Income Statement Preparation: On December 30,2015, Cathey Chen, a self employeed
ID: 2384023 • Letter: I
Question
Income Statement Preparation: On December 30,2015, Cathey Chen, a self employeed CPA, completed her first full year in business. Duringthe year, she billed $360000 for her acccounting services. She had two employees, a bookkeeper and a clergical assistant. In addition to her monthly salaries of $8000, Ms. Chen paid annual salaries of $48000 and $36000 to the bookkeeper and the clergical assistant, repectively. Employment taxes and benefit costs for Ms. Chen and her employees totaled $34600 for the year. Expenses for office supplies including package, totaled $10400 for the year. In addition, Ms. Chen spent $17000 during the year on tax-dedcutible travel and entiretainment associated with client visits and new business development. Lease payments for the office space rented( a tax-deductible expense) were $2700 per month. Depreciation expense on the office furniture and fixtures was $15600 for the year. During the year, Ms. Chen paid interest of $15000 on the $120000 borrowed to start the business. She paid an average tax rate of 30% during 2015.
Prepare an income statement for Cathey Chen CPA for the year ended Dec 31, 2015.
Evaluate her financial performance.
Explanation / Answer
Income statement of Cathey Chen for FY 2015 Sr No Major Head Details Amt $ Remarks 1 Revenue from Accounting Service 360,000 Assuming all services rendered 2 Salaries & Wages Cathey'salary 96,000 Book keper's salary 48,000 Clerk's salary 36,000 Emp Tax & other benefits 34,600 Total Salaries & Wages 214,600 3 General & Admin Expenses Office supplies 10,400 Travel & entertainment 17,000 Office Lease 32,400 Total General & Admin exp 59,800 4 Depreciation expenses Office furniture & fixture 15,600 5 Earning before Interest & Tax 70,000 6 Finance Cost Interest cost 15,000 Total Finance Cost 15,000 7 Earning before Tax 55,000 8 Tax Paid @ 30% 16,500 9 Net earning after Tax 38,500 % Net earning 11% The performance of Cathey in the first year of business is reasonable good considering her post tax income of 11% apart from her monthly salary.