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Chapter 1: Q 50PGB-a (page 49)

Pretty Pictures works weddings and prom-type parties. The balance of Retained Earnings was \(20,000 at December 31, 2017. At December 31, 2018, the business鈥檚 accounting records show these balances: Insurance Expense \) 6,000 Accounts Receivable $ 5,000 Cash 42,000 Notes Payable 10,000 Accounts Payable 13,000 Retained Earnings, Dec. 31, 2018 ? Advertising Expense 4,500 Salaries Expense 30,000 Service Revenue 115,000 Equipment 85,500 Dividends 13,000 Common Stock 28,000 Prepare the following financial statements for Pretty Pictures for the year ended December 31, 2018: a. Income statement. b. Statement of retained earnings. c. Balance sheet

Short Answer

Expert verified

Income statement is shown as follows:

Pretty Pictures

Income Statement

Year Ended December 31, 2018

Revenues

Service Revenue

$115,000

Expenses

Insurance Expense

6,000

Advertising Expense

4,500

Salaries Expense

30,000

Total Expenses

40,500

Net Income

$74,500

Step by step solution

01

Step-by-Step Solution. Step 1: Calculation of net income

Net income is calculated as follows:

NetIncome=TotalRevenues-TotalExpenses=$115,000-$40,500=$74,500

02

Explanation of net income

Net income is reported when total revenues are higher than the total expenses.

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Most popular questions from this chapter

Requirements 1. Prepare the income statement for Wilson Towing Service for the month ending June 30, 2018. 2. What does the income statement report?

Prepare the income statement for Damon Design Studio for the year ending December 31, 2018.

Consider the following accounting terms and definitions, and match each term to the definition:

1. Accounting equation

2. Asset

3. Balance sheet

4. Expense

5. Income statement

6. Liability

7. Net income

8. Net loss

9. Revenue

10. Statement of cash flows

11. Statement of retained

earnings

a. An economic resource that is expected to be of benefit

in the future

b. Debts that are owed to creditors

c. Excess of total expenses over total revenues

d. Excess of total revenues over total expenses

e. The basic tool of accounting, stated as

Assets = Liabilities + Equity

f. Decreases in equity that occur in the course of selling

goods or services

g. Increases in equity that occur in the course of selling

goods or services

h. Reports on a business鈥檚 cash receipts and cash payments

during a period

i. Reports on an entity鈥檚 assets, liabilities, and stockholders鈥�

equity as of a specific date

j. Reports on an entity鈥檚 revenues, expenses, and net

income or loss for the period

k. Reports how the company鈥檚 retained earnings balance

changed from the beginning to the end of the period

Presented here are the accounts of Pembroke Bookkeeping Company for the year ended December 31, 2018: Land \( 10,000 Common Stock \) 29,000 Notes Payable 31,000 Accounts Payable 7,000 Property Tax Expense 3,100 Accounts Receivable 1,200 Dividends 28,000 Advertising Expense 12,000 Rent Expense 7,000 Building 147,400 Salaries Expense 64,000 Cash 2,800 Salaries Payable 800 Equipment 15,000 Service Revenue 192,000 Insurance Expense 1,700 Office Supplies 12,000 Interest Expense 6,600 Retained Earnings, Dec. 31, 2017 51,000 Requirements 1. Prepare Pembroke Bookkeeping Company鈥檚 income statement. 2. Prepare the statement of retained earnings. 3. Prepare the balance sheet.

How does retained earnings increase? What are the two ways that retained earnings decreases?
See all solutions

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