Final answer:
To prepare an income statement for Sierra Company, list revenue and expense accounts from the adjusted trial balance, calculate total revenue and expenses, and subtract expenses from revenue to get net income. To prepare a statement of retained earnings, start with the beginning retained earnings balance, add net income, subtract dividends, and determine the ending retained earnings balance.
Step-by-step explanation:
To prepare an income statement for Sierra Company, you will need to gather the revenue and expense information from the adjusted trial balance. The income statement shows the company's revenues, expenses, and net income for a specific period of time. Here is how you can prepare the statement step by step:
- List all the revenue accounts from the adjusted trial balance, such as sales revenue or service revenue. Include the corresponding amounts next to each revenue account.
- List all the expense accounts from the adjusted trial balance, such as cost of goods sold, salaries expense, or rent expense. Include the corresponding amounts next to each expense account.
- Calculate the total revenue by adding up all the revenue amounts.
- Calculate the total expenses by adding up all the expense amounts.
- Subtract the total expenses from the total revenue to calculate the net income.
To prepare a statement of retained earnings, you will need the beginning retained earnings balance, net income from the income statement, any dividends paid, and the ending retained earnings balance. The statement shows changes in the retained earnings account over a specific period of time. Here are the steps to prepare the statement:
- Start with the beginning retained earnings balance.
- Add the net income from the income statement.
- Subtract any dividends paid.
- The result is the ending retained earnings balance, which you can include in the statement.