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CHAPTER 2
BASIC ACCOUNTING CONCEPTS
CLASS DISCUSSION QUESTIONS
1. The basic elements of a financial accounting
system include (1) a set of rules for determining what, when, and the amount that
should be recorded; (2) a framework for
preparing financial statements; and (3) one
or more controls to determine whether errors
may have occurred in the recording process.
These elements apply to all businesses,
from a local restaurant to Google Inc. All
businesses require a financial reporting system so that financial statements can be provided to stakeholders.
2. a. Purchase of land for cash affects only
assets.
b. Payment of a liability affects assets and
liabilities; receipt of cash for fees earned
affects assets and stockholders’ equity.
c. Incurring an expense that is partially
paid in cash decreases assets, increases liabilities, and decreases stockholders’ equity (retained earnings). For example, assume that a business hires a
lawyer for $10,000 to draft and file the
necessary documents to start and incorporate the business. The business pays
the lawyer $4,000 and agrees to pay the
remaining $6,000 over the next several
months. This transaction would decrease
assets ($4,000), increase liabilities
($6,000), and decrease stockholders’ equity (retained earnings) $10,000. The expense is an organizational expense.
Likewise, a new business might hire a
new chief operating officer by agreeing
to pay a nonrefundable, noncancellable
signing bonus of $50,000, with $30,000
due at signing and the remainder due in
four installments. This transaction would
decrease assets ($30,000), increase
liabilities ($20,000), and decrease
stockholders’ equity (retained earnings)
$50,000. The expense is salary expense
or bonus expense.
3. Out of balance. Assets are correct, but retained earnings (utilities expense) should
have been decreased by $1,200 rather than
$2,100. Thus, retained earnings is understated by $900, and total liabilities plus stockholders’ equity would be less than total assets by $900.
4. a. Out of balance. Assets are overstated
by $27,000 ($85,000 – $58,000), and
thus, total assets would exceed total liabilities plus stockholders’ equity by
$27,000.
b. In balance. Even though liabilities and
stockholders’ equity are incorrect, the
accounting equation balances. For this
error, liabilities are overstated by
$7,000, and retained earnings (fees
earned) are understated by $7,000;
thus, the over- and understatements offset each other, and the accounting equation balances.
5. A primary control for determining the accuracy of record keeping is the equality of the
accounting equation. The accounting equation must balance.
6. Total assets are increased by $175,000: an
increase in cash of $375,000 and a decrease in land of $200,000. Stockholders’
equity (retained earnings) is increased by
$175,000, the gain on the sale of the land.
7. a. The payment of $15,000 of dividends
decreases total assets (decrease in
cash) and decreases stockholders’ equity
(decrease in retained earnings).
b. Net income is not affected by the payment of dividends. Dividends are a distribution of income to stockholders and
are not an expense.
8. a. The equality of the accounting equation
would not be affected. That is, the accounting equation would still balance.
b. On the income statement, total operating expenses (salary expense) would be
overstated by $30,000, and net income
would be understated by $30,000. On
the retained earnings statement, the beginning and ending retained earnings
would be correct. However, net income
and dividends would be understated by
$30,000. These understatements offset
one another, and thus, ending retained
earnings is correct. The balance sheet is
not affected by the error. On the statement of cash flows, net cash flows from
operating activities is understated, since
cash paid for salary expense is overstated. In addition, net cash flows from
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financing activities is overstated, since
cash paid for dividends is understated.
The understatement of net cash flows
from operating activities is offset by the
overstatement of net cash flows from
financing activities, and thus, the net
increase or decrease in cash for the
period is correct, as is the ending cash
balance.
9. a. The equality of the accounting equation
would not be affected. That is, the accounting equation would still balance.
b. On the income statement, revenues
(fees earned) would be overstated by
$75,000, and net income would be
overstated by $75,000. On the retained
earnings statement, the beginning retained earnings would be correct. However, net income and ending retained
earnings would be overstated by
$75,000. The balance sheet total assets
is correct. However, liabilities (notes
payable) is understated by $75,000, and
stockholders’ equity (retained earnings)
is overstated by $75,000. The understatement of liabilities is offset by the
overstatement of stockholders’ equity,
and thus, total liabilities and stockholders’ equity is correct. On the statement
of cash flows, net cash flows from operating activities is overstated, since cash
received from fees earned is overstated.
