Question

Complete an Income Statement

1. Acquired cash of $225,000 from the issue of common stock.

2. Borrowed $175,000 cash from the bank on April 1, 2018.

3. Paid $285,000 cash to purchase fixed assets - land that cost $65,000

   and a building that cost $220,000.

4. Earned and recognized consulting revenue on account for $345,000

5. Collected $200,000 on the accounts receivable during the year

6. Incurred $150,000 of consulting expenses on account during the year.

7. Paid $125,000 on the accounts payable during the year.

8. Paid $92,500 cash for other operating expenses during the year.

9. Paid the company owners $5,300 of dividends.

10. Received $21,750 cash for services to be performed in the future.

11. On June 1, paid $10,500 cash in advance for a one-year lease to rent office space.

12. Paid $9,450 cash for salaries expense.

Information for December 31, 2018

ADJUSTING ENTRIES:

13. Completed $11,350 of services performed described in Transaction 10.

14. Adjust Prepaid Rent account for rent used up during the year. (7

    months)

15. Use the straight-line method to depreciate the building purchased in

    Transaction 3. Management estimated that it had a useful life of 20

    years. Record the building depreciation.

16. Recognized that $3,647 of Salary Expense has been incurred on

    December 31. The employees are owed this for the services they provided in December but will not be paid to them until January. Record the year end accrual for salary expense.

17. Accrued interest expense for loan in # 2. Terms: interest rate 10%, in one year. (Loan was outstanding 9 months during 2018).

Answer 1

An income statement is one of the three important financial statements used for reporting a company's financial performance over a specific accounting period, with the other two key statements being the balance sheet and the statement of cash flows. Also known as the profit and loss statement or the statement of revenue and expense, the income statement primarily focuses on company’s revenues and expenses during a particular period.

Income statement for year ending December 2018
Revenue
Total Revenue(Consulting revenue)(345000+11350)					A	356350
Cost of revenue(Consulting expenses)					B	150000
Gross profit					C= (A-B)	206350
Operating expenses
Operating expenses						92500
Rent(10500/12*7)						6125
Salary(3647+9450)						13097
Depreciation on building(220000/20)						11000
Total operating expenses					D	122722
EBIT					E= (C-D)	83628
Interest expenses (175000*.1*9/12)					F	13125
Net income					G=(E-F)	70503
Dividend					H	5300
Income transferred to reserves					I=(G-H)	65203

1. Acquired cash of $225,000 from the issue of common stock- will affect balance sheet items. Equity and cash.
2. Borrowed $175,000 cash from the bank on April 1, 2018.- Will affect Balance sheet items - Lender and cash.
3. Paid $285,000 cash to purchase fixed assets - land that cost $65,000 and a building that cost $220,000.- Will affect Balance sheet items- Fixed assets and cash.
4. Collected $200,000 on the accounts receivable during the year- Will affect Balance sheet items- Accounts receivable and cash.
5. Paid $125,000 on the accounts payable during the year.- Will affect Balance sheet items- Accounts payable and cash.
6. Received $21,750 cash for services to be performed in the future.- Will affect Balance sheet items- Advances and cash.
7. On June 1, paid $10,500 cash in advance for a one-year lease to rent office space.- Will affect Balance sheet items- prepaid rent and cash.