Question

During 2019, Winterset Company performed services for which customers paid or promised to pay a total of $587,000. Of this amount, $552,000 had been collected by year-end. Winterset paid $340,000 in cash for employee wages and owed the employees $15,000 at the end of the year for work that had been done but had not paid for. Winterset paid interest expense of $3,000 and $195,000 for other service expenses. The income tax rate was 35%, and income taxes had not yet been paid at the end of the year. Winterset declared and paid dividends of $20,000. There were no other transactions that affected cash.

Required:
a. What was the amount of the increase or decrease in cash during the year?
b. Prepare an income statement for Winterset for the year.
c. At the beginning of 2019, Winterset's retained earnings were $90,000. Prepare a statement of stockholders' equity with only a column for retained earnings.

Answer 1

(A) decrease by 6,000

(B)

Service revenue 587,000

salaries expense (355,000)

interst expense (3,000)

other expenses (195,000)

income before tax 34,000

income tax (35%) (11,900)

net income 22,100

(C)

Retained Earings

Balance Jan 1 90,000

Net Earnings 22,100

Dividends (20,000)

Balance, Dec 31 92,100

Step-by-step explanation:

collected from customer 552,000

salaries paid (340,000)

interest paid (3,000)

other expenses paid (195,000)

cash dividend paid (20,000)

net (6,000)

For the income statement we use the accrued base and we do not consider the dividends.

Service revenue 587,000

salaries expense (355,000)

interst expense (3,000)

other expenses (195,000)

income before tax 34,000

income tax (35%) (11,900)

net income 22,100

The retained earnigns will increase by the net income amount and decrease with the dividends paid.