In addition, net cash flows from financing activities is understated, since cash
received from borrowing (notes payable)
is understated. The overstatement of net
cash flows from operating activities is
offset by the understatement of net cash
flows from financing activities, and thus,
the net increase or decrease in cash for
the period is correct, as is the ending
cash balance.
10. a. $350,000 ($500,000 – $150,000), the
same as the stockholders’ equity as of
January 1, 2013.
b. Stockholders’ equity as of
December 31, 2013 …….. $400,000
Less stockholders’ equity as of
January 1, 2013 …………..
Net income……………………… $ 50,000
350,000
11. Change in stockholders’ equity
(see Question 10) ……………. $50,000
Plus dividends ……………………….
Net income……………………… $68,000
18,000
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EXERCISES
E2–1
a. $1,000,000 ($250,000 + $750,000)
b. $350,000 ($480,000 – $130,000)
c. $107,500 ($115,000 – $7,500)
E2–2
a. $33,734 ($63,117 – $29,383)
b. $2,304 increase ($6,089 – $3,785)
c. Total assets = $69,206 ($63,117 + $6,089)
Total liabilities = $31,687 ($29,383 + $2,304)
Total stockholders’ equity = $37,519 ($33,734 + $3,785)
d. Yes. [$69,206 (total assets) = $31,687 (total liabilities) + $37,519 (total stockholders’ equity)]
E2–3
a. $728 ($6,056 – $5,328)
b. $198 increase ($220 – $22)
c. Total assets = $6,276 ($6,056 + $220)
Total liabilities = $5,350 ($5,328 + $22)
Total stockholders’ equity = $926 ($728 + $198)
d. Yes. [$6,276 (total assets) = $5,350 (total liabilities) + $926 (total stockholders’
equity)]
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E2–4
(a) $4,493 ($11,610 – $7,117)
(b) $36,004 ($40,497 – $4,493)
(c) $57,851 ($40,497 + $17,354)
(d) $46,241 ($57,851 – $11,610) or ($36,004 + $10,237)
(e) $226,907 [$220,005 – (–$6,902)] or ($84,143 + $142,764)
(f) $142,764 [$133,093 – (–$9,671)] or ($226,907 – $84,143)
(g) –$6,902 (–$9,671 + $2,769)
(h) $2,769 ($86,912 – $84,143)
(i) $133,093 ($220,005 – $86,912)
E2–5
a. $630,000 ($990,000 – $360,000)
b. $745,000 ($630,000 + $200,000 – $85,000)
c. $520,000 ($630,000 – $50,000 – $60,000)
d. $775,000 ($630,000 + $100,000 + $45,000)
e. Net income: $95,000 ($1,200,000 – $475,000 – $630,000)
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E2–6
a. (3) No effect
b. (3) No effect
c. (1) Increase
d. (3) No effect
e. (2) Decrease
f. (2) Decrease
g. (2) Decrease
h. (1) Increase
i. (1) Increase
j. (2) Decrease
E2–7
a. Increases assets and increases stockholders’ equity.
b. Decreases assets and decreases stockholders’ equity.
c. Increases assets and increases liabilities.
d. Increases assets and increases stockholders’ equity.
e. Increases assets and decreases assets.
E2–8
(1) Total assets decreased $5,000.
(2) Total liabilities decreased $120,000.
(3) Stockholders’ equity increased $115,000.
E2–9
1. (a) increase
2. (a) increase
3. (b) decrease
4. (b) decrease
5. (b) decrease
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E2–10
1. (c)
2. (e)
3. (e)
4. (c)
5. (a)
6. (c)
7. (d)
8. (a)
9. (e)
10. (e)
E2–11
a. (1) Sale of catering services for cash, $28,000.
(2) Purchase of land for cash, $20,000.
(3) Payment of expenses, $18,000.
(4) Payment of cash dividends, $1,000.
b. $11,000 ($40,000 – $29,000)
c. $9,000 ($109,000 – $100,000)
d. $10,000 ($28,000 – $18,000)
e. $9,000 ($10,000 – $1,000)
f. $10,000 ($28,000 – $18,000)
g. $20,000 used for purchase of land
h. $1,000 used for payment of dividends
E2–12
It would be incorrect to say that the business had incurred a net loss of $8,000.
The excess of the dividends over the net income for the period is a decrease in
the amount of retained earnings in the corporation.
