Question

Presented here are the accounts of Pembroke Bookkeeping Company for the year ended December 31, 2018: Land \( 10,000 Common Stock \) 29,000 Notes Payable 31,000 Accounts Payable 7,000 Property Tax Expense 3,100 Accounts Receivable 1,200 Dividends 28,000 Advertising Expense 12,000 Rent Expense 7,000 Building 147,400 Salaries Expense 64,000 Cash 2,800 Salaries Payable 800 Equipment 15,000 Service Revenue 192,000 Insurance Expense 1,700 Office Supplies 12,000 Interest Expense 6,600 Retained Earnings, Dec. 31, 2017 51,000 Requirements 1. Prepare Pembroke Bookkeeping Company’s income statement. 2. Prepare the statement of retained earnings. 3. Prepare the balance sheet

Short answer

Income statement is shown as follows:

Pembroke Bookkeeping Company
Income Statement
Year Ended December 31, 2018
Revenues
Service Revenue		$192,000
Expenses
Rent Expense	7,000
Salaries Expense	64,000
Advertising Expense	1,2000
Insurance Expense	1,700
Interest Expense	6,600
Property Tax Expense	3,100
Total Expenses		94,400
Net Income		$97,600

Step-by-step solution

Step-by-Step Solution. Step 1: Calculation of net income

Net income is calculated as follows:

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{192}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{94}\mathbf{,}\mathbf{400} \\ \mathbf{=}\mathbf{\$}\mathbf{97}\mathbf{,}\mathbf{600} \end{gathered}$$

Explanation of income statement

In the income statement, total revenues equals $192,000, total expense equals $94,400 and net income is $97,600, which is estimated by subtracting total expenses from revenues.