Q. 12SE - Horngren'S Financial And Managerial Accounting

Question

Centerpiece Arrangements has just completed operations for the year ended December 31, 2018. This is the third year of operations for the company. The following data have been assembled for the business: Insurance Expense \( 4,500 Salaries Expense \) 46,000 Service Revenue 70,000 Accounts Payable 17,600 Utilities Expense 1,400 Office Supplies 1,700 Rent Expense 16,000 Dividends 4,800 Common Stock 9,000 Accounts Receivable 8,000 Cash 7,200 Equipment 12,100 Retained Earnings, January 1, 2018 5,100 

Preparing the income statement Prepare the income statement of Centerpiece Arrangements for the year ended December 31, 2018.

Step-by-Step Solution

Answer

Centerpiece Arrangements
Income Statement
Year Ended December 31, 2018
Revenues
Service Revenue		$70,000
Expenses
Insurance Expense	4,500
Utilities Expense	1,400
Rent Expense	16,000
Salaries Expense	46,000
Total Expenses		67,900
Net Income		$2,100

Step1: Explanation of net income

Net income is generated when total revenues are higher than the total expenses

Step2: Calculation of net income

Net income is calculated as follows :

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{70}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{67}\mathbf{,}\mathbf{900} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100} \end{gathered}$$

Thus, net income is $2,100.