Question

I TUDIUM 1. The adjusted trial balance of Debit Company is shown below: Debit Company Adjusted Trial Balance December 31, 20X7 Cash $6,500 Accounts receivable 8,000 Supplies 1,000 Prepaid Rent (3 months) 2,500 Equipment, net 42,000 Accounts payable Salary payable Unearned revenue (2 month advance) Note payable - long term Common stock Retained earnings- Dividends Service revenue Salary expense 40,000 Rent expense 10,000 Supplies expense Depreciation expense 5,000 Utilities expense 1,200 $4,000 2,000 2,000 14,000 10,000 14,700 4,000 75,000 1,500 $121,700 $121,700 Total * Assume 30% income tax rate Prepare Debit Company's income statement and statement of retained earnings for the year ended December 31, 20X7.

Create an Income Statement

Answer 1

Income statement for the year ended December 31, 20X7:

Description	Amount	Amount
Revenues & other items:
Service revenue	$75000
Total revenues & other items		$75000
Expenses & other items:
Salary expense	$40000
Rent expense	$10000
Supplies expense	$1500
Depreciation expense	$5000
Utilities expense	$1200
Income tax expense	$5190
Total expenses & other items		($62890)
Net income		$12110

Income tax is calculated as per below:

Income tax = 30% * (Revenues - Expenses)

Income tax = 30% * ($75000 - $40000 - $10000 - $1500 - $5000 - $1200)

Income tax = 30% * $17300

Income tax = $5190

Statement of retained earnings for the year ended December 31, 20X7:

Description	Amount
Beginning balance	$14700
Add: Net income	$12110
Ending balance	$26810