Dolce & Gabbana is a wholesaler, which has been operating for only one year. At the beginning of its second year of operations, it has the following items on its balance sheet:

Fixed Assets 2,000 Cash 2,000 Common Stock 400 Retained Earnings 600 5 year Bank Loan 3,000

During the second year, the company undertakes the following transactions:

1. Purchases inventory (clothing) for $700, on credit. 2. Sells inventory, which originally cost $600, for $1,400. Half of the customers buy on credit and the other half pays in cash. 3. Pays $150 for advertising and $75 for insurance. The advertising is paid in cash, but the insurance will be paid in cash later. 4. Purchases a new storage facility for $600, on credit. 5. Pays the warehouse employees $200 in cash. 6. Pays interest of 5% on its loan, in cash. 7. Pays $400 for accounts payables. 8. Receives $400 from its customers. 9. The companys accountant calculates that as a result of the above transactions, the company will have to pay tax of $100 at a later date. 10. Finally, the board of directors decides to pay a dividend of $50 (the dividend is not paid by the end of the fiscal year).

On the following page, you are given a worksheet for Dolce & Gabanna second fiscal year. Fill in the opening balances (from the end of the first year) and record the transactions during the second year. Calculate closing balances and then, using the formats given, construct a closing balance sheet and an income statement.

Income Statement Balance Sheet TRANSACTION WORKSHEET Income Statement Balance Sheet TRANSACTION WORKSHEET