Little Tots Ltd. sells children\'s clothing. At the end of December 2016 (its fi
ID: 2606638 • Letter: L
Question
Little Tots Ltd. sells children's clothing. At the end of December 2016 (its first year of operations), it had the following account balances:
Accounts receivable
$2,500
Rent expense
3,600
Cash
3,500
Wages payable
400
Equipment
5,000
Depreciation expense
500
Wage expense
26,000
Prepaid rent
300
Cost of goods sold
34,900
Sales revenue
69,900
Bank loan payable (due in two years)
4,800
Advertising expense
800
Accounts payable
2,000
Utilities expense
300
Dividends declared
1,200
Common shares
10,000
Interest expense
100
Inventory
8,000
Miscellaneous expenses
400
Retained earnings
?
Accounts receivable
$2,500
Rent expense
3,600
Cash
3,500
Wages payable
400
Equipment
5,000
Depreciation expense
500
Wage expense
26,000
Prepaid rent
300
Cost of goods sold
34,900
Sales revenue
69,900
Bank loan payable (due in two years)
4,800
Advertising expense
800
Accounts payable
2,000
Utilities expense
300
Dividends declared
1,200
Common shares
10,000
Interest expense
100
Inventory
8,000
Miscellaneous expenses
400
Retained earnings
?
Required a. Calculate the net income for the year by adding the revenue and deducting all the expenses. b. Calculate the retained earnings by following the process outlined below: Balance in retained earnings at the beginning of the year Add: Net income for the year Deduct: Dividends declared during the year Balance in Retained Earnings at the end of the year S 0- c. Prepare a classified statement of financial position.Explanation / Answer
a. Net income for the year Particulars Amount ($) Sales Revenue 69,900 Less: Cost of Goods Sold 34,900 Gross Profit 35,000 Operating Expenses: Rent Expenses 3,600 Depreciation Expense 500 Wage Expense 26,000 Advertising Expense 800 Utilities Expenses 300 Miscellaneous Expenses 400 Total Operating Expenses 31,600 Non-operating Expenses: Interest Expense 100 100 Net Profit 3,300 b. Retained Earning Balance of Retained Earning at the beginning of the year - Add: Net income for the year 3,300 Less: Dividend Declared for the year 1,200 Balance in Retained Earning at the end of the year 2,100 c. Statement of Financial Position Assets Amount ($) Current Assets: Cash 3,500 Accounts Receivable 2,500 Prepaid Rent 300 Inventory 8,000 Total Current Assets 14,300 Fixed Assets: Equipment 5,000 Total Assets 19,300 Liabilities Current Liabilities: Accounts Payable 2,000 Wages Payable 400 Total Current Liabilities 2,400 Long Term Liabilities: Bank Loan Payable 4,800 Equity: Common Shares 10,000 Retained Earnings 2,100 Total Equity 12,100 Total Liabilities 19,300
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