on june 1 hightower service Co.

was started with an initial investment in the company of

$ 22,100 cash. Here are the assets, liabilities, snd common stock of the company at June
30, and the revenues and expenses for the month of june, its first montth of operations:
Cash $4,600
Accounts Receivable $4,000
Service revenue $7,500
Supplies $2,400
Advertising expenses $400
Equipment $26,000
Common stock $22,100
Notes payable $12,000
Accounts payable $500
Supplies espense $1,000
Maintenance and repairs expense $600
Utilities expense $300
Salaries and wages expense $1,400
I june, the company issued no additional stock but paid dividends of $1,400.
Instruccionc
a, Prepare an income statement and aretained earnings statement for the month of june
and a balance sheet at june 30, 2014
b. Briefly discuss wheter the company;s first month of operations was a success
c. Discuss the comoany'd\s decision to distribute a dividend.

(a)

HIGHTOWER SERVICE CO.

Income Statement
For the Month Ended June 30, 2014
Revenues
Service revenue .......................................................................
Expenses
Salaries and wages expense ....................................................
Supplies expense......................................................................
Maintenance and repairs expense .........................................
Advertising expense ................................................................
Utilities expense .......................................................................
Total expenses ...............................................................
Net income ........................................................................................

HIGHTOWER SERVICE CO.

$7,500
$1,400
1,000
600
400
300
3,700
$3,800

Retained Earnings Statement

For the Month Ended June 30, 2014
Retained earnings, June 1 .......................................................................................
Add: Net income ....................................................................................................
Less: Dividends........................................................................................................
Retained earnings, June 30 .....................................................................................

0
3,800
3,800
1,400
$2,400

HIGHTOWER SERVICE CO.

Balance Sheet
June 30, 2014
Assets
Cash ....................................................................................................
Accounts receivable ............................................................................
Supplies ................................................................................................
Equipment ...........................................................................................
Total assets ................................................................................

$ 4,600
4,000
2,400
26,000
$37,000

Liabilities and Stockholders Equity

Liabilities
Notes payable ............................................................................
Accounts payable ......................................................................
Total liabilities ................................................................
Stockholders equity
Common stock ...........................................................................
Retained earnings .....................................................................
Total liabilities and stockholders equity..........................

$12,000
500
$12,500
22,100
2,400

(b)
Yes, Hightower company had a successful month of operation which resulted in a
net income of $3,800 which represents 51% of revenues.

24,500
$37,000

(c)
It is not normal that a company starts distributing dividends after the first month of
operations no matter how successful the operations are, but it could be that
the company did that to encouarge future investors especially when they only
distributed 37% of net income ($1,400 / $3,800), and had adequate cash to do
so and still showed a significant increase in retained earnings.