Question

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 $359,000 for her accounting services. She had two​ employees, a bookkeeper and a clerical assistant. In addition to her monthly salary of $7,980​. Ms. Chen paid annual salaries of $47,800 and $36,400 to the bookkeeper and the clerical​ assistant, respectively. Employment taxes and benefit costs for Ms. Chen and her employees totaled $34,300 for the year. Expenses for office​ supplies, including​ postage, totaled $10,700 for the year. In​ addition, Ms. Chen spent $16,500 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 $2,720 per month. Depreciation expense on the office furniture and fixtures was $15,800 for the year. During the​ year, Ms. Chen paid interest of $14,900 on the $119,000 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.

Answer 1

Cathy pays a salary to self of $7980 monthly i.e 95760 which will not be a part of income statement being in the nature of self drawing

As visible from the income statement Cathy Chen is having a net profit of $104972 in the year 2015.

The net profit ratio is is net profit/sales is 30% approx which is a good amount.

The expenses apart from tax $209040 and % of expenses to sales is 58% . Cathy Chen has a huge expense mainly in salary and salary related expenses which can be checked and maybe minimised in future

answered by: anonymous