Question

In: Accounting

The assets and liabilities of Hercules Inc. as of December 31,2019, and revenues and expenses for...

The assets and liabilities of Hercules Inc. as of December 31,2019, and revenues and expenses for the year ended on that date follow: Land $98,000 Property tax expense $5,000 Note payable (due 2025) 95,000 Accounts receivable 25,000 Accounts payable 21,000 Advertising expense 10,000 Rent expense 3,000 Building 140,000 Cash 10,000 Salary expense 85,000 Common shares 75,000 Salary payable 12,000 Furniture 20,000 Service revenue 200,000 Interest expense 4,000 Supplies 3,000 Beginning retained earnings were $50,000, and dividends totalled $50,000 for the year.

1. Prepare in good form a statement of earnings (income statement) of Hercules Inc. for the year ended December 31, 2019.

2. Prepare in good form a statement of retained earnings of Hercules Inc. for the year ended December 31, 2019.

3. Calculate the following for Hercules at December 31, 2019 -

: Current Assets :____________________________________________________________ Total Assets:________________________________________________________________ Total Liabilities::_____________________________________________________________ Total Shareholders’ equity:___________________________________________________ 4. Analyze Hercules Inc. by answering these questions

a. Was Hercules Inc. profitable during 2019? By how much?

b. Who owns more of Hercules Inc.’s assets, the creditors or the shareholders? Why?

Solutions

Expert Solution

Requirement 1:

Hercules Inc.
Income statement
For the Year Ended December 31, 2019
Revenue
Service revenue $      200,000
Total Revenue (A) $      200,000
Expenses:
Rent expense $                   3,000
Interest expense $                   4,000
Property tax expense $                   5,000
Advertising expense $                 10,000
Salary expense $                 85,000
Total Expense (B) $      107,000
Net Income (A-B) $        93,000

Requirement 2:

Hercules Inc.
Retained Earnings Statement
For the Year Ended December 31, 2019
Beginning Balance $                 50,000
Add :Net Income/(loss) $                 93,000
Less:
Dividends $                (50,000)
Retained Earnings Closing Balance $                 93,000

Requirement 3:

Current assets $                 38,000 10000+25000+3000
Total assets $               296,000 38000+98000+20000+140000
Total liabilities $               128,000 95000+21000+12000
Total shareholders' equity $               168,000 75000+93000

Requirement 4:

a. Yes , Hercules. Inc was profitable and the the profit is $ 93,000

b. Most of the Hercules Inc 's assets are owned by the creditors, Because most of assets consists of assets which are bought on account .


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