P13.10B: Carlotta's Cakes Inc. is a private company reporting under ASPE. It is authorized to issue an unlimited number of common and $3 cumulative preferred shares. The following is an alphabetical list of its adjusted accounts at May 31, 2021, its fiscal year end. All accounts have normal balances.
Accounts payable | $ 38,500 | Income tax expense | $ 11,230 |
Accounts receivable | 15,300 | Insurance expense | 7,500 |
Accumulated depreciation—equipment | 126,000 | Interest expense | 4,500 |
Cash | 20,600 | Inventory | 70,220 |
Cash dividends—common | 50,000 | Notes payable | 75,000 |
Cash dividends—preferred | 7,500 | Preferred shares | 150,000 |
Common shares | 50,000 | Rent expense | 24,500 |
Cost of goods sold | 277,475 | Retained earnings | 73,000 |
Depreciation expense | 42,000 | Salaries expense | 67,800 |
Dividends payable | 7,500 | Sales | 504,500 |
Equipment | 420,000 | Supplies expense | 5,875 |
The note payable is due in 2023. There are 10,000 common shares issued and 5,000 preferred shares issued as at May 31, 2021.
Prepare an income statement, statement of retained earnings, and balance sheet.
Taking It Further What ethical issues may managers face when reporting a company's financial performance?
Income statement
For the year ended May 31 , 2021
| Sales | $ 504,500 | |
| Less: Cost of goods sold | $277,475 | |
| Gross profit | $227,025 | |
| Operating expenses : | ||
| Depreciation expense | $42,000 | |
| Insurance expense | $ 7,500 | |
| Rent expense | $24,500 | |
| Salaries expense | $67,800 | |
| Supplies expense | $ 5,875 | |
| Less: Total operating expenses | $147,675 | |
| Operating profit | $ 79,350 | |
| Less: Interest expense | $ 4,500 | |
| Net income before tax | $ 74,850 | |
| Less: Income tax expense | $ 11,230 | |
| Net income | $ 63,620 |
Statement of retained earnings
For the year ended May 31 ,2021
| Beginning balance of retained earnings | $73,000 | |
| Add: Net income | $63,620 | |
| Balance before paying dividend : | $136,620 | |
| Cash dividends - Common | $50,000 | |
| Cash dividends - Preferred | $ 7,500 | |
| Less: Total dividends declared | $57,500 | |
| Closing balance of retained earnings | $79,120 |
Balance Sheet
As on May 31 , 2021
| Assets : | ||
| Current assets : | ||
| Cash | $20,600 | |
| Accounts receivable | $15,300 | |
| Inventory | $70,220 | |
| Total current assets | $106,120 | |
| Non current assets : | ||
| Equipment | $420,000 | |
| Accumulated depreciation - Equipment | $(126,000) | |
| Total non current assets | $294,000 | |
| Total assets | $ 400,120 | |
| Liabilities and shareholder's equity | ||
| Liabilities : | ||
| Current liabilities : | ||
| Accounts payable | $38,500 | |
| Dividends payable | $7,500 | |
| Total current liabilities | $46,000 | |
| Non current liabilities : | ||
| Note payable | $75,000 | |
| Total liabilities | $ 121,000 | |
| Shareholder's equity | ||
| Common shares | $50,000 | |
| Preferred shares | $150,000 | |
| Closing balance of retained earnings | $ 79,120 | |
| Total shareholder's equity | $ 279,120 | |
| Total liabilities and shareholder's equity | $ 400,120 |