Answer:
1. Create a statement for retained earnings.
Net income = $943,400
Retained earnings as of May 31, 2018 = $3,792,500
2. Construct a balance sheet, assuming a current portion of the note payable is $50,000.
Total Net Assets = Stockholder’s equity = $4,292,500
Explanation:
1. Create a statement for retained earnings.
The first step is preparing the income statement to find the net income as shown below:
Clairemont Co.
Income Statement
for the fiscal year ended May 31, 2018
Details $
Sales 11,343,000
Cost of goods sold (7,850,000)
Gross Income 3,493,000
Selling and Distribution expenses:
Sales salaries expense (916,000)
Advertising expense (550,000)
Depreciation expense - Store equipment (140,000)
Miscellaneous selling expense (38,000)
Administrative expenses:
Office salaries expense (650,000)
Rent expense (94,000)
Insurance expense (48,000)
Depreciation expense - Office equipment (50,000)
Office supplies expense (28,100)
Miscellaneous administrative expense (14,500)
Operating income 964,400
Interest expense (21,000)
Net income 943,400
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Clairemont Co.
Retained Earnings Statement
for the fiscal year ended May 31, 2018
Details $
Retained earnings at June 1, 2017 2,949,100
Net income for the year 943,400
Dividends (100,000)
Retained earnings at May 31, 2018 3,792,500
2. Construct a balance sheet, assuming a current portion of the note payable is $50,000.
Clairemont Co.
Balance sheet
for the fiscal year ended May 31, 2018
Details $ $
Fixed Assets
Office equipment 830,000
Accumulated depreciation - office equip (550,000) 280,000
Store equipment 3,600,000
Accumulated depreciation - store equip (1,820,000) 1,780,000
Net Fixed Assets 2,060,000
Current Assets
Cash 240,000
Accounts receivable 966,000
Inventory 1,690,000
Estimated returns inventory 22,500
Office supplies 13,500
Prepaid insurance 8,000
Total current assets 2,940,000
Current Liabilities
Accounts payable (326,000)
Customer refunds payable (40,000)
Salaries payable (41,500)
Note payable (50,000)
Working Capital 2,482,500
Long-term Liability
Note payable (300,000 - 50,000) (250,000)
Net Total Assets 4,292,500
Financed by:
Common stock 500,000
Retained earnings at May 31, 2018 3,792,500
Stockholder’s Equity 4,292,500
Note:
Since both the Total Net Assets and Stockholder’s equity are equal at $4,292,500, this indicates the financial statement is correctly prepared as both values are meant to coincide.
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