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Chapter 1: Q32E_2 (page 41)

Preparing the statement of retained earnings

Requirements

1. Prepare the statement of retained earnings for Wilson Towing Service for the month ending June 30, 2018.

2. What does the statement of retained earnings report?

Short Answer

Expert verified

(1) The Statement of retained earnings is shown as follows:

Wilson Towing Service

Statement of Retained Earnings

Year Ended June 30, 2018

Retained Earnings, June 1, 2018

$3,250

Net income for the year

11,700

14,950

Dividends

(3,500)

Retained Earnings, December 31, 2018

$11,450

(2) Statement of retained earnings reports changes in the beginning balance of retained earnings.

Step by step solution

01

Explanation of the Statement of Retained Earnings

Statement of retained earnings represents the net change in the retained earnings due to income and dividends.

02

Explanation of retained earnings

Retained earnings are the accumulated profits of the prior or previous years.

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Most popular questions from this chapter

How is net income calculated? Define revenues and expenses.

Wizco Advertising’s balance sheet data at May 31, 2018, and June 30, 2018, follow:

May 31, 2018 June 30, 2018

Total Assets \( 122,000 \) 287,000

Total Liabilities 66,000 144,000

For each of the following situations that occurred in June, 2018 with regard to

common stock and dividends of a corporation, compute the amount of net income or

net loss during June 2018.

a. The company issued \(10,000 of common stock and paid no dividends.

b. The company issued no common stock. It paid cash dividends of \)3,000.

c. The company issued \(12,500 of common stock and paid cash dividends of

\)30,000.

Mountain Drycleaners started 2018 with total assets of \(19,000 and total liabilities of \)14,000. At the end of 2018, Mountain’s total assets stood at \(12,000 and total liabilities were \)9,000. Requirements 1. Did the stockholders’ equity of Mountain Drycleaners increase or decrease during 2018? By how much? 2. Identify the four possible reasons that stockholders’ equity can change

Which concept states that accounting information should be complete, neutral, and free from material error?

Let’s examine a case using Greg’s Tunes and Sal’s Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records, and no dividends were paid. The businesses throw together the data shown on the next page at year-end: \( 23,000 8,000 35,000 22,000 \) 10,000 6,000 44,000 9,000 Total Assets Common Stock Total Revenues Total Expenses Greg’s Tunes: Sal’s Silly Songs: Total Liabilities Common Stock Total Expenses Net Income To gain information for evaluating the businesses, the stockholders ask you several questions. For each answer, you must show your work to convince the stockholders that you know what you are talking about. Requirements 7. Which business looks better from a financial standpoint?
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