Question

Gator Investments provides financial services related to investment selections, retirement planning, and general insurance needs. At the end of the year on December 31, 2021, the company reports the following amounts:

 

In addition, the company had common stock of $100,000 at the beginning of the year and issued an additional $11,000 during the year. The company also had retained earnings of $30,300 at the beginning of the year and paid dividends of $5,200.

 

Required:

Prepare the income statement, statement of stockholders’ equity, and balance sheet for Gator Investments.

Answer 1

Financial Statements

Financial Statements: Financial statements are a group of reports that present the financial information of an organization. Financial statements comprise of income statement, balance sheet and, cash flow statement. They are the most important source of financial information, which provides the company’s financial performance and financial position for a particular period.

 

Following are the financial statements that the businesses need to prepare:

• Income statement

• Cash flow statement

• Statement of stockholder’s equity

• Balance sheet

 

Income statement: Income statement is one of the three major financial statements apart from balance sheet and cash flow statements. The income statement presents the financial results of a business for a period. All the revenues and expenses related to the current year are shown in the income statement. The excess of revenue over the expenses is the net income for the period.

 

Stockholder’s Equity: Stockholder’s equity is the portion of the balance sheet representing the capital received from investors in exchange for paid in capital (stock) and retained earnings.

 

Balance sheet: A balance sheet is a financial statement that presents information about a company’s assets, liabilities and, stockholder’s equity. The assets and liabilities are sub-categorized for easy access of information. Assets are categorized as current assets and noncurrent assets. Liabilities are categorized as current liabilities and long term liabilities. Liabilities also include stockholder’s equity, which is shown under the head total liabilities and stockholder’s equity.

 

Prepare income statement of G Incorporation:

G Incorporation
Income Statement
Details	Amount ($)	Amount ($)
Revenue:		127,600
Service Revenue
Expense:	33,500
Advertising	33,500
Salaries Expenses	65,100
Utilities Expenses	15,500
Interest Expenses	3,500
Total expenses		(117,600)
Net Income		10,000

 

Working notes: 

G Incorporation
Income Statement
Details	Amount ($)	Amount ($)
Revenue:
Service Revenue		127600
Expenses:
Advertising	33500
Salaries Expenses	65100
Utilities Expenses	15500
Interest Expenses	3500
Total expenses		= -(B7+B8+B9+B10)
Net Income		=C5+C11

  

Prepare statement of Stockholders’ Equity of G Incorporation: 

G Incorporation
Statement of Stock holder’s Equity
Details	Common Stock ($)	Retained Earnings ($)	Total Stockholder’s Equity ($)
Beginning Balance	100,000	30,300	130,000
Issuance of Common Stock	11,000		11,000
Add: Net income for the month (Refer the Income Statement)		10,000	10,000
Less: Dividends declared		(5,200)	(5,200)
Ending Balance	111,000	35,100	146,000

 

Working notes:

G Incorporation
Statement of Stock holder’s Equity
Details	Common Stock ($)	Retained Earnings ($)	Total Stockholder’s Equity ($)
Beginning Balance	100000	30300	=B4+C4
Issuance of Common Stock	11000	0	=B5+C5
Add: Net income for the month (Refer the Income Statement)	0	10000	=B6+C5
Less: Dividends declared		-5200	=B7+C6
Ending Balance	=SUM(B4:B7)	=SUM(C4:C7)	=SUM(D4:D7)

 

Prepare statement of Balance Sheet of G Incorporation: 

G Incorporation
Balance sheet
Details	Amount ($)	Details	Amount ($)	Amount ($)
Assets		Liabilities
Cash	5,500	Accounts Payable	6,400
Equipment	27,000	Notes Payable	30,000
Building	150,000	Total liabilities		36,400
		Stockholder’s Equity:
		Common stock	111,000
		Retained Earnings	35,100
		Total stockholder’s equity		146,100
Total Assets	$182,500	Total Liabilities and Stockholder’s Equity		$182,500

Working notes:

G Incorporation
Balance sheet
Details	Amount ($)	Details	Amount ($)	Amount ($)
Assets		Liabilities
Cash	5500	Accounts Payable	6400
Equipment	27000	Notes Payable	3000
Building	150000	Total liabilities		=D5+D6
		Stockholder’s Equity:
		Common stock	111000
		Retained Earnings	35100
		Total stockholder’s equity		=D9+D10
Total Assets	=SUM(B5:B11)	Total Liabilities and Stockholder’s Equity		=E7+E11

 

Note: Refer to the statement of stockholders’ equity for the ending balance of retained earnings and common stock.

Financial Statements

Financial Statements: Financial statements are a group of reports that present the financial information of an organization. Financial statements comprise of income statement, balance sheet and, cash flow statement. They are the most important source of financial information, which provides the company’s financial performance and financial position for a particular period.