The adjusted trial balance for Chiara Company as of December 31 follows. Debit Credit
Cash $ 132,400
Accounts receivable 50,500
Interest receivable 20,800
Notes receivable (due in 90 days) 171,000
Office supplies 16,500
Automobiles 169,000
Accumulated depreciation—Automobiles $ 80,000
Equipment 140,000
Accumulated depreciation—Equipment 23,000
Land 79,000
Accounts payable 98,000
Interest payable 20,000
Salaries payable 22,000
Unearned fees 28,000
Long-term notes payable 144,000
Common stock 26,580
Retained earnings 239,220
Dividends 45,000
Fees earned 544,000
Interest earned 30,000
Depreciation expense—Automobiles 26,000
Depreciation expense—Equipment 20,000
Salaries expense 187,000
Wages expense 43,000
Interest expense 32,200
Office supplies expense 34,200
Advertising expense 63,000
Repairs expense—Automobiles 25,200
Totals $ 1,254,800 $ 1,254,800
Required:
Use the information in the adjusted trial balance to prepare
(a) the income statement for the year ended December 31;
(b) the statement of retained earnings for the year ended December 31 [Note: Retained Earnings at December 31 of the prior year was $257,220]; and
(c) the balance sheet as of December 31.

Answer and Explanation:

The preparations are presented below:

a. For income statement

                                         Chiara Company

                                          Income statement

                                     For the year ended Dec 31

Revenues

Fees earned                  $544,000

Interest earned              $30,000

Total revenues                                                              $574,000

Less: expenses

Depreciation expense - Automobiles   $26,000

Depreciation expense- Equipment       $20,000

Salaries expense                                    $187,000

Wages expense                                      $43,000

Interest expense                                    $32,200

Office supplies expense                        $34,200

Advertising expense                              $63,000

Repairs expense - Automobiles           $25,200

Total expenses                                                         ($430,600)

Net income                                                                $143,400

b. For a statement of retained earnings

                                         Chiara Company

                                         Statement of retained earnings

                                           For the year ended Dec 31

Beginning balance of retained earnings $257,220

Add: Net income                                        $143,400

Less: Dividend                                            -$45,000

Ending retained earnings balance              $355,620

c. For balance sheet

                                         Chiara Company

                                       Balance sheet

                                       For the year ended Dec 31

Liabilities & equity            Amount                         Assets          Amount

Liabilities & equity                                              Cash               $132,400

Accounts payable            $98,000          Accounts receivable $50,500

Interest payable               $20,000          Interest receivable $20,800

Salaries payable               $22,000         90 days notes receivable $171,000

Unearned fees                  $28,000         Office supplies              $16,500

Long-term notes payable $144,000       Automobiles 169,000

Common stock                  $26,580        Less:

Retained earnings             $355,620   Accumulated depreciation  

                                                               Automobiles $ 80,000         $89,000

Total liabilities & equity    $694,200  Equipment 140,000

                                                               Less:                                      

                                                               Accumulated depreciation

                                                                Equipment 23,000             $117,000

                                                                Land                                    $79,000

                                                                Total assets                        $694,200