Question

Use the following information to prepare a multi-step income statement and a balance sheet for Sherman Equipment Co. for Year 2. (Hint: Some of the items will not appear on either statement, and ending retained earnings must be calculated.) (Balance Sheet only: Items to be deducted must be indicated with a minus sign.)

Salaries Expense	$	84,000			Operating Expenses	$	77,000
Common Stock		100,000			Cash Flow from Investing Activities		93,400
Notes Receivable (short term)		39,000			Prepaid Rent		14,000
Allowance for Doubtful Accounts		9,300			Land		55,000
Uncollectible Accounts Expense		9,600			Cash		49,600
Supplies		2,700			Inventory		99,800
Interest Revenue		6,900			Accounts Payable		61,000
Sales Revenue		380,000			Salaries Payable		27,000
Dividends		5,000			Cost of Goods Sold		163,000
Interest Receivable (short term)		3,000			Accounts Receivable		71,000
Beginning Retained Earnings		88,500

  

Answer 1

SHERMAN EQUIPMENT CO.
Income Statement
For the Year Ended December 31, Year 2
Sales revenue		$380,000
Cost of goods sold		$163,000
Gross margin                  [Sales - Cost of goods sold]		$217,000
Operating Expenses:
Salaries expenses	$84,000
Operating expenses	$77,000
Uncollectable accounts expense	$9,600
Total Operating expenses		$170,600
Operating Income        [Gross margin - Total operating expenses]		$46,400
Non- Operating items:
Interest revenue		$6,900
Net Income		$53,300

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SHERMAN EQUIPMENT CO.
Balance Sheet
As of December 31, Year 2
Assets
Cash		$49,600
Accounts receivable	$71,000
Less: Allowance for doubtful accounts	($9,300)	$61,700
Inventory		$99,800
Interest receivable		$3,000
Notes receivable		$39,000
Prepaid rent		$14,000
Supplies		$2,700
Land		$55,000
Total assets			$324,800
Liabilities and Stockholders equity
Current liabilities
Accounts payable		$61,000
Salaries payable		$27,000
Total liabilities			$88,000
Stockholders equity
Common Stock		$100,000
Retained Earnings     [refer working note below]		$136,800
Total Stockholders equity			$236,800
Total Liabilities and Stockholders equity			$324,800

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Working note - Computation of ending retained earnings balance
Beginning retained earnings	$88,500
Add: Net Income	$53,300
	$141,800
Less: Dividends	$5,000
Ending retained earnings	$136,800