Question

Cheese Factory Incorporated reported the following information for the fiscal year ended August 31, 2015.

Accounts Payable 145,000
Accounts Receivable 15,000
Cash (balance on January 1, 2016) 75,000
Cash (balance on December 31, 2016) 80,000
Common Stock 100,000
Dividends 10,000
Equipment 755000
Notes payable 30000
Office Expense 95000
Prepaid rent 50,000
Retained earnings begining 410,000
Salaries and wages expense 9,55,000
Salaries and wages payable 170,000
sales revenue 1660,000
Supplies 25,000
Utilities Expense 530,000
Other cash flow information:
Additional investment from stockholders 34000
Cash paid to purchase equipment 40,000
Cash paid to suppliers and employees 1490,000
Repayments of borrowing 155000
Cash received from customers 1661000
Cash received from borrowings 5000
Dividends paid in cash 10000
Required:
1. Prepare an income statement for 2016.
2. Prepare a statement of retained earnings for the fiscal year ended August 31, 2015.

Answer 1

1. Income statement for 2016.

Sales revenue ($1,661,000 + $15,000) $1,676,000

Less Cost of Sales

Purchases ($1,490,000 + $145,000) ($1,635,000)

Gross Profit $41,000

Less Expenses

Office Expense $95,000

Salaries and wages expense $955,000

Utilities Expense $530,000 ($1,580,000)

Net Loss ($1,539,000)

2. Statement of retained earnings for the fiscal year ended August 31, 2015.

Retained Earnings Beginning $410,000

Dividends $10,000

Retained Earnings Closing $400,000

Step-by-step explanation:

Income statement calculates profit : Profit = Gross Profit (Sales - Cost of Sales) - Expenses. Whilst Statement of retained earnings calculates closing balance in Retained Earnings : Closing Balance = Opening Balance + Profit for the year - Dividends