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E2–13
Company Oscar
Stockholders’ equity at end of year ($550,000 – $210,000)………………… $ 340,000
Stockholders’ equity at beginning of year ($350,000 – $125,000)……….
Net income (increase in stockholders’ equity)…………………………….. $ 115,000
225,000
Company Papa
Increase in stockholders’ equity (as determined for Oscar) ……………… $ 115,000
Add dividends ………………………………………………………………………………..
Net income ……………………………………………………………………………….. $ 160,000
45,000
Company Quebec
Increase in stockholders’ equity (as determined for Oscar) ……………… $ 115,000
Deduct issuance of additional capital stock……………………………………..
Net income ……………………………………………………………………………….. $ 15,000
100,000
Company Romeo
Increase in stockholders’ equity (as determined for Oscar) ……………… $ 115,000
Deduct issuance of additional capital stock……………………………………..
$ 15,000
100,000
Add dividends ………………………………………………………………………………..
Net income ……………………………………………………………………………….. $ 60,000
45,000
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E2–14
In each case, solve for a single unknown, using the following equation:
Stockholders’ equity (beginning) + Issuance of Capital Stock – Dividends +
Revenues – Expenses = Stockholders’ equity (ending)
Carbon Stockholders’ equity at end of year ($495,000 – $160,000)… $ 335,000
Stockholders’ equity at beginning of year ($333,000 – $118,000) .
Increase in stockholders’ equity……………………………………… $ 120,000
215,000
Deduct increase due to net income ($90,000 – $39,000)…….
$ 69,000
51,000
Add dividends…………………………………………………………………
Additional issuance of capital stock…………………………….. (a) $ 76,500
7,500
Krypton Stockholders’ equity at end of year ($350,000 – $110,000)… $ 240,000
Stockholders’ equity at beginning of year ($250,000 – $130,000) .
Increase in stockholders’ equity……………………………………… $ 120,000
120,000
Add dividends…………………………………………………………………
$ 136,000
16,000
Deduct additional issuance of capital stock ……………………..
Increase due to net income …………………………………………….. $ 86,000
50,000
Add expenses …………………………………………………………………
Revenue …………………………………………………………………….. (b) $ 150,000
64,000
Fluorine Stockholders’ equity at end of year ($90,000 – $80,000)……. $ 10,000
Stockholders’ equity at beginning of year ($100,000 – $76,000) .
Decrease in stockholders’ equity…………………………………….. $ (14,000)
24,000
Deduct decrease due to net loss ($115,000 – $122,500) ……. (7,500
$ (6,500)
)
Deduct additional issuance of capital stock ……………………..
Dividends …………………………………………………………………… (c) $ (16,500)
10,000
Radium Stockholders’ equity at end of year ($248,000 – $136,000)… $ 112,000
Add decrease due to net loss ($112,000 – $128,000)………….
$ 128,000
16,000
Add dividends…………………………………………………………………
Stockholders’ equity at beginning of year ……………………….. $ 188,000
60,000
Deduct additional issuance of capital stock ……………………..
$ 148,000
40,000
Add liabilities at beginning of year …………………………………..
Assets at beginning of year…………………………………………. (d) $ 268,000
120,000
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E2–15
a. $2,634 ($24,744 – $22,110)
b. The net cash flows used for investing activities is determined by solving the
following equation:
Net increase in cash = Net cash flows from operating activities + Net cash
flows used for investing activities + Net cash flows used for financing
activities
$3,278 = $3,969 + Net cash flows used for investing activities + $474
Net cash flows used for investing activities = $3,278 – $3,969 – $474
Net cash flows used for investing activities = –$1,165
E2–16
a. ABBY’S INTERIORS
Balance Sheet
October 31, 2013
Assets
Cash……………………………………………………………………… $ 50,000
Land ………………………………………………………………………
Total assets …………………………………………………………… $ 550,000
500,000
Liabilities
Notes payable………………………………………………………… $ 200,000
Stockholders’ Equity
Capital stock………………………………………………………….. $ 75,000
Retained earnings………………………………………………….. 275,000
Total stockholders’ equity …………………………………. 350,000
Total liabilities and stockholders’ equity…………………. $ 550,000
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E2–16, Concluded
ABBY’S INTERIORS
Balance Sheet
November 30, 2013
Assets
Cash……………………………………………………………………… $ 175,000
Land ………………………………………………………………………
Total assets …………………………………………………………… $ 750,000
575,000
Liabilities
Notes payable………………………………………………………… $ 250,000
Stockholders’ Equity
Capital stock………………………………………………………….. $ 90,000
Retained earnings………………………………………………….. 410,000
Total stockholders’ equity …………………………………. 500,000
Total liabilities and stockholders’ equity…………………. $ 750,000
b. Retained earnings, November 30, 2013 ………………………………………. $ 410,000
Retained earnings, October 31, 2013 …………………………………………..
