Question

Sammy's Pizza opened on January 1, 2018. Sammy's reported the following for cash revenues and cash expenses for the years 2018 to 2020 2018 2019 2020 Cash Revenues $19,000 $29,000 $39,000 Cash Expenses $10,500 $13,500 $21,500

Required :

a. What would Sammy's Pizza report for net income and retained earnings for the years 2018, 2019, and 2020?

b. Assume that Sammy's Pizza paid a $4,750 dividend to stockholders in 2019. What would Sammy's Pizza report for net income and retained earnings for 2019 and 2020?

Answer 1

Answer:

(a) 2018:

Net income:

= Cash revenue - Cash expenses

= $19,000 - $10,500

= $8,500

Retained earnings = $8,500

2019:

Net income:

= Cash revenue - Cash expenses

= $29,000 - $13,500

= $15,500

Retained earnings = $8,500 + $15,500

                               = $24,000

2020:

Net income:

= Cash revenue - Cash expenses

= $39,000 - $21,500

= $17,500

Retained earnings = $24,000 + $17,500

                               = $41,500

(b) 2019:

Net income:

= Cash revenue - Cash expenses

= $29,000 - $13,500

= $15,500

Retained earnings = $8,500 + $15,500 - $4,750

                               = $19,250

2020:

Net income:

= Cash revenue - Cash expenses

= $39,000 - $21,500

= $17,500

Retained earnings = $19,250 + $17,500

                               = $36,750