February 29, 2016 March 31, 2016 Cash 320,000 380,000 Accounts receivable 800,000 960,000 Supplies 30,000 35,000 Accounts payable 310,000 400,000 Common stock 200,000 200,000 Retained earnings ? ?
a. Prepare balance sheets for Ebony Interiors as of February 29 and March 31, 2016.
b. Determine the amount of net income for March, assuming that no additional common stock was issued and no dividends were paid during the month.
c. Determine the amount of net income for March, assuming that no additional common stock was issued, but dividends of $50,000 were paid during the month.
Answer:
a.
EBONYINTERIORS
Balance Sheet
February 29, 2016
Assets Liabilities
Cash $ 320,000 Accounts payable $ 310,000
Accounts receivable 800,000
Supplies 30,000 Stockholders’ Equity
Common stock $200,000
Retained earnings 640,000*
Total stockholders’
equity 840,000
Total liabilities and
Total assets $1,150,000 stockholders’ equity $1,150,000
*$640,000 = $320,000 + $800,000 + $30,000 – $310,000 – $200,000
EBONYINTERIORS
Balance Sheet
March 31, 2016
Assets Liabilities
Cash $ 380,000 Accounts payable $ 400,000
Accounts receivable 960,000
Supplies 35,000 Stockholders’ Equity
Common stock $200,000
Retained earnings 775,000*
Total stockholders’
equity 975,000
Total liabilities and
Total assets $1,375,000 stockholders’ equity $1,375,000
*$775,000 = $380,000 + $960,000 + $35,000 – $400,000 – $200,000
b. Stockholders’ equity, March 31………………………………………………… $975,000
Stockholders’ equity, February 29…………………….……………………… 840,000
Net income…………………………………………………………………… $135,000
c. Stockholders’ equity, March 31………………………………………………… $975,000
Stockholders’ equity, February 29…………………….……………………… 840,000
Increasein stockholders’ equity…………………………………………… $135,000
Add dividends…………………………………………………………………… 50,000
Net income…………………………………………………………………… $185,000
Why do you add the dividends?
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