Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

EXERCISE 1-3

Purpose:

(L.O. 8) This exercise will provide you with an illustration of an income statement, a retained earnings statement, a balance sheet, and a statement of cash flows.

The J. Lo Motorcycle Repair Shop, Inc. in Monrovia, California, prepares financial statements each month.

Instructions

Refer to the Solution to Exercise 1-2 above. Use the information displayed to:

1. Prepare an income statement for the month of August 2014.
2. Prepare a retained earnings statement for the month of August 2014.
3. Prepare a balance sheet at August 31, 2014.
4. Prepare a statement of cash flows for the month of August 2014.

Approach: Think about what each statement is to report. A summary is as follows:

1. The income statement reports the results of operations for a period of time. Therefore, the income statement in this exercise reports revenues and expenses for August.
2. The retained earnings statement reports all changes in retained earnings for a period of time. It starts with the balance of retained earnings at the beginning of the period. Then, net income (or net loss, whichever is applicable) and dividends are identified in the statement. The retained earnings balance at the end of the period is the final amount on the statement.
3. The balance sheet reports on the financial position at a point in time (August 31 in this case). It reports assets, liabilities, and stockholders' equity. The balance of stockholders' equity used here includes the ending balance of common stock and the ending ...