Problem 1: Income Statement Preparation
Precision Corporation has been a leading supplier of magnetic storage disks for three years. Followingare the results of Precision’s operations for 2006.
Sales revenue . . . . . . . . . . . . $68,000
Advertising expense . . . . . . . 1,530
Income taxes . . . . . . . . . . . . 4,360
Delivery expense . . . . . . . . . 480
Packaging expense . . . . . . . . 355
Salaries expense . . . . . . . . . 18,350
Supplies expense . . . . . . . . . 8,410
EPS $3.45
1) Prepare an income statement for the year ended December 31, 2006.
2) How many shares of stock were outstanding?
Problem 2: Net Income and Statement of Retained Earnings
A summary of the operations of Stellenbach Company for the year ended May 31, 2006, is shown below.
Advertising expense . . . . . . . . . $ 2,760
Supplies expense . . . . . . . . . . . 37,820
Rent expense . . . . . . . . . . . . . . 1,500
Salaries expense . . . . . . . . . . . . 18,150
Miscellaneous expense . . . . . . . 4,170
Dividends . . . . . . . . . . . . . . . . . 12,400
Retained earnings (6/1/05) . . . . .156,540
Income taxes . . . . . . . . . . . . . . 21,180
Consulting fees (revenues) . . . . 115,100
Administrative expense . . . . . . . 7,250
A) Determine the net income for the year by preparing an income statement. (There are 2,000 shares of stock outstanding.)
B) Prepare a statement of retained earnings for the year ended May 31, 2006.
C) Prepare a statement of retained earnings assuming that Stellenbach had a net loss for the year of $25,000.
D) Interpretive Question: Assuming a loss as in (3), is it a good idea for Stellenbach to still pay its shareholders dividends?
Problem 3: Using the following information, compute total assets.
Equipment $ 9,000
Accounts payable 1,100
Capital stock 1,750
Cash 400
Loan payable 10,000
Wages payable 250
Accounts receivable 700
Retained earnings 1,000
Inventory 4,000
Problem 4: The Accounting Equation
For the following four cases, use the accounting equation to compute the missing quantity.
Assets Liabilities Owners' Equity
Case A $10,000 $ 4,000 A
Case B 8,000 B $3,500
Case C C 5,500 7,000
Case D 13,000 15,000 D