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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 \(20,000 at December 31, 2017. At December 31, 2018, the business’s accounting records show these balances: Insurance Expense \) 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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