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Chapter 1: Q43PGA_a (page 45)

Picture Perfect Photography works weddings and prom-type parties. The balance of retained earnings was \(16,000 at December 31, 2017. At December 31, 2018, the business鈥檚 accounting records show these balances: Insurance Expense \) 6,000 Accounts Receivable $ 13,000 Cash 42,000 Notes Payable 14,000 Accounts Payable 11,000 Retained Earnings, Dec. 31, 2018 ? Advertising Expense 4,000 Salaries Expense 25,000 Service Revenue 75,000 Equipment 46,000 Dividends 8,000 Common Stock 28,000 Prepare the following financial statements for Picture Perfect Photography 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:

Picture Perfect Photograph

Income Statement

Year Ended December 31, 2018

Revenues

Service Revenue

$75,000

Expenses

Insurance Expense

$6,000

Salaries Expense

25,000

Advertising Expense

4,000

Total Expenses

35,000

Net Income

$40,000

Step by step solution

01

 Step 1: Calculation of net income

Net income is calculated as follows:

Net Income = Total revenues - Total Expenses

= $75,000 - $35,000

= $40,000

02

Explanation of net income

In case, total revenues are higher than total expenses, then it results in net income.

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Most popular questions from this chapter

List the four financial statements. Briefly describe each statement.

Identifying users of accounting information

For each of the users of accounting information, identify whether the user is an external decision maker (E) or an internal decision maker (I):

a. customer

b. company manager

c. Internal Revenue Service

d. lender

e. investor

f. controller

g. cost accountant

h. SEC

How is net income calculated? Define revenues and expenses.

Compute the missing amount in the accounting equation for each entity from the financial information presented:

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Elaine鈥檚 Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine鈥檚 Inflatables is organized as a corporation. During the past month, Elaine鈥檚 Inflatables had the following transactions:

a. Received contributions of \(10,000 in exchange for common stock.

b. Purchased equipment for \)5,000 on account

c. Paid \(400 for office supplies.

d. Earned and received \)2,500 cash for service revenue.

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Indicate the effects of the business transactions on the accounting equation for

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a. Increase asset (Cash); Increase equity (Common Stock)
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