A list of Year 3 revenues and expenses for Green Thumb, Incorporated is provided below.

Question

Advertising and Promotion Expenses $ 262,500
Income Tax Expense 56,500
Interest Expense 43,900
Other Expenses 122,400
Other Selling & Administrative Expenses 350,800
Sales Revenue 1,865,300
Salaries and Wages Expense 724,800

a. Calculate the net income for Green Thumb, Incorporated for Year 3.
b. Prepare a statement of retained earnings for Green Thumb, Incorporated for Year 3. Assume the company had retained earnings of $162,000 as of January 1, Year 3, and paid out $46,000 in dividends during Year 3.

Answer 1

a. To calculate the net income for Green Thumb, Incorporated for Year 3, we need to subtract the expenses from the revenue.

Net Income = Sales Revenue - (Advertising and Promotion Expenses + Income Tax Expense + Interest Expense + Other Expenses + Other Selling & Administrative Expenses + Salaries and Wages Expense)

Net Income = $1,865,300 - ($262,500 + $56,500 + $43,900 + $122,400 + $350,800 + $724,800)
Net Income = $1,865,300 - $1,561,900
Net Income = $303,400

Therefore, the net income for Green Thumb, Incorporated for Year 3 is $303,400.

b. To prepare the statement of retained earnings, we need to calculate the ending retained earnings.

Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

Beginning Retained Earnings = $162,000
Net Income = $303,400
Dividends = $46,000

Ending Retained Earnings = $162,000 + $303,400 - $46,000
Ending Retained Earnings = $419,400

Therefore, the statement of retained earnings for Green Thumb, Incorporated for Year 3 is:

Retained Earnings, January 1, Year 3: $162,000
Add: Net Income: $303,400
Subtract: Dividends: $46,000
Retained Earnings, December 31, Year 3: $419,400