Question

Picture Perfect Photography works weddings and prom-type parties. The balance of retained earnings was \(16,000 at December 31, 2017. At December 31, 2018, the business’s accounting records show these balances: Insurance Expense \) 6,000 Accounts Receivable $ 13,000 Cash 42,000 Notes Payable 14,000 Accounts Payable 11,000 Retained Earnings, Dec. 31, 2018 ? Advertising Expense 4,000 Salaries Expense 25,000 Service Revenue 75,000 Equipment 46,000 Dividends 8,000 Common Stock 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.

Short answer

Income statement is shown as follows:

Picture Perfect Photograph
Income Statement
Year Ended December 31, 2018
Revenues
Service Revenue		$75,000
Expenses
Insurance Expense	$6,000
Salaries Expense	25,000
Advertising Expense	4,000
Total Expenses		35,000
Net Income		$40,000

Step-by-step solution

 Step 1: Calculation of net income

Net income is calculated as follows:

Net Income = Total revenues - Total Expenses

= $75,000 - $35,000

= $40,000

Explanation of net income

In case, total revenues are higher than total expenses, then it results in net income.