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    Financial statements for new Fix-It-Up Co

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    On June 1 Fix-It-Up Service Co. was started with an initial investment in the company of $26,200 cash. Here are the assets and liabilities of the company at June 30, and the revenues and expenses for the month of June, its first month of operations:

    Cash $ 4,600 Notes payable $14,000
    Accounts receivable 4,000 Accounts payable 500
    Revenue 8,000 Supplies expense 1,000
    Supplies 2,400 Gas and oil expense 600
    Advertising expense 400 Utilities expense 300
    Equipment 32,000 Wage expense 1,400

    In June, the company issued no additional stock, but paid dividends of $2,000.

    a) Prepare an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2007.

    b) Briefly discuss whether the company's first month of operations was a success.

    c) Discuss the company's decision to distribute a dividend.

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    Solution Preview

    a. The income statement and balance sheet are shown on attached Excel, but you may want to add some proper formatting like headings, classification between current and non-current assets and liabilities. There is a question in my mind as to whether the dividend paid should maybe be wages to the shareholder, but we aren't told.

    b. The first month of operations looks good (even if wages were reported to the shareholder). A 53% net profit is excellent. Of course, we have no depreciation or ...

    Solution Summary

    The solution presents the balance sheet and income statement in more proper form. Also included are comments about the the financial statements and responses to questions posed in the problem.