Problem:

Shawns 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 $8400 Notes Payable $26,000

Service Revenue 10,400 Salaries & Wage Expense 1,900

Advertising Expense 1,800 Equipment 58,800

Accounts Payable 4,400 Maintenance & 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.

Required:

Question 1: Prepare an income statement and a retained earnings statement for the month of May and a balance sheet at May 31, 2014.

Question 2: Briefly discuss whether the companys first month of operations was a success.

Question 3: Discuss the companys decision to distribute a dividend.

Note: Please describe comprehensively and provide step by step solution.