Question

Nicole Mackisey is thinking of forming her own spa business, Nicole's Getaway Spa (NGS). Nicole expects that she and two family members will each contribute $11,500 to the business and receive 1,150 shares each.

Nicole forecasts the following amounts for the first year of operations, ending December 31, 2017: cash on hand and in the bank, $2,430; amounts due from customers from spa treatments, $2,380; building and equipment, $84,435; amounts owed to beauty supply outlets for spa equipment, $8,050; notes payable to a local bank, $41,635.

Cash dividends of $2,300 will be paid to the shareholders during the year. Nicole also forecasts that first-year sales revenues will be $96,000, wages will be $57,600, the cost of supplies used up will be $15,200, selling and administrative expenses will be $12,000, and income taxes will be $3,840.

Required:
1. Based on Nicole's estimates, prepare a (forecasted) income statement for Nicole's Getaway Spa for the year ended December 31, 2017.

2. Prepare a (forecasted) statement of retained earnings for Nicole’s Getaway Spa for the year ended December 31, 2017.

3. Prepare a (forecasted) balance sheet for Nicole’s Getaway Spa at December 31, 2017.

4. As of December 31, 2017, would most of the financing for assets come from creditors or shareholders?

• Creditors

• Shareholders

Answer 1

1)
NICOLE'S GETAWAY SPA Income Statement (forecasted)
Revenues :
Sales revenue	$ 96,000
Total Revenues	$ 96,000
Expenses :
Wages expense	$ 57,600
Supplies expense	$ 15,200
selling and administrative expenses	$ 12,000
Income tax expense	$ 3,840
Total Expenses	$ 88,640
Net income (loss)	$ 7360

2.
NICOLE'S GETAWAY SPA Statement of Retained Earnings (forecasted)
Retained earnings, January 1,	$ 0
Add: Net income	$ 7360
Less: Cash dividends	($ 2300)
Retained earnings, December 31	$ 5060

3)
NICOLE'S GETAWAY SPA Balance Sheet (forecasted)
Assets
Cash	$ 2430
Accounts receivable	$ 2380
Building and equipment	$ 84435
Total Assets	$ 89245
Liabilities
Accounts payable	$ 8050
Notes payable	$ 41635
Total liabilities	$ 49685
Stockholders' Equity
Common stock ($ 11500 x 3 )	$ 34500
Retained earnings	$ 5060
Total stockholders' equity	$ 39560
Total Liabilities and stockholders' equity	$ 89245

4 It comes from creditors as total financing by creditor is more than the stockholder equity.