Q43PGA_b - Horngren'S Financial And Managerial Accounting

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.

Step-by-Step Solution

Answer

Statement of retained earnings is shown as follows:

Picture Perfect Photography
Statement of Retained Earnings
Year Ended  December 31, 2018
Retained Earnings,  December 31, 2017	$16,000
Net income for the year	40,000
	56,000
Dividends	(8,000)
Retained Earnings, December 31, 2018	$48,000

Step 1: Explanation on the statement of retained earnings

Statement of retained earnings represents the fluctuations in the beginning balance of retained earnings due to income and dividend.

Step 2: Explanation on retained earnings

The retained earnings balance as on December 31, 2018 equals $48,000, which is estimated by adding net income of $40,000 and deducting dividends of $8,000 from the beginning balance of retained earnings of $16,000.