Increase in retained earnings …………………………………………………….. $ 135,000
275,000
Add dividends ……………………………………………………………………………
Net income ……………………………………………………………………………….. $ 147,000
12,000
c. Net cash flows from operating activities = $147,000 = $125,000 + $75,000 – $53,000
d. –$75,000, used for the increase in the land
e. $53,000, the increase in capital stock of $15,000 plus the increase in notes
payable of $50,000 less the dividends of $12,000
f. $125,000 ($175,000 – $50,000)
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E2–17
BENJAMIN REALTY INC.
Income Statement
For the Month Ending April 30, 2013
Revenues:
Sales commissions………………………………………………… $ 145,000
Expenses:
Salaries expense……………………………………………………. $ 75,000
Utilities expense…………………………………………………….. 15,000
Rent expense…………………………………………………………. 5,000
Interest expense…………………………………………………….. 2,000
Miscellaneous expense …………………………………………..
Total expenses…………………………………………………..
3,000
Net income…………………………………………………………………. $ 45,000
100,000
E2–18
BENJAMIN REALTY INC.
Retained Earnings Statement
For the Month Ending April 30, 2013
Net income…………………………………………………………………………………….. $ 45,000
Less dividends ……………………………………………………………………………….
Retained earnings, April 30, 2013 ……………………………………………………. $ 35,000
10,000
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E2–19
BENJAMIN REALTY INC.
Balance Sheet
April 30, 2013
Assets
Cash ………………………………………………………………………….. $ 53,000
Land……………………………………………………………………………
Total assets ……………………………………………………………….. $ 95,000
42,000
Liabilities
Notes payable…………………………………………………………….. $ 35,000
Stockholders’ Equity
Capital stock………………………………………………………………. $ 25,000
Retained earnings ……………………………………………………….
Total stockholders’ equity ………………………………………
35,000
60,000
Total liabilities and stockholders’ equity ……………………… $ 95,000
E2–20
BENJAMIN REALTY INC.
Statement of Cash Flows
For the Month Ending April 30, 2013
Cash flows from operating activities:
Cash receipts from operating activities…………………… $ 145,000
Deduct cash payments for operating activities…………
Net cash flows from operating activities………………………. $ 45,000
(100,000)
Cash flows used for investing activities:
Cash payments for land …………………………………………. (42,000)
Cash flows from financing activities:
Cash receipts from issuing capital stock ………………… $ 25,000
Cash receipts from issuing notes payable ………………. 35,000
Cash payments for dividends…………………………………. (10,000
Net cash flows from financing activities ……………………….
)
Net increase in cash during April ………………………………… $ 53,000
50,000
Cash as of April 1, 2013……………………………………………….
Cash as of April 30, 2013…………………………………………….. $ 53,000
0
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E2–21
a. Decrease in assets and decrease in stockholders’ equity.
b. Increase in assets and decrease in assets.
c. Increase in assets and increase in stockholders’ equity.
d. Increase in assets and increase in liabilities.
e. Increase in assets and increase in stockholders’ equity.
f. Decrease in assets and decrease in stockholders’ equity.
g. Decrease in assets and decrease in stockholders’ equity.
h. Increase in assets, decrease in assets, and increase in stockholders’ equity.
i. Decrease in assets and decrease in stockholders’ equity.
j. Decrease in assets and decrease in stockholders’ equity.
k. Decrease in assets and decrease in liabilities.
l. Decrease in assets and decrease in stockholders’ equity.
E2–22
a. operating section
b. investing section
c. financing section
d. financing section
e. operating section
f. operating section
g. operating section
h. investing section
i. operating section
j. operating section
k. financing section
l. financing section
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PROBLEMS
P2–1
1.
Statement of Balance Sheet Income
Cash Flows Assets = Liabilities + Stockholders’ Equity Statement
Notes Capital Retained
Cash + Land = Payable + Stock + Earnings
a. Investment 50,000 50,000
b. Issued note payable 25,000 25,000
Balances 75,000 25,000 50,000
c. Fees earned 28,000 28,000 c.
