Question 5: Financial Statements and Closing Entries Perfect Smile's financial statements are shown below. Perfect Smiles Company Statement of Income For the month ended January 31 Sales Revenue Cost of Goods Sold: Gross Profit Margin 2018 $383,455 189,416 194,039 317 1,417 26,200 27,933 Operating expenses Depreciation expense Rent expense Wages expense Total operating expenses Operating income Other Revenues and Expenses Service Revenue Total Other Revenues and Expense Income before tax Income tax expense Net Income (Loss): 15,833 15,833 181,939 34,000 147,939 Perfect Smiles Company Statement of Changes in equity For the month ended January 31 Retained earnings, January 1, 2018 Add: Net income Less: Dividends declared Retained earnings, December 31, 2019 2018 0 147,939 (6,000) 141,939 Perfect Smiles Company Statement of Financial Position As at December 31 2018 246,611 206,728 15,583 270,730 739,651 Assets Current assets: Cash Accounts receivable Prepaid rent Inventory Total current assets Non-Current Assets Property plant & equipment, net Total assets Liabilities and shareholders' equity Current liabilities: Accounts payable Wages payable Income taxes payable Unearned revenue Total current liabilities Non-Current liabilities: 41,683 781,334 92,029 8,200 34,000 9,167 143,396 143,396 Total liabilities Shareholders' equity Common shares Retained earnings Total liabilities and shareholders' equity 496,000 141,939 781,334 Perfect Smiles Company Cash Flow Statement For the month ended January 31 2018 147,939 317 Operating Activities Net Income Depreciation expense Changes in working capital items: Accounts receivable Prepaid rent Inventory Accounts payable Wages payable Income taxes payable Unearned revenue Net cash used for operating activities Cash Flows from Investing Activities Deduct: Acquisition of van Net cash provided by investing activities Cash Flows from Financing Activities Issuance (repurchase) of common shares Less: Dividends Paid Net cash used for financing activities (206,728) (15,583) (270,730) 92,029 8,200 34,000 9,167 (201,389) (42,000) (42,000) 496,000 (6,000) 490,000 Overall increase (decrease) in cash Cash position at beginning of year Cash position at end of year 246,611 0 246,611 ONLY RECORD ITEMS IN BLUE BOXES Required: 1. Record the closing entries for the month. Date Account Titles 31-Jan Debit Credit 31-Jan 31-Jan 31-Jan 2. Examine the company's cash flow statement. What is the cash flow pattern for the first month of operations? 2018 Operating Activities Investing Activities Financing Activities Does this type of cash flow make sense given that this is the first month of operations? Why or Why Not? 3. What type of income statement does Perfect Smile Company Prepare? How can you tell? 4. What is Perfect Smiles Earnings Per Share (round to two decimals)? What does this mean? EPS Meaning
