Ken Young and Kim Sherwood organized Reader Direct as a corporation; each contributed $49,000 cash to start the business and received 4,000 shares of stock. The store completed its first year of operations on December 31, 2017. On that date, the following financial items for the year were determined: cash on hand and in the bank, $47,500; amounts due from customers from sales of books, $26,900; equipment, $48,000; amounts owed to publishers for books purchased, $8,000; one-year notes payable to a local bank for $2,850. No dividends were declared or paid to the stockholders during the year. Required:
1. Complete the following balance sheet at December 31, 2014.
READER DIRECT
Balance Sheet
At December 31, 2014
Assets Liabilities
Cash $37,500 Accounts Payable $7,700
Accounts Receivable 27,200 Note Payable 3,300
Equipment 41,000 Total Liabilities $11,000
Stockholders' Equity
Common Stock ??
Retained Earnings 10,700
Total Stockholders' Equity 10,700
Total Assets $105,700 Total Liabilities and Stockholders' Equity $21,700
2. Using the retained earnings equation and an opening balance of $0, compute the amount of net income for the year ended December 31, 2014.
(Net Income = Ending RE + Dividends - Beginning RE)
3. Assuming that Reader Direct generates net income of $4,500 and pays dividends of $2,300 in 2015, what would be the ending Retained Earnings balance at December 31, 2015?
(Ending RE = Beginning RE + Net Income - Dividends)