Question

On January 1, 2012, the organizers of the Parsons Corporation obtained their charter and issued 10,000 shares of $1 par common stock for $4 per share. During 2012, the corporation earned $30,000 in cash revenue and paid $20,000 in cash expenses, not including income tax. The income tax rate was 30%, and the company's income tax expense was $3,000. The company declared and paid cash dividends totaling $2,000. Using the above information, prepare an income statement and a balance sheet for the Parsons Corporation.

Answer 1

Income statement of Parsons Corporation:

Particulars	Amount (in $)	Explanation
Total revenue	30,000	Operating income
Less: Cash expenses	(20,000)	Operating expenses
Revenue before taxes	10,000	This is the revenue after deducting the operating expenses
Less: Income tax @ 30% paid	(3,000)	income tax of $3000 paid
Revenue before dividend	7,000
Dividend paid	(2,000)	dividend (part of profit) paid to the shareholders
Net revenue after dividend	5,000	This amount of $5000 will be shown as reserves in the Balance sheet

Balance sheet of Parsons Corporation:

Assets	Amount(in $)	Liabilities	Amount(in $)
Cash	45,000	Share capital	10,000
		Securities Premium	30,000
		Reserves (Profit after dividend)	5,000
Total	45,000	Total	45,000

Explanation for balance sheet items:

Cash	Cash received on issue of shares + Revenue - Cash expenses - Incoem tax paid - Dividend paid = $(40,000 + 30,000 - 20,000 - 3,000 - 2,000) = $45,000
Share capital	Only the par value of shares should be considered as share capital = 10,000 shares of $ 1 each = $10,000
Securities Premium	The excess of par value received on issue of shares should be accounted as securities premium = Shares 10,000 * $ (4 - 1) = 10,000 * 3 = 30,000$
Reserves	The net profit remained after expenses, taxes and dividend (as per the Income statement) = $ 5,000