Balances 103,000 25,000 50,000 28,000
d. Rent expense –3,000 –3,000 d.
Balances 100,000 25,000 50,000 25,000
e. Paid expenses –2,700 –2,700 e.
Balances 97,300 25,000 50,000 22,300
f. Paid salary expense –4,200 –4,200 f.
Balances 93,100 25,000 50,000 18,100
g. Paid interest expense –100 –100 g.
Balances 93,000 25,000 50,000 18,000
h. Purchased land –55,000 55,000
Balances 38,000 55,000 25,000 50,000 18,000
i. Paid dividends –4,000 –4,000
Balances, March 31 34,000 55,000 25,000 50,000 14,000
Statement of Cash Flows Income Statement
a. Financing 50,000 c. Fees earned 28,000
b. Financing 25,000 d. Rent expense –3,000
c. Operating 28,000 e. Auto expense –1,800
d. Operating –3,000 e. Misc. expense –900
e. Operating –2,700 f. Salary expense –4,200
f. Operating –4,200 g. Interest expense –100
g. Operating –100 Net income 18,000
h. Investing –55,000
i. Financing –4,000
Increase in cash 34,000
2. Stockholders’ equity is the right of stockholders to the assets of the business. These rights are increased by stockholders’ investments and revenues
and decreased by dividends and expenses.
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P2–1, Continued
3. BIRDE INSURANCE INC.
Income Statement
For the Month Ending March 31, 2013
Revenues:
Fees earned………………………………………………………. $28,000
Expenses:
Salary expense …………………………………………………. $4,200
Rent expense ……………………………………………………. 3,000
Auto expense……………………………………………………. 1,800
Interest expense ……………………………………………….. 100
Miscellaneous expense………………………………………
Total expenses ……………………………………………..
900
Net income ……………………………………………………………. $18,000
10,000
BIRDE INSURANCE INC.
Retained Earnings Statement
For the Month Ending March 31, 2013
Net income ……………………………………………………………. $18,000
Less dividends……………………………………………………….
Retained earnings, March 31, 2013 …………………………. $14,000
4,000
4. BIRDE INSURANCE INC.
Balance Sheet
March 31, 2013
Assets
Cash……………………………………………………………………… $34,000
Land ………………………………………………………………………
Total assets …………………………………………………………… $89,000
55,000
Liabilities
Notes payable………………………………………………………… $25,000
Stockholders’ Equity
Capital stock………………………………………………………….. $50,000
Retained earnings…………………………………………………..
Total stockholders’ equity ………………………………….
14,000
64,000
Total liabilities and stockholders’ equity…………………. $89,000
44
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P2–1, Concluded
5. BIRDE INSURANCE INC.
Statement of Cash Flows
For the Month Ending March 31, 2013
Cash flows from operating activities:
Cash receipts from operating activities ……………… $28,000
Deduct cash payments for operating activities ……
Net cash flows from operating activities …………………. $18,000
(10,000)
Cash flows used for investing activities:
Cash payment for land………………………………………. (55,000)
Cash flows from financing activities:
Cash receipts from issuing capital stock……………. $50,000
Cash receipts from issuing note payable……………. 25,000
Cash payments for dividends…………………………….. (4,000
Net cash flows from financing activities…………………..
)
Net increase in cash during March………………………….. $34,000
71,000
Cash as of March 1, 2013 ………………………………………..
Cash as of March 31, 2013 ……………………………………… $34,000
0
45
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P2–2
1. BEAR COMPUTER SERVICES
Income Statement
For the Month Ended August 31, 2013
Fees earned…………………………………………………………… $27,000
Operating expenses:
Salaries expense ………………………………………………. $4,600
Rent expense ……………………………………………………. 2,500
Automobile expense …………………………………………. 1,200
Miscellaneous expense………………………………………
Total operating expenses………………………………
700
Net income ……………………………………………………………. $18,000
9,000
2. BEAR COMPUTER SERVICES
Retained Earnings Statement
For the Month Ended August 31, 2013
Net income for August ………………………………………………………………. $18,000
Less dividends…………………………………………………………………………..
Retained earnings, August 31, 2013……………………………………………. $15,000
3,000
3. BEAR COMPUTER SERVICES
Balance Sheet
August 31, 2013
Assets
Cash……………………………………………………………………… $10,000
Land ………………………………………………………………………
Total assets …………………………………………………………… $50,000
40,000
Liabilities
Notes payable………………………………………………………… $10,000
Stockholders’ Equity
Capital stock………………………………………………………….. $25,000
Retained earnings…………………………………………………..
