Answer:
1. Prepare a retained earnings statement.
Net income = $943,400
Retained earning at May 31, 2018 = $3,792,500
2. Prepare a balance sheet, assuming that the current portion of the note payable is $50,000.
Net Total Assets = Stockholder's equity = $4,292,500
Explanation:
1. Prepare a retained earnings statement.
To do this, the income statement is first prepared to obtain the net income as follows:
Clairemont Co.
Income Statement
for the fiscal year ended May 31, 2018
<u>Details $ </u>
Sales 11,343,000
Cost of goods sold <u> (7,850,000) </u>
Gross Income 3,493,000
Selling and Distribution expenses:
Sales salaries expense (916,000)
Advertising expense (550,000)
Dep. expense - Store equipment (140,000)
Miscellaneous selling expense (38,000)
Administrative expenses:
Office salaries expense (650,000)
Rent expense (94,000)
Insurance expense (48,000)
Dep. exp - Office equipment (50,000)
Office supplies expense (28,100)
Miscellaneous admin expense <u> (14,500) </u>
Operating income 964,400
Interest expense <u> (21,000) </u>
Net income <u> 943,400 </u>
The retained earning statement can therefore, be stated as follows:
Clairemont Co.
Retained Earnings Statement
for the fiscal year ended May 31, 2018
<u>Details $ </u>
Retained earnings at June 1, 2017 2,949,100
Net income for the year 943,400
Dividends <u> (100,000) </u>
Retained earning at May 31, 2018 <u> 3,792,500 </u>
2. Prepare a balance sheet, assuming that the current portion of the note payable is $50,000.
Clairemont Co.
Balance sheet
for the fiscal year ended May 31, 2018
<u>Details $ $ </u>
<u>Fixed Assets</u>
Office equipment 830,000
Accumulated dep.- office equip <u> (550,000) </u> 280,000
Store equipment 3,600,000
Accumulated dep.- store equip <u> (1,820,000) </u> <u> 1,780,000 </u>
Net Fixed Assets 2,060,000
<u>Current Assets</u>
Cash 240,000
Accounts receivable 966,000
Inventory 1,690,000
Estimated returns inventory 22,500
Office supplies 13,500
Prepaid insurance <u> 8,000 </u>
Total current assets 2,940,000
<u>Current Liabilities</u>
Accounts payable (326,000)
Customer refunds payable (40,000)
Salaries payable (41,500)
Note payable <u> (50,000) </u>
Working Capital 2,482,500
<u>Long-term Liability</u>
Note payable (300,000 - 50,000) <u> (250,000) </u>
Net Total Assets <u> 4,292,500 </u>
Financed by:
Common stock 500,000
Retained earning at May 31, 2018 <u> 3,792,500 </u>
Stockholder's Equity <u> 4,292,500 </u>
Note:
Since both the Net Total Assets and Stockholder's equity are to $4,292,500, it implies the financial statement is accurately prepared as both as always be equal.
