Ken Young and Kim Sherwood organized Reader Direct as a

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, 2014. 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 note payable to a local bank for $ 2,850. No dividends were declared or paid to the stock-holders during the year.
1. Complete the following balance sheet at December 31, 2014.
Ken Young and Kim Sherwood organized Reader Direct as a

2. Using the retained earnings equation and an opening balance of $ 0, work backwards to compute the amount of net income for the year ended December 31, 2014.
3. As of December 31, 2014, did most of the financing for assets come from creditors or stockholders?
4. Assuming that Reader Direct generates net income of $ 3,000 and pays dividends of $ 2,000 in 2015, what would be the ending Retained Earnings balance at December 31, 2015?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...


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