Total stockholders’ equity ………………………………….
15,000
40,000
Total liabilities and stockholders’ equity…………………. $50,000
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P2–2, Concluded
4. BEAR COMPUTER SERVICES
Statement of Cash Flows
For the Month Ended August 31, 2013
Cash flows from operating activities:
Cash receipts from operating activities ……………… $27,000
Deduct cash payments for operating activities ……
Net cash flows from operating activities …………………. $18,000
(9,000)
Cash flows used for investing activities:
Cash payments for land…………………………………….. (40,000)
Cash flows from financing activities:
Cash receipts from issuing capital stock……………. $25,000
Cash receipts from issuing notes payable………….. 10,000
Cash payments for dividends…………………………….. (3,000
Net cash flows from financing activities…………………..
)
Net increase in cash during August………………………… $10,000
32,000
Cash as of August 1, 2013 ………………………………………
Cash as of August 31, 2013 ……………………………………. $10,000
0
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P2–3
1. FERGUSON SERVICES, INC.
Income Statement
For the Year Ending May 31, 2013
Revenues:
Fees earned………………………………………………………. $ 300,000
Expenses:
Salaries expense ………………………………………………. $87,000
Utilities expense ……………………………………………….. 40,000
Rent expense ……………………………………………………. 28,000
Taxes expense………………………………………………….. 22,000
Interest expense ……………………………………………….. 2,000
Miscellaneous expense………………………………………
Total expenses ……………………………………………..
8,000
Net income ……………………………………………………………. $ 113,000
187,000
2. FERGUSON SERVICES, INC.
Retained Earnings Statement
For the Year Ending May 31, 2013
Net income ……………………………………………………………………………….. $ 113,000
Less dividends…………………………………………………………………………..
Retained earnings, May 31, 2013………………………………………………… $ 100,000
13,000
48
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
P2–3, Concluded
3. FERGUSON SERVICES, INC.
Balance Sheet
May 31, 2013
Assets
Cash……………………………………………………………………… $ 62,000
Land ………………………………………………………………………
Total assets …………………………………………………………… $160,000
98,000
Liabilities
Notes payable………………………………………………………… $ 30,000
Stockholders’ Equity
Capital stock………………………………………………………….. $ 30,000
Retained earnings…………………………………………………..
Total stockholders’ equity ………………………………….
100,000
130,000
Total liabilities and stockholders’ equity…………………. $160,000
4. FERGUSON SERVICES, INC.
Statement of Cash Flows
For the Year Ending May 31, 2013
Cash flows from operating activities:
Cash receipts from operating activities ……………… $300,000
Deduct cash payments for operating activities ……
Net cash flows from operating activities …………………. $113,000
(187,000)
Cash flows used for investing activities:
Cash payments for land…………………………………….. (98,000)
Cash flows from financing activities:
Cash receipts from issuing capital stock……………. $ 30,000
Cash receipts from issuing notes payable………….. 30,000
Cash payments for dividends…………………………….. (13,000
Net cash flows from financing activities…………………..
)
Net increase in cash during the year ………………………. $ 62,000
47,000
Cash as of June 1, 2012 ………………………………………….
Cash as of May 31, 2013…………………………………………. $ 62,000
0
49
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
P2–4
1. FERGUSON SERVICES, INC.
Income Statement
For the Year Ending May 31, 2014
Revenues:
Fees earned………………………………………………………. $ 515,000
Expenses:
Salaries expense ………………………………………………. $155,000
Utilities expense ……………………………………………….. 52,000
Rent expense ……………………………………………………. 36,000
Taxes expense………………………………………………….. 28,000
Interest expense ……………………………………………….. 3,000
Miscellaneous expense………………………………………
Total expenses ……………………………………………..
11,000
Net income ……………………………………………………………. $ 230,000
285,000
2. FERGUSON SERVICES, INC.
Retained Earnings Statement
For the Year Ending May 31, 2014
Retained earnings, June 1, 2013……………………………… $ 100,000
Net income ……………………………………………………………. $230,000
Less dividends……………………………………………………….
Increase in retained earnings ………………………………….
40,000
Retained earnings, May 31, 2014…………………………….. $ 290,000
