cial Statements P13 On June 1 2017 Elite Service Co was star

cial Statements P1-3 On June 1, 2017, Elite Service Co. was started with an initial investment in the com pany of $22,100 cash. Here are the assets, liabilities, and common stock of the company at June 30, 2017, and the revenues and expenses for the month ot June, its first month of operations: Notes payable Supplies expense Maintenance and repairs expense $12,000 500 1,000 $ 4,600 Cash Accounts receivable Service revenue Supplies Advertising expense Equipment Common stock 4,000Accounts payable 600 2,400 400 26,000 22,100 Utilities expense Salaries and wages expense 300 1,400 In June, the company issued no additional stock but paid Instructions (a) Prepare an income statement and a retained earnings statement for the month of June dividends of $1,400 and a balance sheet at June 30, 2017. (b) Briefly discuss whether the company\'s first month of operations was a success. (c) Discuss the company\'s decision to distribute a dividend.

Solution

a. The following is the income statement of Elite company.

2.the following is the statment of retained earnings:

b.Since the company has earned at net income of $3800 from a service revenue of $7500,it can be said that the company\'s first month operation is a success.

In other words ($3800 / $7500 *100) =>50.67% of revenue is converted in to net income, which sets up an impressive financial performance.

The costs required to earn the revenue are well under control.(less than 50% of revenue), which makes investment in this company attractive.

c.Dividends ($1400) may have been distributed as there is enough cash in hand ($4600).

It is not usual for business to declare dividend in the first month of operation, but Elite company may want to attract new investors by displaying its ability to pay good amount of dividends.

	AMount	AMount
Revenue;
Service revenue		$7,500
Expenses:
Advertising expense	$400
Supplies expense	$1000
Maintenance and repair expense	$600
Utilities expense	$300
Salaries and wages expense	$1400
Total expense		$3700
Net income / (loss) (service revenue - total expense)		$3800