Question

Instructions In each situation, state whether the decision-maker would be most likely to place primary emphasis on information provided by the income statement, balance sheet, or statement of cash flows. In cach case provide a brief justification for your choice. Choose only one financial statement in cach case. -On June 1, 2017, Elite Service Co. was started with an initial investment in the company of $22,100 cash. Here are the assets, liabilities, and common stock of the company at June 30, 2017, and the revenues and expenses for the month of June, its first month of operations: $ 4,600 Notes payable Cash $12,000 Accounts receivable 4,000 Accounts payable 500 7,500 Supplies expense Service revenue 1,000 Supplies 2,400 Maintenance and repairs expense 600 Advertising expense 400 Utilities expense 300 26,000 Salaries and wages expense Equipment 1,400 Common stock 22,100 In June, the company issued no additional stock but paid dividends of $1,400. Instructions (a) Prepare an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2017. number to let you know you are on the right track. $ 3,800 Net income Ret. eamings $ 2,400 Tot. assets $37,000 (b) Briefly discuss whether the company's first month of operations was a success. (c) Discuss the company's decision to distribute a dividend. erved A nulelne of tak wt ..

Answer 1

Elite Service Co Elite Service Co income statement BALANCE SHEET PARTICULARS DETAILS AMOUNT PARTICULARS DETAILS AMOUNT REVENUE FROM SERVICES 7500 7500 ASSET LESS: EXPENSES CURRENT ASSET SUPPLIES EXPNESES 1000 CASH 4600 ADVERISEMENT EXPENSES 400 ACCOUNTS RECIEVEABLE 4000 MAINTEANCE & REPAIR 600 SUPPLIES 2400 UTILITIES EXPENSES 300 TOTAL CURRENT ASSET 11000 SALARIES & WAGES 1400 TOTAL EXPENSES 3700 NON CURRENT ASSEET NET INCOME 3800 EQUIPMENTS 260001 26000 TOTAL ASEET 37000 LIABILTIES Note; CURRENT LIABLITIES BALANCE FIGURE ON THE ASSET SIDE IS RETAINED EARNING NOTES PAYABLES 12000 ACCOUNTS PAYABLES 500 TOTAL CURRENT LIABLTIES 12500 NON CUREENT LIBLITIES 0 EQUITY COMMON STOCK 22100 RETAINED EARNINGS 2400 24500 TOTAL LIABLITIES 37000 1.LOOKING AT INCOME STATEMENT OF THE COMPANY EARNING MORE THAN 50% NET INCOME NOT CONSIDERED TAXES QUESTION IS SILENT ON TAX RATES NOT MENTIONED 2. LIQUIDTY OF THE COMPANY IS GOODS, CURRENT LIBLITIES JUST MORE THAN CURRENT ASSET 3. SOVENCY POSTION IS ALSO LOOKS GOODS HENCE MOST OF THE LOGN TERM ASSETS FINANCE FROM SHAREHOLDERS FUND. 4. DIVIDEND IS THE RETURN ON SHARE HOLDERS FUND, HENCE GETTING ADEQUATE RETURN ON SHARESHLODERS FUND IMPROVES EQUITY FUND SO THAT COMPANY CAN INVEST MORE IN FUTURE PROJECTS