Income statement preparation On December 31, 2015, Cathy Chen, a self-employed c
ID: 2642998 • Letter: I
Question
Income statement preparation On December 31, 2015, Cathy Chen, a self-employed
certified public accountant (CPA), completed her first full year in business. During
the year, she billed $360,000 for her accounting services. She had two employees, a
bookkeeper and a clerical assistant. In addition to her monthly salary of $8,000,
Ms. Chen paid annual salaries of $48,000 and $36,000 to the bookkeeper and the
clerical assistant, respectively. Employment taxes and benefit costs for Ms. Chen and
her employees totaled $34,600 for the year. Expenses for office supplies, including
postage, totaled $10,400 for the year. In addition, Ms. Chen spent $17,000 during
the year on tax-deductible travel and entertainment associated with client visits
and new business development. Lease payments for the office space rented (a taxdeductible
expense) were $2,700 per month. Depreciation expense on the office
furniture and fixtures was $15,600 for the year. During the year, Ms. Chen paid
interest of $15,000 on the $120,000 borrowed to start the business. She paid an
average tax rate of 30% during 2015.
a. Prepare an income statement for Cathy Chen, CPA, for the year ended December
31, 2015.
b. Evaluate her 2015 financial performance.
Explanation / Answer
B. Her 2015 Financial performance was good and shows poistive profit after tax of $38500.
Income statement for December 31,2015 Particulars Amount ( in $) Revenue A. Revenue from billing services 360000 Expenses B. Her Monthly Salary: 96000 C. Salary for clerical staff Bookkeeper 48000 Clerical assistant 36000 D. Employment taxes and benefits 34600 E.Office supplies 10400 F. Travel and entertainment 17000 G. Lease payments 32400 H.Depreciation expense 15600 I. Total Operating Expense 290000 F.Operating Income (C-D-E) 70000 Less: Interest expenses 15000 Total Income before tax 55000 Less: Tax expenses 16500 Net Income after tax 38500