Problem 1-5 Income Statement, Statement of Retained Earnings, and Balance Sheet

Question

Problem 1-5 Income Statement, Statement of Retained Earnings, and Balance Sheet The following list, in alphabetical order, shows the various items that regularly appear on the nancial statements of Maple Park Theatres Corp. The amounts shown for balance sheet items are balances as of September 30, 2017 (with the exception of retained earnings, which is the balance on September 1, 2017), and the amounts shown for income statement items are balances for the month ended September 30, 2017, Accounts payable Accounts receivable Advertising expense Buildings Capital stock LO5 f- 17,600 Furniture and fixtures 6,410 14,500 Land Notes payable Projection equipment Rent expense-movies Retained earnings Salaries and wages expense Ticket sales Water, gas, and electricity $34,000 26,000 20,000 25,000 50,600 73,780 46,490 95,100 6,700 50,000 15,230 60,300 23,450 Concessions revenue Cost of concessions sold Dividends paid during the month Required 1. Prepare an income statement for the month ended September 30, 2017 2. Prepare a statement of retained earnings for the month ended September 30, 2017 Continued)

Explanation / Answer

Part 1 - Income Statement of Maple Park Theatre corp

Part 2 - Retained Earnings Statement for the month ended september 30, 2017

Part 3 - Balance Sheet as on 30th september 2017

$166640

Part - 4 Investment Decision in Maple Parks Theatre Corp.

a) Current ratio

Current ratio = Current assets/Current Liabilities = ($15230+$6410)/($20000+$17600)

=$21640/$37600 = 0.58

Current ratio of Maple parks is below 1

b) Analysis as per Earning and Dividend

Assume there are 5000 stock of $10 each

Calculation of dividend payout ratio

Decision - looking at the current ratio and Dividend payout ratio. We should not invest in the Stocks of Maple Parks since current ratio is less than 1 and dividend payout ratio is high. High Dividend payout ratio implies less retained earnings. It ultimately turns down the CAPEX plans and hampers the Entity's ability to generate future dividends. High payout ratio can be good from the dividend investor's perspective point of view but it implies very low retained earnings.

Other Information for investing in stocks

a) Read the prospectus of the company carefully

b) Analyse the Historical performance of the company

c) Analyse the key ratios like debt equity ration, Turnover ratio, Profit ratio

d) Investor should have an diversification strategy to minimise the risk and should have exit strategy

e) Strong leadership and competitive advantage.

Particulars Amount Sales Ticket sales $95100 Concession revenue $60300 Less : Cost of concession sold $23450 $36850 Revenue from operations $131950 Expenses Advertising expenses $14500 Rent expenses $50600 Wages, gas and electricity $6700 Salary and wages $46490 $118290 Net Income $13660

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