Question

Island Company provides the following information at the end of 2024: cash remaining 3,000, rent expense for the year5,200, land that has been purchased 20,000, retained earnings10,600, utility expense for the year 3,100, accounts receivable from customers5,400, service revenue recognized during the year 28,000, salary expense for the year11,500, accounts payable to suppliers 1,300, dividends paid to stockholders during the year1,400, common stock that has been issued prior to 2024 15,000, salaries owed at the end of the year1,500, insurance expense for the year 1,700, retained earnings at the beginning of the year5,500. No common stock is issued during 2024. Prepare the following financial statements for Island Company on December 31, 2024:

Answer 1

Island Company's financial statements for the end of 2024 show a net income of $6,500 on the Income Statement and retained earnings of $10,600 at the end of the year on the Statement of Retained Earnings. The calculations confirm that the provided year-end retained earnings figure is accurate.

Step-by-step explanation:

Island Company needs to prepare financial statements for the end of 2024. To do so, we will summarize the provided information into an Income Statement and a Statement of Retained Earnings. The balance sheet will not be prepared as the question does not request it.

For the Income Statement, we use the revenue and the various expenses provided:

• Service Revenue: $28,000
• Rent Expense: $5,200
• Utility Expense: $3,100
• Salary Expense: $11,500
• Insurance Expense: $1,700

• Net Income = Service Revenue - Sum of all Expenses
• 
  
• Net Income = $28,000 - ($5,200 + $3,100 + $11,500 + $1,700) = $6,500

Starting with the beginning balance for retained earnings:

• Retained Earnings at the beginning of the year: $5,500
• Add: Net Income: $6,500
• Less: Dividends Paid: $1,400

Retained Earnings at the end of the year = Beginning Retained Earnings + Net Income - Dividends Paid
Retained Earnings at the end of the year = $5,500 + $6,500 - $1,400 = $10,600

Note that the Retained Earnings at the end of the year matches the amount given in the problem, confirming our calculations.