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Chapter 1: Q43PGA_b (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

Statement of retained earnings is shown as follows:

Picture Perfect Photography

Statement of Retained Earnings

Year Ended December 31, 2018

Retained Earnings,December 31, 2017

$16,000

Net income for the year

40,000

56,000

Dividends

(8,000)

Retained Earnings, December 31, 2018

$48,000

Step by step solution

01

Explanation on the statement of retained earnings

Statement of retained earnings represents the fluctuations in the beginning balance of retained earnings due to income and dividend.

02

Explanation on retained earnings

The retained earnings balance as on December 31, 2018 equals $48,000, which is estimated by adding net income of $40,000 and deducting dividends of $8,000 from the beginning balance of retained earnings of $16,000.

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