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Chapter 5: Q11SE (page 297)

Camilia Communications reported the following figures from its adjusted trial balance for its first year of business, which ended on July 31, 2018:

Cash \( 2,900 Cost of Goods Sold \) 18,700

Selling Expenses 1,400 Equipment, net 9,500

Accounts Payable 4,300 Accrued Liabilities 1,800

Common Stock 4,365 Net Sales Revenue 29,200

Notes Payable, long-term 500 Accounts Receivable 3,200

Merchandise Inventory 1,100 Interest Expense 65

Administrative Expenses 3,300

Requirements

1. Prepare Camilia Communication’s statement of retained earnings for the year ended July 31, 2018. Assume that there were no dividends declared during the year and that the business began on August 1, 2017.

2. Prepare Camilia Communication’s classified balance sheet at July 31, 2018. Use the report format.

Short Answer

Expert verified

Answer

  1. Balance in the statement of retained earnings is$5,735.
  2. Total assets and liabilities is$16,700.

Step by step solution

01

Meaning of Balance Sheet

A balance sheet refers to a report prepared by the business entity on a particular date. It reflects the position of a business’sassets and liabilitiesat a particular point in time and facilitates the users to determine the financial health of the company.

02

Preparation of retained earnings statement

Camilia Communications
Statement of Retained Earnings
For the year ended July 31, 2018

Particulars

Amounts ($)

Opening balance of retained earnings

0

Add: Net income

5,735

Less: Dividends declared

0

Closing balance of retained earnings

5,735

03

Preparation of classified balance sheet

Camilia Communications
Balance Sheet
As on July 31, 2018

Particulars

Details

Amounts ($)

ASSETS

Current Assets

Cash

2,900

Accounts receivables

3,200

Merchandise inventory

1,100

Total Current Assets

7,200

Non-Current Assets

Equipment, net

9,500

Total Non-Current Assets

9,500

Total Assets

16,700

EQUITY & LIABILITIES

Current Liabilities

Accounts payable

4,300

Accrued liabilities

1,800

Total Current Liabilities

6,100

Non-Current Liabilities

Notes payable, long-term

500

Total Non-Current Liabilities

500

Total Liabilities

6,600

Stockholder’s equity

Common stock

4,365

Retained earnings

5,735

Total Stockholder’s equity

10,100

Total Equity & Liabilities

16,700

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Most popular questions from this chapter

Under the new revenue recognition standard, how is the sale of inventory recorded?

The records of Grade A Beef Company list the following selected accounts for the quarter ended September 30, 2018:

Interest Revenue \( 900 Accounts Payable \) 17,000

Merchandise Inventory 46,300 Accounts Receivable 33,500

Notes Payable, long-term 47,000 Accumulated Depreciation— Equipment 36,500

Salaries Payable 2,600 Common Stock 38,000

Net Sales Revenue 294,000 Retained Earnings 3,610

Rent Expense (Selling) 16,700 Dividends 15,000

Salaries Expense (Administrative) 2,500 Cash 7,300

Office Supplies 5,800 Cost of Goods Sold 161,700

Unearned Revenue 13,800 Equipment 131,000

Interest Expense 2,300 Interest Payable 900

Depreciation Expense—Equipment (Administrative) 1,310

Rent Expense (Administrative) 7,400

Utilities Expense (Administrative) 4,500 Salaries Expense (Selling) 5,000

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Requirements

1. Prepare a single-step income statement.

2. Prepare a multi-step income statement.

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Rocky RV Center’s accounting records include the following accounts at December 31, 2018.

Cost of Goods Sold \( 372,000 Accumulated Depreciation—Building \) 38,000

Accounts Payable 16,000 Cash 47,000

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Building 113,000 Depreciation Expense—Building 13,000

Common Stock 115,000 Dividends 58,000

Retained Earnings 83,100 Interest Revenue 14,000

Merchandise Inventory 239,600

Notes Receivable 34,000

Requirements

1. Journalize the required closing entries for Rocky.

2. Determine the ending balance in the Retained Earnings account.

Party-Time T-Shirts sells T-shirts for parties at the local college. The company completed the first year of operations, and the shareholders are generally pleased with operating results as shown by the following income statement:

PARTY-TIME T-SHIRTS

Income Statement

Year Ended December 31, 2017

Net Sales Revenue \(350,000

Cost of Goods Sold 210,000

Gross Profit 140,000

Operating Expenses:

Selling Expense 40,000

Administrative Expense 25,000

Net Income \)75,000

Bill Hildebrand, the controller, is considering how to expand the business. He proposes two ways to increase profits to \(100,000 during 2018.

a. Hildebrand believes he should advertise more heavily. He believes additional advertising costing \)20,000 will increase net sales by 30% and leave administrative expense unchanged. Assume that Cost of Goods Sold will remain at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately.

b. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for \(40 each; Party-Time can mark these dresses up 100% and sell them for \)80. Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year.

Help Hildebrand determine which plan to pursue. Prepare a multi-step income statement for 2018 to show the expected net income under each plan.

The records of Farm Quality Steak Company list the following selected accounts for the quarter ended April 30, 2018:

Interest Revenue \( 400 Accounts Payable \) 17,700

Merchandise Inventory 45,000 Accounts Receivable 38,200

Notes Payable, long-term 54,000 Accumulated Depreciation—Equipment 37,700

Salaries Payable 2,800 Common Stock 30,000

Net Sales Revenue 298,000 Retained Earnings 5,380

Rent Expense (Selling) 15,100 Dividends 25,000

Salaries Expense (Administrative) 2,000 Cash 7,100

Office Supplies 6,500 Cost of Goods Sold 154,960

Unearned Revenue 13,100 Equipment 132,000

Interest Expense 2,100 Interest Payable 1,700

Depreciation Expense—Equipment (Administrative) 1,320

Rent Expense (Administrative) 7,100

Utilities Expense (Administrative) 4,600 Salaries Expense (Selling) 6,000

Delivery Expense (Selling) 3,800 Utilities Expense (Selling) 10,000

Requirements

1. Prepare a single-step income statement.

2. Prepare a multi-step income statement.

3. M. Doherty, manager of the company, strives to earn a gross profit percentage of at least 50%. Did Farm Quality achieve this goal? Show your calculations
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