Little Tots Ltd sells childrens clothing At the end of Decem

Little Tots Ltd. sells children\'s clothing. At the end of December 2016 (its first year of operations), it had the following account balances:

Accounts receivable

$2,500

Rent expense

3,600

Cash

3,500

Wages payable

400

Equipment

5,000

Depreciation expense

500

Wage expense

26,000

Prepaid rent

300

Cost of goods sold

34,900

Sales revenue

69,900

Bank loan payable (due in two years)

4,800

Advertising expense

800

Accounts payable

2,000

Utilities expense

300

Dividends declared

1,200

Common shares

10,000

Interest expense

100

Inventory

8,000

Miscellaneous expenses

400

Retained earnings

?

Accounts receivable	$2,500
Rent expense	3,600
Cash	3,500
Wages payable	400
Equipment	5,000
Depreciation expense	500
Wage expense	26,000
Prepaid rent	300
Cost of goods sold	34,900
Sales revenue	69,900
Bank loan payable (due in two years)	4,800
Advertising expense	800
Accounts payable	2,000
Utilities expense	300
Dividends declared	1,200
Common shares	10,000
Interest expense	100
Inventory	8,000
Miscellaneous expenses	400
Retained earnings	?

Required a. Calculate the net income for the year by adding the revenue and deducting all the expenses. b. Calculate the retained earnings by following the process outlined below: Balance in retained earnings at the beginning of the year Add: Net income for the year Deduct: Dividends declared during the year Balance in Retained Earnings at the end of the year S 0- c. Prepare a classified statement of financial position.

Solution

a. Net income for the year Particulars Amount ($) Sales Revenue          69,900 Less: Cost of Goods Sold          34,900 Gross Profit          35,000 Operating Expenses: Rent Expenses      3,600 Depreciation Expense          500 Wage Expense    26,000 Advertising Expense          800 Utilities Expenses          300 Miscellaneous Expenses          400 Total Operating Expenses          31,600 Non-operating Expenses: Interest Expense          100 100 Net Profit            3,300 b. Retained Earning Balance of Retained Earning at the beginning of the year                   -   Add: Net income for the year          3,300 Less: Dividend Declared for the year          1,200 Balance in Retained Earning at the end of the year            2,100 c. Statement of Financial Position Assets Amount ($) Current Assets: Cash            3,500 Accounts Receivable            2,500 Prepaid Rent 300 Inventory            8,000 Total Current Assets          14,300 Fixed Assets: Equipment            5,000 Total Assets          19,300 Liabilities Current Liabilities: Accounts Payable            2,000 Wages Payable 400 Total Current Liabilities            2,400 Long Term Liabilities: Bank Loan Payable            4,800 Equity: Common Shares          10,000 Retained Earnings            2,100 Total Equity          12,100 Total Liabilities          19,300