Decorating, Inc.

Adjusted Trial Balance Accounts (alphabetical order) February 28, 2010 Accounts payable Accounts receivable Accrued expenses Accumulated depreciation - buildings Accumulated depreciation - machinery and equipment Allowance for doubtful accounts Available-for-sale investment (short-term/at cost) Bonds payable Buildings Cash Cash dividends Common stock, $30 par Cost of goods sold Depreciation expense Dividends payable Dividend revenue Gain on sale of investments General and administrative expenses Income of Lamps, Inc. Income tax expense Income taxes payable Interest expense Investment in Lamps, Inc. Land Machinery and equipment Merchandise inventory Mortgage note payable (long-term) Paid in capital in excess of par - common stock Paid in capital in excess of par - preferred stock Patents Preferred 5% stock, $100 par Premium on bonds payable Prepaid expenses Retained earnings Sales Sales discounts Sales returns and allowances Selling expenses Trading investments (at cost) Treasury stock Unrealized gain on trading investment Unrealized (gain) loss on available-for-sale investment Valuation allowance for available-for-sale investment Valuation allowance for trading investments 43,500 100,000 15,000 71,300 148,500 19,700 50,700 125,000 375,000 138,850 74,670 450,000 705,000 23,500 13,000 16,000 11,000 103,000 2,000 50,000 7,900 26,000 550,000 75,000 428,300 165,200 40,000 66,250 150,000 58,000 400,000 25,000 6,240 348,310 1,200,000 85,000 15,000 100,000 10,000 18,000 6,500 5,000 5,000 1,500

(dr.) (cr.) (dr.)

Note: preferred stock was not in arrears at the beginning of the year.

Decorating, Inc. Income Statement For the Year Ended February 28, 2010
Revenue from sales: Sales Less: Sales returns and allowances Sales discounts Net sales Cost of goods sold Gross margin Operating expenses: Selling expenses General and administrative expenses Depreciation expense Total operating expenses Income from operations Other income and expense: Dividend revenue Gain on sale of investments Unrealized gain on trading investment Income of Lamps, Inc. Interest expense Income before income taxes Income tax expense Net income $ 1,200,000 $ 15,000 85,000 100,000 $ 1,100,000 705,000 395,000 100,000 103,000 23,500 226,500 168,500 16,000 11,000 6,500 2,000 (26,000)

9,500 178,000 50,000 128,000

Decorating, Inc. Statement of Retained Earnings For the Year Ended February 28, 2010
Retained earnings, February 28, 2009 Net income for the year ended February 28, 2010 Less cash dividends: Preferred stock * Common stock Increase in retained earnings Retained earnings, February 28, 2010 $ $ $ 20,000 54,670 128,000 348,310

74,670 $ 53,330 401,640

*(.05 * $100 * 4,000 shares)

Decorating, Inc. Balance Sheet February 28, 2010

Assets Current assets: Cash Trading investments Plus valuation allowance Accounts receivable Less allowance for doubtful accounts Merchandise inventory Prepaid expenses Available-for-sale investment Less valuation allowance Total current assets Investments: Investment in Lamps, Inc. Property, plant, and equipment: Land Buildings Less: Accumulated depreciation -buildings Machinery and equipment Less: Accumulated depreciation machinery and equipment Intangible assets: Patents Total assets Liabilities Current liabilities: Accounts payable Accrued expenses Income taxes payable Dividends payable Total current liabilities Long-term liabilities: Mortgage note payable Bonds payable Plus premium on bonds payable Total liabilities Paid in capital: Preferred 5% stock, $100 par Paid in capital in excess of par - preferred Common stock, $30 par Paid in capital in excess of par - common Total paid-in capital Retained earnings Deduct treasury stock Accumulated other comprehensive income: Unrealized (gain) loss on available-for-sale investment Total stockholders' equity Total liabilities and stockholders' equity $ 43,500 15,000 7,900 13,000 $ 40,000 $ 125,000 25,000 150,000 $ Stockholders' Equity $ 400,000 150,000 450,000 66,250 190,000 269,400 79,400 $ $ 10,000 1,500 100,000 19,700 138,850 11,500 80,300 165,200 6,240 45,700 $ 447,790 550,000 75,000 375,000 (71,300) 428,300 (148,500) 303,700

50,700 5,000

279,800 58,000 $ 1,714,290

550,000 516,250 $ 1,066,250 401,640 18,000 5,000 1,444,890 $ 1,714,290