Frosto Corporation started operations in 2005 with 2,000,000 authorized shares.

The compant issued

1,500,000 shares at par since 2005 with 1,015,000 shares outstanding, at the end of 2009. Retained
Earnings amounted to Rs.785,460 at December,2009. The company pays income taxes at the rate of
40% on income before taxes. It also declared dividends of Rs. 0.50 per share on November 2 and paid
the dividends on November 12,2010. Following information is also available for the year ended
December 31.2010.

 Issued 200,000 shares at premium (Rs. 12 each), paid-up capital accumulated to Rs.2,220,000
on February 16,2010.
 Estimated taxable income was Rs.600,000, income tax recorded and paid on August 8.
 Sales for the year totaled Rs. 1,687,000, sales return Rs. 17,000, cost of sales Rs. 735,000
 Following expenses occurred during the year

Salaries Rs.230,000
Rent Rs.40,000
Administration Rs. 27,680
Commission Rs. 11,000
Depreciation Rs. 26,820
Interest Rs.3,400

Required:

A) Prepare all necessary journal entries including adjusting and closing entries.
B) Prepare an Income Statement, Statement of retained earnings and Staockholder’s Equity
section of the balance sheet of Frosto Corporation for the year ended December 31,2010.