Question

Please explain your answer. Thank you.

Learning Objective 5 P1-43A Preparing financial statements 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's accounting records show these balances: b. Ending Retained Earnings $48,000 Insurance Expense $ 13,000 14,000 Cash Accounts Payable Advertising Expense Service Revenue Dividends $ 6,000 Accounts Receivable 42,000 Notes Payable 11,000 Retained Earnings, Dec. 31, 2018 4,000 Salaries Expense 75,000 Equipment 8,000 Common Stock 25,000 46,000 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.

Answer 1

a.

PICTURE PERFECT PHOTOGRAPHY
Income Statement
For Year Ended December 31, 2018
	$	$
Revenues:
Service revenue	75,000.00
Total Revenues		75,000.00
Expenses:
Insurance Expense	6,000.00
Advertising Expense	4,000.00
Salaries expense	25,000.00
Total expenses		35,000.00
Net income		40,000.00

b.

PICTURE PERFECT PHOTOGRAPHY
Retained Earnings Statement
For Year Ended December 31, 2018
	$
Retained earnings, December 31, 2017	16,000.00
Add: Net income	40,000.00
	56,000.00
Less: Dividends	(8,000.00)
Retained earnings, Dec.31, 2018	48,000.00

c.

PICTURE PERFECT PHOTOGRAPHY
BALANCE SHEET
AS OF DECEMBER 31, 2018
	$	$
Assets
Current Assets
Cash	42,000.00
Accounts receivable	13,000.00
Total current assets		55,000.00
Property, plant and equipment
Equipment	46,000.00
Net property, plant, and equipment		46,000.00
Total assets		101,000.00
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	11,000.00
Total current liabilities		11,000.00
Long-term liabilities
Notes payable		14,000.00
Total liabilities		25,000.00
Stockholders’ equity
Common stock	28,000.00
Retained earnings	48,000.00
Total stockholders’ equity		76,000.00
Total liabilities and stockholders’ equity		101,000.00