Income statement preparation On December 31, 2015, Cathy Chen, a
self-employed certified public accountant (CPA), completed her first
full year in business. During the year, she billed $360,000 for her
accounting services. She had two employees, a bookkeeper and a clerical
assistant. In addition to her monthly salary of $8,000, Ms. Chen paid
annual salaries of $48,000 and $36,000 to the bookkeeper and the
clerical assistant, respectively. Employment taxes and benefit costs for
Ms. Chen and her employees totaled $34,600 for the year. Expenses for
office supplies, including postage, totaled $10,400 for the year. In
addition, Ms. Chen spent $17,000 during the year on tax-deductible
travel and entertainment associated with client visits and new business
development. Lease payments for the office space rented (a tax
deductible expense) were $2,700 per month. Depreciation expense on the
office furniture and fixtures was $15,600 for the year. During the year,
Ms. Chen paid interest of $15,000 on the $120,000 borrowed to start the
business. She paid an average tax rate of 30% during 2015.
a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2015.
b. Evaluate her 2015 financial performance.