Question

Bennett Griffin and Chula Garza organized Cole Valley Book Store as a corporation; each contributed $70,100 cash to start the business and received 5,600 shares of common stock. The store completed its first year of operations on December 31, current year. On that date, the following financial items for the year were determined: December 31, current year, cash on hand and in the bank, $68,750; December 31, current year, amounts due from customers from sales of books, $42,000; unused portion of store and office equipment, $73,500; December 31, current year, amounts owed to publishers for books purchased, $13,600; one-year note payable to a local bank for $3,900. No dividends were declared or paid to the stockholders during the year.

What was the amount of net income for the year? (Hint: Use the retained earnings equation [Beginning Retained Earnings + Net Income − Dividends = Ending Retained Earnings] to solve for net income.)

Answer 1

Cole Valley Book Store
Balance Sheet
Assets		Liabilities & Shareholders' Equity
Cash	68750	Accounts Payable	13600
Accounts Receivables	42000	Notes Payable	3900
Store and Office Equipment	73500	Total Liabilities	17500
		Stockholders' Equity
		Common Stock	140200
		Retained Earnings	26550
		Total Stockholders' equity	166750
Total Assets	184250	Total Liabilities & Shareholders' Equity	184250
Net Income = $26,550 . This is the first year of operations and no dividends were declared or paid to stockholders; therefore, the ending retained earnings of $ $26,550 includes net income for one year.

Cole Valley Book Store
Balance Sheet
Assets		Liabilities & Shareholders' Equity
Cash	68750	Accounts Payable	13600
Accounts Receivables	42000	Notes Payable	3900
Store and Office Equipment	73500	Total Liabilities	=D32+D33
		Stockholders' Equity
		Common Stock	=70100*2
		Retained Earnings	=B39-D34-D36
		Total Stockholders' equity	=D36+D37
Total Assets	=SUM(B32:B38)	Total Liabilities & Shareholders' Equity	=D34+D38
Net Income = $26,550 . This is the first year of operations and no dividends were declared or paid to stockholders; therefore, the ending retained earnings of $ $26,550 includes net income for one year.