Q42PGA_2 - Horngren'S Financial And Managerial Accounting

Question

Presented here are the accounts of Hometown Décor Company for the year ended December 31, 2018. Land \( 13,000 Common Stock \) 28,000 Notes Payable 33,000 Accounts Payable 14,000 Property Tax Expense 2,800 Accounts Receivable 800 Dividends 36,000 Advertising Expense 17,000 Rent Expense 14,000 Building 170,400 Salaries Expense 67,000 Cash 2,800 Salaries Payable 1,300 Equipment 17,000 Service Revenue 225,000 Insurance Expense 1,700 Office Supplies 8,000 Interest Expense 6,800 Retained Earnings, Dec. 31, 2017 56,000 Requirements 1. Prepare Hometown Décor Company’s income statement. 2. Prepare the statement of retained earnings. 3. Prepare the balance sheet.

Step-by-Step Solution

Answer

Statement of retained earnings is shown as follows:

Hometown Décor Company
Statement of Retained Earnings
Year Ended  December 31, 2018
Retained Earnings,  December 31, 2017	$56,000
Net income for the year	115,700
	171,700
Dividends	(36,000)
Retained Earnings, December 31, 2018	$135,700

Step 1: Explanation on the statement of retained earnings

Statement of retained earnings represents the fluctuations in the retained earnings due to income and dividend.

Step 2: Explanation on retained earnings

Retained earnings are the profits of the prior years that are shown in the balance sheet under equity section.