No additional investments were made in May, but the company paid dividends of $500 during the month — Nimbus Flying School that provides lessons was started using common stock

On May 1, Nimbus Flying School, a company that provides flying lessons, was started by using common stock in exchange for cash of $45,000. Following are the assets and liabilities of the company on May 31, 2019, and the revenues and expenses for the month of May.

No additional investments were made in May, but the company paid dividends of $500 during the month.

Instructions

(a) Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at May 31.

(b) Prepare an income statement and a retained earnings statement for May assuming the following data are not included above: (1) $900 worth of services were performed and billed but not collected at May 31, and (2) $1,500 of gasoline expense was incurred but not paid.

SOLUTION

(a) NIMBUS FLYING SCHOOL

Income Statement

For the Month Ended May 31, 2019

Revenues

Service revenue $6,800

Expenses

Gasoline expense $2,500

Rent expense 900

Advertising expense 500

Utilities expense 400

Maintenance and repairs expense 350

Total expenses 4,650

Net income $2,150

(Serv. rev. – Tot. exp.)

NIMBUS FLYING SCHOOL

Retained Earnings Statement

For the Month Ended May 31, 2019

Retained Earnings, May 1 $ 0

Add: Net income 2,150

2,150

Less: Dividends 500

Retained earnings, May 31 $1,650

(Beg. ret. earn. + Net inc. – Div.)

NIMBUS FLYING SCHOOL Balance Sheet May 31, 2019

Assets

Cash $ 4,650