Question

The revenues and expenses of Paradise Travel Service for the year ended May 31, 20Y6, follow:

Fee earned $900,000
Office expense 300,000
Miscellaneous expense 15,000
Wages expense 450,000

Everett McCauley invested an additional $40,000 in the business in exchange for common stock, and $10,000 of dividends were paid during the year. Common stock had a balance of $60,000 and retained earnings had a balance of $300,000 as of June 1, 20Y5.

Required:
Prepare a statement of stockholders' equity for the year ended May 31, 20Y6.

Answer 1

Statement of Owners' Equity

For the Year Ended May 31, 20Y6

Common stock account balance June 1, 20Y5 $60,000

Retained earnings account balance June 1, 20Y5 $300,000

Common stock issued during the year $40,000

Net income $135,000

Subtotal $535,000

Dividends distributed ($10,000)

Total stockholders' equity $525,000

• Common stock balance May 31, 20Y6 $100,000
• Retained earnings balance May 31, 20Y6 $425,000

Step-by-step explanation:

net profit = $900,000 - $300,000 - $15,000 - $450,000 = $135,000