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Q 50PGB-b

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Horngren'S Financial And Managerial Accounting
Found in: Page 49

Short Answer

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

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

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 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.

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