Prepare an income statement for the first year


The following events occurred at MGR Company during its first year of business:

a. To establish the MGR, Merry and Mary each contributed a total of $50,000 in exchange for common stock.

b. MGR, or MerryGoRound is an Event Planning Company that specializes in high-end parties. The first year they conducted 94 events and revenue for the first year amounted to $470,000, of which 95% was to be paid by the date of the event and the remainder due within 30 days of the event.

c. Clients owe $15,000 at the end of the year from the services provided in December.

d. At the beginning of the year, a storage building was rented. The company was required to sign a two-year lease for $15,000 per year and make a $3,000 refundable security deposit. The first year's lease payment and the security deposit were paid at the beginning of the year.

e. At the beginning of the year, the company purchased a full-size Merry-Go-Round at a cost of $100,000 as the signature theme piece of their company. The Merry-Go-Round is expected to be useful for fifteen years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder (with 10% interest-only to be paid annually until maturity). Since each event includes the Merry-Go-Round, MGR also purchased a flatbed trailer to haul it with, for $8,000, also with an expected 15 year life. MGR must lease a large truck to haul the trailer for each event, which costs $1,000 per day.

f. Other operating expenses, including wages, deprecation on other equipment, utilities, and rent on the storage building noted in (d) and (e) above, totaled $136,000 for the first year. No expenses were accrued or unpaid at the end of the year.

g MGR purchased other equipment (tables & carts, ice machine, food heating trays and bags, helium tanks, music system, etc) for $10000 with an estimated life of 10 years and no salvage value. Salaries and wages for the year total $112,800 including payroll taxes.

h. The company declared and paid a $50,000 cash dividend at the end of the first year.

i. MGR is in the 35% corporate tax bracket.


1. Prepare an income statement for the first year.
2. Prepare a balance sheet as of the end of the first year.
3. Prepare a statement of retained earnings as of the end of the first year.
4. Prepare a statement of cash flows for the first year using the direct method in the Operating Activities section.
5. Complete both a horizontal and vertical analysis of the Income statement.
6. Did the company generate more or less cash flow from operations than it earned in net income? Explain why there is a difference.
7. Compute, explain & analyze the following ratios:

a. Gross Profit
b. Operating Leverage ratio
c. Return on common equity
d. Current ratio
e. Operating Cash flow to current liabilities
f. Long-term debt to assets
g. Interest coverage

Complete the financial statements and analyses for the case in the file. Be sure to explain your findings and make recommendations to the owners for next year.

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.

Attachment:- Financial-Statement-Analysis.rar

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Financial Accounting: Prepare an income statement for the first year
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