To prepare the balance sheets for Ebony Interiors and determine net income for March, we need to follow several steps.
a. Balance Sheet for Ebony Interiors as of February 28, 20Y3
Assets:
- Cash: $139,600
- Accounts Receivable: $79,100
- Supplies: $7,000
Total Assets: \[ \text{Total Assets} = \text{Cash} + \text{Accounts Receivable} + \text{Supplies} \] \[ \text{Total Assets} = 139,600 + 79,100 + 7,000 = 225,700 \]
Liabilities:
- Accounts Payable: $35,800
Equity:
- Common Stock: $130,000
- Retained Earnings: \( \text{Total Assets} - \text{Total Liabilities} - \text{Common Stock} \) \[ \text{Retained Earnings} = 225,700 - 35,800 - 130,000 = 59,900 \]
Balance Sheet as of February 28, 20Y3:
Assets
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Cash $139,600
Accounts Receivable 79,100
Supplies 7,000
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Total Assets $225,700
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Liabilities
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Accounts Payable $35,800
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Equity
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Common Stock $130,000
Retained Earnings 59,900
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Total Equity $189,900
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Total Liabilities and Equity $225,700
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b. Balance Sheet for Ebony Interiors as of March 31, 20Y3
Assets:
- Cash: $237,000
- Accounts Receivable: $90,900
- Supplies: $5,800
Total Assets: \[ \text{Total Assets} = 237,000 + 90,900 + 5,800 = 333,700 \]
Liabilities:
- Accounts Payable: $38,700
Equity:
- Common Stock: $130,000
- Retained Earnings: \[ \text{Retained Earnings} = \text{Retained Earnings in February} + \text{Net Income for March} \]
Balance Sheet as of March 31, 20Y3:
Assets
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Cash $237,000
Accounts Receivable 90,900
Supplies 5,800
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Total Assets $333,700
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Liabilities
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Accounts Payable $38,700
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Equity
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Common Stock $130,000
Retained Earnings ?
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Total Equity ?
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Total Liabilities and Equity $333,700
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We will fill in the missing Retained Earnings and Total Equity after determining net income.
c. Determining Net Income for March
Assumption 1: No dividends paid
Since no dividends were paid: \[ \text{Retained Earnings on March 31, 20Y3} = \text{Retained Earnings on February 28, 20Y3} + \text{Net Income} \] \[ \text{Retained Earnings on March 31} = 59,900 + \text{Net Income} \] Setting up the equation: \[ 333,700 = 38,700 + 130,000 + 59,900 + \text{Net Income} \] \[ 333,700 = 228,600 + \text{Net Income} \] \[ \text{Net Income} = 333,700 - 228,600 = 105,100 \]
Net Income assuming no dividends paid: \[ \text{Net Income} = 105,100 \]
c. Determine the amount of net income for March with dividends paid.
Assumption 2: Dividends of $29,000 paid
\[ \text{Retained Earnings on March 31, 20Y3} = \text{Retained Earnings on February 28, 20Y3} + \text{Net Income} - \text{Dividends} \] \[ \text{Retained Earnings on March 31} = 59,900 + \text{Net Income} - 29,000 \] Setting up the equation: \[ 333,700 = 38,700 + 130,000 + (59,900 + \text{Net Income} - 29,000) \] \[ 333,700 = 138,600 + \text{Net Income} \] \[ \text{Net Income} = 333,700 - 138,600 = 195,100 \]
Net Income assuming $29,000 dividends were paid: \[ \text{Net Income} = 195,100 \]
Summary of Results
- Net Income for March (no dividends paid) = $105,100
- Net Income for March (with $29,000 dividends paid) = $195,100
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