Balance Sheets, Net Income Financial information related to Montana Interiors fo

Question

Balance Sheets, Net Income

Financial information related to Montana Interiors for October and November 20Y8 is as follows:

a. Prepare balance sheet for Montana Interiors as of October 31, 20Y8.

Prepare balance sheet for Montana Interiors as of November 30, 20Y8.

b. Determine the amount of net income for November, assuming that no additional capital stock was issued and no dividends were paid during the month.
$

c. Determine the amount of net income for November, assuming that no additional capital stock was issued but dividends of $20,000 were paid during the month.
$

October 31, 20Y8 November 30, 20Y8 Accounts payable $ 40,000 $ 65,000 Accounts receivable 75,000 118,000 Capital stock 60,000 60,000 Retained earnings                 ?                 ? Cash 110,000 140,000 Supplies 15,000 20,000

Explanation / Answer

a) Retained Earnings for October and November will be the balancing figure in the Balance sheet. The Balance Sheet of Montana Interiors for the month of october is shown as follows:-

Montana Interiors

Balance Sheet as on October 31, 20Y8 (Amount in $)

  

The Balance Sheet of Montana Interiors for the month of november is shown as follows:-

   Montana Interiors

Balance Sheet as on November 31, 20Y8 (Amount in $)

b) The net income for the month of november will be equal to increase in retained earnings as no dividends were paid during the month of november.

Net income = Retained earnings at the end of November - Retained earnings at the end of October

Net Income for the month of november = $153,000-$100,000 = $53,000

c) Net Income after dividend paid = Closing Retained earnings - Opening retained earnings

= $153,000-$100,000 = $53,000

Net Income = Increase in Retained earnings + Dividend paid = $53,000+$20,000 = $73,000

Assets Amount Accounts receivable 75,000 Cash 110,000 Supplies 15,000 Total Assets 200,000 Liabilities Amount Accounts payable 40,000 Stockholders' Equity Capital Stock 60,000 Retained earnings (200,000-40,000-60,000) 100,000 Total liabilities and stockholders' equity 200,000

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