Chapter 1, Problem 1.9E

a)

To determine

The retained earnings statement: This is a financial statement that shows the amount of net income retained by a company at a particular point of time for reinvestment and pays its debts and obligations. It shows the amount of retained earnings that is not paid as dividends to shareholders.

The missing amounts of Retained Earnings Statement of Incorporation D.

Explanation of Solution

The following is the retained earnings statement of Incorporation D.

Incorporation D
Retained Earnings Statement
For the month ended
Particulars	Amounts ($)
Beginning retained earnings	12,000
Add: Net income	20,000 (e)
Less: Dividends	5,000
Ending retained earnings	27,000

Table (1)

Working Notes:

Compute the net income of incorporation D.

Beginning retained earnings = $12,000

Dividends = $5,000

Ending retained earnings = $27,000

  $\begin{array}{c}\text{Net}\text{Income}=\left[\begin{array}{l}\left(\text{Ending}\text{retained}\text{earnings}\text{+}\text{Dividends}\right)\\ -\text{Beginning retained}\text{earnings}\end{array}\right]\\ =\left(\$27,000+\$5,000\right)-\$12,000\\ =\text{\$20,000}\end{array}$ (e)

Conclusion

Therefore, the net income is $20,000

b)

To determine

The income statement: This is a financial statement that shows the net income earned or net loss suffered by a company through reporting all the revenues earned and expenses incurred by the company over a specific period of time. An income statement is also known as an operations statement, an earnings statement, a revenue statement, or a profit and loss statement. The net income is the excess of revenue over expenses.

The missing amounts of Income Statement of Incorporation D.

Explanation of Solution

The following is the income statement of Incorporation D.

Incorporation D
Income Statement
For the year ended
Particulars	Amounts ($)
Revenues	85,000
Less: Cost of goods sold	55,000 (c)
Less: Salaries and wages expense	10,000
Net Income	20,000 (d)

Table (2)

Working Notes:

Compute the cost of goods sold of incorporation D.

Revenues = $85,000

Salaries and wages expense = $10,000

Net Income = $20,000 (e)

  $\begin{array}{c}\text{Cost of goods sold}=\left[\text{Revenues}-\text{Salaries and wages expense}-\text{Net}\text{income}\right]\\ =\$85,000-\$10,000-\$20,000\\ =\text{\$55,000}\end{array}$ (c)

Compute the net income of incorporation D.

Revenues = $85,000

Salaries and wages expense = $10,000

Cost of goods sold = $55,000 (c)

  $\begin{array}{c}\text{Net}\text{income}=\left[\text{Revenues}-\text{Cost of goods sold}-\text{Salaries and wages expense}\right]\\ =\$85,000-\$55,000-\$10,000\\ =\text{\$20,000}\end{array}$ (d)

Conclusion

Therefore, the cost of goods sold is $55,000 and the net income is $20,000.

c)

To determine

The balance sheet: This is a financial statement that shows the assets, liabilities, and stockholders’ equity of a company at a particular point of time. It reveals the financial health of a company. Thus, this statement is also called as the Statement of Financial Position. It helps the users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities.

The missing amounts of Balance Sheet of Incorporation D.

Explanation of Solution

The following is the balance sheet of Incorporation D.

Incorporation D
Balance Sheet Statement
As at the end of the year
Assets	Amounts ($)	Liabilities and Stockholders’ Equity	Amount ($)
Cash	7,000	Liabilities:
Inventory	10,000	Accounts Payable	5,000
Buildings	45,000	Stockholders’ Equity
		Common stock	30,000 (a)
		Retained earnings	27,000 (b)
Total Assets	62,000	Total Liabilities and Stockholders’ Equity	62,000

Table (3)

Working Notes:

Compute the common stock of incorporation D.

Accounts payable = $5,000

Retained earnings = $27,000 [Refer Table (1)]

Total liabilities and stockholders’ equity = $62,000

  $\begin{array}{c}\text{Common}\text{stock}=\left[\begin{array}{l}\text{Total}\text{liabilities}\text{and}\text{stockholders'}\text{equity}\\ -\text{Retained earnings}\\ -\text{Accounts}\text{payable}\end{array}\right]\\ =\$62,000-\$27,000-\$5,000\\ =\text{\$30,000}\end{array}$ (a)

Compute the retained earnings of incorporation D.

Accounts payable = $5,000

Common stock = $30,000 (a)

Total liabilities and stockholders’ equity = $62,000

  $\begin{array}{c}\text{Retained earnings}=\left[\begin{array}{l}\text{Total}\text{liabilities}\text{and}\text{stockholders'}\text{equity}\\ -\text{Common}\text{stock}\\ -\text{Accounts}\text{payable}\end{array}\right]\\ =\$62,000-\$30,000-\$5,000\\ =\text{\$27,000}\end{array}$ (b)

Conclusion

Therefore, the common stock is $30,000 and the retained earnings is $27,000.