Next, construct the balance sheet for EconDisaster.com for December 31, 2008. The company had no assets at the beginning of the year. The owners contributed $10,000 of start-up capital and obtained common stock. Net income and retained earnings can be calculated from question 7.

  

Reference question 7  

  

In 2008, a fictitious software company named EconDisaster.com sold $7000 worth of a game called “Global Financial Meltdown.” The company had salaries of $1000, rent of $500, and electricity use of $500, and it purchased a computer for $5000. The company uses straight-line depreciation with a lifetime of 5 years (this means that depreciation is calculated as the historical cost divided by the lifetime). It pays a corporation tax of 25 percent on profits and paid no dividends. Construct its income statement for 2008 based on Table 7-6.

  

    Reference Table 7-6  

               
 

Income Statement of Hot Dog Ventures, Inc. (January I, 2009 to December 31, 2009) (1) Net sales (after all discounts and rebates) $250,000 Less cost of goods sold: Materials (2) (3) (4) $ 50,000 90,000 10,000 Labor cost Miscellaneous operating costs (utilities, etc.) (5) (6) (7) (8) Less overhead costs: Selling and administrative costs Rent for building Depreciation 15,000 5,000 15,000 (9) Operating expenses $185,000 185,000 (10) Net operating income $ 65,000 Less: (11) (12) 6,000 4,000 Interest charges on equipment loan State and local taxes $ 55,000 (13) (14) Net income (or profit) before income taxes Less: Corporation income taxes 18,000 (15) Net income (or profit) after taxes $ 37,000 (16) Less: Dividends paid on common stock 15,000 (17) Addition to retained earnings $ 22,000 TABLE 7-6. The Income Statement Shows Total Sales and Expenses for a Period of Time