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4.5: Preparing financial statements from the work sheet

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    20000
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    When the work sheet is completed, all the necessary information to prepare the income statement, statement of retained earnings, and balance sheet is readily available. Now, you need only recast the information into the appropriate financial statement format.

    The information you need to prepare the income statement in Exhibit 21 is in the work sheet's Income Statement columns in Exhibit 20.

    The information you need to prepare the statement of retained earnings is taken from the Statement of Retained Earnings columns in the work sheet. Look at Exhibit 22, MicroTrain Company's statement of retained earnings for the month ended 2010 December 31. To prepare this statement, use the beginning Retained Earnings account balance (Account No. 310), add the net income (or deduct the net loss), and then subtract the Dividends (Account No. 320). Carry the ending Retained Earnings balance forward to the balance sheet. Remember that the statement of retained earnings helps to relate income statement information to balance sheet information. It does this by indicating how net income on the income statement relates to retained earnings on the balance sheet.

    MICROTRAIN COMPANY

     

     

    Statement of Retained Earnings

     

     

    For the Month Ended 2010 December 31,

     

     

    Retained earnings, 2010 December 1

    $

    —0—

    Net income for the December

     

    7,290

    Total

    $

    7,290

    Less: Dividends

     

    3,000

    Retained earnings, 2010 December 31

    $

    4,290

    Exhibit 22: Statement of retained earnings

    MICROTRAIN COMPANY

     

    Balance Sheet

     

    2010 December 31

     

    Assets

     

    Cash

    $ 8,250

    Accounts receivable

    6,200

    Supplies on hand

    900

    Prepaid insurance

    2,200

    Prepaid rent

    800

    Interest receivable

    600

    Trucks                                                  $ 40,000

     

    Less: Accumulated depredation 750

    39,250

    Total assets

    $ 58,200

    Liabilities and Stockholders' Equity

     

    Liabilities:

     

    Accounts payable

    $ 730

    Unearned service fees

    3,000

    Salaries payable

    180

    Total liabilities

    $ 3,910

    Stockholders' equity:

     

    Capital stock                                     $ 50,000

     

    Retained earnings 4,290

     

    Total stockholders' equity

    54,290

    Total liabilities and stockholders' equity

    $ 58,200

    Exhibit 23: Balance sheet

    The information needed to prepare a balance sheet comes from the Balance Sheet columns of MicroTrain's work sheet (Exhibit 20). As stated earlier, the correct amount for the ending retained earnings appears on the statement of retained earnings. See the completed balance sheet for MicroTrain in Exhibit 23.


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