Question

Balance Sheets, Net Income

Financial information related to Montana Interiors for October and November 20Y8 is as follows:

		October 31, 20Y8		November 30, 20Y8
Accounts payable		$ 40,000		$ 65,000
Accounts receivable		75,000		118,000
Capital stock		60,000		60,000
Retained earnings		?		?
Cash		110,000		140,000
Supplies		15,000		20,000

a. Prepare balance sheet for Montana Interiors as of October 31, 20Y8.

Montana Interiors
Balance Sheet
October 31, 20Y8
Assets
		$
Total assets		$
Liabilities
		$
Stockholders' Equity
	$
Total liabilities and stockholders' equity		$

Prepare balance sheet for Montana Interiors as of November 30, 20Y8.

Montana Interiors
Balance Sheet
November 30, 20Y8
Assets
		$
Total assets		$
Liabilities
		$
Stockholders' Equity
	$
Total liabilities and stockholders' equity		$

b. Determine the amount of net income for November, assuming that no additional capital stock was issued and no dividends were paid during the month.
$

c. Determine the amount of net income for November, assuming that no additional capital stock was issued but dividends of $20,000 were paid during the month.
$

Answer 1

a) Retained Earnings for October and November will be the balancing figure in the Balance sheet. The Balance Sheet of Montana Interiors for the month of october is shown as follows:-

Montana Interiors

Balance Sheet as on October 31, 20Y8 (Amount in $)

Assets	Amount
Accounts receivable	75,000
Cash	110,000
Supplies	15,000
Total Assets	200,000
Liabilities	Amount
Accounts payable	40,000
Stockholders' Equity
Capital Stock	60,000
Retained earnings (200,000-40,000-60,000)	100,000
Total liabilities and stockholders' equity	200,000

  

The Balance Sheet of Montana Interiors for the month of november is shown as follows:-

   Montana Interiors

Balance Sheet as on November 31, 20Y8 (Amount in $)

Assets	Amount
Accounts receivable	118,000
Cash	140,000
Supplies	20,000
Total Assets	278,000
Liabilities	Amount
Accounts payable	65,000
Stockholders' Equity
Capital Stock	60,000
Retained earnings (278,000-65,000-60,000)	153,000
Total liabilities and stockholders' equity	278,000

b) The net income for the month of november will be equal to increase in retained earnings as no dividends were paid during the month of november.

Net income = Retained earnings at the end of November - Retained earnings at the end of October

Net Income for the month of november = $153,000-$100,000 = $53,000

c) Net Income after dividend paid = Closing Retained earnings - Opening retained earnings

= $153,000-$100,000 = $53,000

Net Income = Increase in Retained earnings + Dividend paid = $53,000+$20,000 = $73,000