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# Income Statement and Retained Earnings

A summary of the operations of XYZ Inc. 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
Required:
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 XYZ Inc. had a net loss for the year of \$25,000.
d. Assuming a loss as in (3), is it a good idea for XYZ Inc. to still
pay its shareholders dividends?

#### Solution Summary

The solution explains how to prepare an income statement and a statement of retained earnings

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