Shaw’s Garden was started on May 1 with an investment of $45,000 cash. Following are the assets, liabilities, and common stock of the company on May 31, 2014, and the revenues and expenses for the month of May, its first month of operations.

Accounts receivable $ 8,400 Notes payable $26,000 Service revenue 10,400 Salaries and wages expense 1,900 Advertising expense 1,800 Equipment 58,800 Accounts payable 4,400 Maintenance and repairs expense 2,100 Cash 10,800 Insurance expense 400 Common stock 45,000 No additional common stock was issued in May, but a dividend of $1,600 in cash was paid.

Instructions

(a) Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at May 31, 2014.

(b) Briefly discuss whether the company’s first month of operations was a success.

(c) Discuss the company’s decision to distribute a dividend.

AppendixLO1