(a) BEARDSLEY SERVICE CO. Income Statement For the Month Ended June 30, 2012 Revenues Service revenue $7,500 Expenses Salaries and wages expense $1,400 Supplies expense 1,000 Maintenance and repairs expense 600 Advertising expense 400 Utilities expense 300 Total expenses 3,700 Net income $3,800
BEARDSLEY SERVICE CO. Retained Earnings Statement For the Month Ended June 30, 2012 Retained earnings, June 1 $ 0 Add: Net income 3,800 3,800 Less: Dividends 1,400 Retained earnings, June 30 $2,400
PROBLEM 1-3A (Continued) BEARDSLEY SERVICE CO. Balance Sheet June 30, 2012 Assets Cash $ 4,600 Accounts receivable 4,000 Supplies 2,400 Equipment 26,000 Total assets $37,000 Liabilities and Stockholders’ Equity Liabilities Notes payable $12,000 Accounts payable 500 Total liabilities $12,500 Stockholders’ equity Common stock 22,100 Retained earnings 2,400 24,500 Total liabilities and stockholders’ equity $37,000
(b) Beardsley had a very successful first month, earning $3,800 or 51% of service revenues ($3,800 ÷ $7,500). Its net income represents a 17% return on the initial investment ($3,800 ÷ $22,100).
(c) Distributing a dividend after only one month of operations is probably unusual. Most new businesses choose to build up a cash balance to provide for future operating and investing activities or pay down debt. Beardsley distributed 37% ($1,400 ÷ $3,800) of its first month’s income but it had adequate cash to do so and still showed a significant increase in retained earnings.
