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Using the accounting equation for transaction analysis and preparing financial statements Allen Shonton recently opened his own accounting firm on April 1, which he operates as a corporation. The name of the new entity is Allen Shonton, CPA. Shonton experienced the following events during the organizing phase of the new business and its first month of operations in 2018: Apr. 5 Shonton deposited \(75,000 in a new business bank account titled Allen Shonton, CPA. The business issued common stock to Shonton. 6 Paid \)300 cash for letterhead stationery for new office. 7 Purchased office furniture for the office on account, \(9,500. 10 Consulted with tax client and received \)4,000 for services rendered. 11 Paid utilities, \(190. 12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, \)20,000. 18 Paid office rent, \(750. 25 Received amount due from client that was billed on April 12. 27 Paid full amount of accounts payable created on April 7. 30 Cash dividends of \)3,500 were paid to stockholders. Requirements 2. Prepare the following financial statements: a. Income statement.

Step by step solution

01

Calculation of net income

Net income is calculated as follows:

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}& =& \mathrm{Total}\mathrm{revenues}-\mathrm{Total}\mathrm{expenses}\\ & =& \$24,000-\$940\\ & =& \$23,060\end{array}$

02

Explanation of net income

In the situation when the total revenues are greater than the total expenses, it results in net income.

Income statement is shown as follows:

Allen Shonton, CPA
Income Statement
Month Ended April 30, 2018
Revenues
Service Revenue		$24,000
Expenses
Rent Expense	750
Utilities Expense	190
Total Expenses		(940)
Net Income		$23,060

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