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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.
P3–6 Balance sheet preparations Use the appropriate items from the
following list to prepare in good form Mellark’s Baked Goods balance
sheet at December 31, 2015.