Question

Income statement preparation On December 31, 2019, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During the year, she charged her clients $358,000 for her accounting services. She had two employees, a bookkeeper and a clerical assistant. In addition to her monthly salary of $8,040, Ms. Chen paid annual salaries of $47,600 and $36,500 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 $10,800 for the year. In addition, Ms. Chen spent $17,500 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 $2,710 per month. Depreciation expense on the office furniture and fixtures was $15,300 for the year. During the year, Ms. Chen paid interest of $14,500 on the $120,000 borrowed to start the business. She paid an average tax rate of 30% during 2019. a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2019. b. Evaluate her 2019 financial performance. Less: Operating expenses | Salaries Employment taxes and benefits Supplies Travel and entertainment Lease payment 180,580 34,600 10,800 17,500 2,710 Depreciation expense Total operating expense Operating profits (EBIT) 261490 96,510 Complete the fragment of the income statement for Cathy Chen below: (Select the correct account from the drop-down menu and round to the nearest dollar.) 14,500 Interest expense Net profits before taxes Complete the fragment of the income statement for Cathy Chen below: (Select the correct account from the drop-down menu and round to the nearest dollar.) Taxes Net profits after taxes Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Solution:

Requirement A: Income statement

Cathy Chen, CPA
Income statement
For the year ended December 31,2019
Revenue
Service Revenue		$           358,000
Total Revenue (A)		$           358,000
Less:Operating Expenses
Salaries	$             180,580
Employment taxes and benefits	$                34,600
Supplies	$                10,800
Travel and entertainment	$                17,500
Lease Payment	$                  2,710
Depreciation Expense	$                15,300
Total Operating Expense (B)		$           261,490
Operating Profits (EBIT)		$             96,510
Interest Expense		$             14,500
Net Profits before taxes		$             82,010
Taxes		$           (24,603)
Net Profits before taxes		$             57,407

Requirement B:

1)  Cathy Chen, CPA is self employed and borrowed $ 120,000 to start the business.

2) In 2019, she earned $ 57,407, Which is 48% ( $ 57,407 / $ 120,000 ) after tax profit on her investment of $ 120,000.

3) So, Her financial performance in 2019 is good.