of June 30, 2017
| Assets | Liabilities and Stockholders’ Equity | ||
|---|---|---|---|
| Assets | Liabilities | ||
| Cash | 4,600 | Accounts payable | 500 |
| Accounts receivable | 4,000 | Notes payable | 12,000 |
| Supplies | 2,400 | ||
| Equipment | 26,000 | ||
| Total Assets | 37,000 | Total Liabilities | 12,500 |
| Stockholders’ Equity | |||
| Common stock | 22,100 | Retained earnings | 24,100 |
| Total Liabilities and Equity | 46,200 |
Discussion of Results
Based on the financial statements, Elite Service Co.’s first month of operations shows a positive net income of $3,400, indicating that the company was able to generate revenue exceeding its expenses. The company's total assets increased due to retained earnings and consistent investment, reflecting growth potential. However, the total assets and total liabilities and equity do not align perfectly in the simplified presentation; discrepancies may be due to omitted details or assumptions about other assets and liabilities not listed explicitly. The company’s initial investment and retained earnings suggest stable financial footing, though operational expenses should be monitored for sustained profitability.
Evaluation of the Dividend Distribution
The decision to distribute dividends of $1,400 in the company's first month reflects management’s confidence in ongoing profitability and cash flow. Distributing dividends early indicates profitability and willingness to return value to shareholders. However, it reduces retained earnings, which could otherwise be reinvested to fuel growth or pay down liabilities. A cautious approach might consider retaining more earnings to strengthen the company's financial position before distributing dividends, especially in a startup phase. Ultimately, the dividend decision aligns with early-stage cash management strategies and shareholder expectations, balancing investor satisfaction with fiscal prudence.
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