Question

Terrell Company reported the following data at the end of its first year of operations on December 31.

Equipment $ 25,500
Accounts payable 14,500
Common stock 29,500
Dividends 12,500
Services revenue 70,500
Rent revenue 16,500
Salaries expense 44,500
Advertising expense 10,500
Utilities expense 8,500
(a) Prepare its year-end income statement.
(b) Prepare its year-end statement of retained earnings, using net income calculated in part a. Hint: Retained Earnings on January 1 was $0.

Answer 1

To prepare the year-end income statement, list the revenues and expenses to find the net income. The year-end statement of retained earnings starts with the net income and retains the ending balance.

Step-by-step explanation:

To prepare the year-end income statement for Terrell Company, we need to list the revenues and expenses. From the data given, the revenues include services revenue and rent revenue, which total $87,000 ($70,500 + $16,500). The expenses include salaries expense, advertising expense, and utilities expense, which total $63,500 ($44,500 + $10,500 + $8,500). Therefore, the net income for the year is $23,500 ($87,000 - $63,500).

To prepare the year-end statement of retained earnings, we start with the net income of $23,500. Since the retained earnings on January 1 was $0, the ending balance of retained earnings is also $23,500.