A list of Year 3 revenues and expenses for Green Thumb, Incorporated is provided below.
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.
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
a. To calculate the net income for Green Thumb, Incorporated for Year 3, we need to subtract all the expenses from the sales 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 - $1,560,900
Net Income = $304,400
Therefore, the net income for Green Thumb, Incorporated for Year 3 is $304,400.
b. The statement of retained earnings shows how the retained earnings balance changed during the year. To prepare the statement, we need to consider the beginning retained earnings, net income, and dividends paid during the year.
Statement of Retained Earnings for Year 3:
Beginning Retained Earnings (January 1, Year 3) = $162,000
Net Income = $304,400
Dividends Paid = $46,000
Retained Earnings = Beginning Retained Earnings + Net Income - Dividends Paid
Retained Earnings = $162,000 + $304,400 - $46,000
Retained Earnings = $420,400
Therefore, the retained earnings for Green Thumb, Incorporated for Year 3 is $420,400.