Hightower Service

on june 1 hightower service Co. was started with an initial investment in the compan y of  $ 22,100 cash. Here are a re the assets, liabilities, snd common stock of the company compa ny 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 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 Maintenance and repairs expense ......................................... Advertising 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.