Question

The account balances of Paradise Travel Service for the year ended May 31, 20Y6, follow: Fees earned $944,970 Office expense 217,345 Miscellaneous expense 18,900 Wages expense 453,585 Accounts payable 23,625 Accounts receivable 66,150 Cash 253,375 Common stock 135,000 Land 302,000 Supplies 11,340 Cash dividends of $35,900 were paid during the year. Retained earnings as of June 1, 20Y5, were $255,000. Prepare the balance sheet as of May 31, 20Y6. When entering assets, enter them in order of liquidity.

Answer 1

Answer:

Retained earnings as of May 31, 20Y6 =  $474,240

Net Assets = Total Owners' Equity = $609,240

Explanation:

To do this, the income statement is first prepared to determine the Retained earnings as of May 31, 20Y6 as follows:

Paradise Travel Service

Income Statement

for the year ended May 31, 20Y6

Particulars                                                        $          

Fees earned                                               944,970

Office expense                                          (217,345)

Miscellaneous expense                             (18,900)

Wages expense                                        (453,585)  

Net income                                                 255,140

Cash dividends paid                                  (35,900)  

Retained earning for the year                   219,240

Retained earnings as of June 1, 20Y5    255,000

Retained earnings as of May 31, 20Y6    474,240  

The Balance Sheet is now prepared as follows:

Paradise Travel Service

Balance Sheet

for the year ended May 31, 20Y6

Particulars                                                        $      

Fixed Assets

Land                                                            302,000

Current Assets

Cash                                                            253,375

Accounts receivable                                    66,150

Supplies                                                        11,340  

Total Assets                                               632,865

Liability

Accounts payable                                      (23,625)  

Net Assets                                                609,240  

Owners' Equity:

Common stock                                           135,000

Retained earnings as of May 31, 20Y6     474,240  

Total owners' equity                                609,240

Note that Net Assets and Total Owners' Equity are both equal to $609,240. This is as required in accounting and it shows the Balance Sheet is accurately prepared.