Case Study Number 1 1.) Trial Balance to Financial Statement With the below tria

Question

Case Study Number 1
1.) Trial Balance to Financial Statement

With the below trial balance prepare an income statement, statement of retained earnings, statement of stockholders equity, and balance sheet.

2.) In addition, please respond to the following items of the financial statements:

A.) What are the primary elements of the income statement, statement of retained earnings, and balance sheet? Explain what it means that net income flows to the balance sheet through retained earnings. How do dividends appear in the financial statements and how are they reported? Discuss what retained earnings are and the difference between debt and equity.

B.) Discuss the importance of the revenue recognition principle and the matching principle in the formation of the financial statements. Differentiate between accrual based accounting and cash based accounting systems. Which one is GAAP?

C.) One purpose of the financial statements is to present a basis for financial ratios which are used to evaluate company performance by comparisons to competitors across industries. In your response give two examples of two financial ratios and discuss their significance to financial statement users and how they benefit users.

Calendar Sales Trial Balance As of December 31, 2015 Credit Debit Cash AccountsReceivable Inventory Prepaid Insurance Prepaid Supplies Furniture and Fixtures Equipment 85,000 115,000 160,000 15,000 15,000 25,000 310,000 93,000 Accumulated Depreciation Accounts Payable Salaries Payable Notes Payable 62,000 15,000 130,000 Common Stock Dividends Retained Earnings 50,000 25,000 50,000 Sales 1,000,000 Cost of goods sold Salaries Depreciation Expense Maintenance Administrative expenses 400,000 100,000 31,000 69,000 50,000 1,400,000 1,400,000

Explanation / Answer

Income Statement

Statement of Retained Earnings

Statement of Shareholders Equity

Balance Sheet

THe Primary Element of Income Statement is Sales less COGS = Gross Profit less Selling Expense less Administrative Expense = Net Income

Primary elements of Statement of Retained Earnings is Addition of NEt profit to Beg Retained Earnings less Any Dividend Paid = Statement of Retained Earnings (Ending Balance)

Net Income Flows into Shareholders Equity through Retained earnings.Retained Earnings is equal to previous Period Retained Earnings + NEt Income of this year less Dividend paid during the current year= retained Earnigs (ending BAlance) that's why it is said that net Income flows to the Balance Sheet through Retained Earnings.

Retained Earnings is that portion of Net Income that is retained by the corporation rather than distributed to shareholders as dividend .

Sales 1000000 less Cost of Goods Sold (400000) Gross Profit 600000 less Salaries (100000) less Depreciaiton Expense (31000) less Maintenance (69000) less Administrative Expense (50000) Net Profiit 350000

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