Q 50PGB-b - Horngren'S Financial And Managerial Accounting

Question

Pretty Pictures works weddings and prom-type parties. The balance of Retained Earnings was \(20,000 at December 31, 2017. At December 31, 2018, the business’s accounting records show these balances: Insurance Expense \) 6,000 Accounts Receivable $ 5,000 Cash 42,000 Notes Payable 10,000 Accounts Payable 13,000 Retained Earnings, Dec. 31, 2018 ? Advertising Expense 4,500 Salaries Expense 30,000 Service Revenue 115,000 Equipment 85,500 Dividends 13,000 Common Stock 28,000 Prepare the following financial statements for Pretty Pictures for the year ended December 31, 2018: a. Income statement. b. Statement of retained earnings. c. Balance sheet 

Step-by-Step Solution

Answer

Statement of retained earnings is shown as follows:

Pretty Pictures
Statement of Retained Earnings
Year Ended December 31, 2018
Retained Earnings, December 31, 2017	$20,000
Net income for the year	74,500
	94,500
Dividends	(13,000_
Retained Earnings, December 31, 2018	$81,500

Step-by-Step Solution Step 1: Explanation on the statement of retained earnings

Statement of retained earnings reports changes in the beginning balance of retained earnings.

Step 2: Explanation on retained earnings

Ending balance of retained earnings equals $81,500, which is measured by adding net income and subtracting dividends from the beginning balance of retained earnings.