[kenzieb07]

I am having a very hard time understanding how to prepare an income statement. Here is the information I have...
*Prepare an income statement for the year ended December 31, 2006. (Assume that 7,500 shares of stock are outstanding*

Accounts Payable... $35,000
Accounts Receivable.. $65,000
Advertising Expense.. $15,000
Cash... $19,500
Supplies Expense... $46,000
Rent Expense... $10,000
Utilities Expense... $3,000
Income Taxes (30% of income before taxes)..?
Miscellaneous Expense.. $4,400
Owners' Equity... $140,000
Salaries Expense... $61,000
Fees (revenue)... $384,000

I know the income statement is broken up into revenues and expenses, but I have no idea how I find the income taxes and where those go, as well as where the "7,500 shares of stock are outstanding"...

If anyone can help, I'd greatly appreciate it! Thanks!

[CaptainForest]

First thing to note is that some accounts listed will NOT be included in the Income Statement.

One such example would be Accounts Payable. That account is used in creating the Balance Sheet.

Therefore, the accounts to use to create the income statement will be:

Advertising Expense.. $15,000
Supplies Expense... $46,000
Rent Expense... $10,000
Utilities Expense... $3,000
Income Taxes (30% of income before taxes)..?
Miscellaneous Expense.. $4,400
Salaries Expense... $61,000
Fees (revenue)... $384,000


Take the Revenue, minus the expenses and you will get Net Income before Taxes. It tells you that income taxes will be 30% of that amount, and then you will get Net Income.

[kenzieb07]

Thank you.

In order to get the revenue, I took:
Revenue = Accounts Receivable + Cash + Owner's Equity + Fees (Revenues) - Accounts Payable to get 573,500
Then I listed the expenses, except not the income tax...
My gross income then came to: 434,100 (after Revenue - Expenses)
I deducted 57.88 off for the 7500 shares of outstanding stock (gross income divided by # of shares) and 130,230 for income tax (gross income times 30 percent).
My net income then came to 303,812.12

Does this look correct?? This is my first Accounting class, and my first time ever even looking at an income statement. Please tell me where I've gone wrong! Thanks!

[CaptainForest]

I suggest you re-read my first post.

Some accounts listed have NO place on the income statement. The income statement ends with Net Income.

Accounts Receivable for example goes on the balance sheet, NEVER the income statement.

Of the list of all accounts, the ONLY ones that should be on the income statement are:

Advertising Expense.. $15,000
Supplies Expense... $46,000
Rent Expense... $10,000
Utilities Expense... $3,000
Income Taxes (30% of income before taxes)..?
Miscellaneous Expense.. $4,400
Salaries Expense... $61,000
Fees (revenue)... $384,000

Now, all of those accounts are Expense accounts, with only 1 revenue account. Therefore, total revenues are 384,000. Total Expenses before taxes would be 139,400. So that leaves a net income before taxes of 244,600.

Taxes would be 30% of that so 73,380 in taxes, leaving a Net Income of 171,220.


The Income statement would look something like this:

Fees (revenue)... $384,000

Less Expenses:
Advertising Expense.. $15,000
Supplies Expense... $46,000
Rent Expense... $10,000
Utilities Expense... $3,000
Miscellaneous Expense.. $4,400
Salaries Expense... $61,000

Total Expenses 139,400

Net Income before taxes 244,600 (384,000 – 139,400)

Income Taxes 73,380 (0.30 x 244,600)

Net Income 171,220 (244,600 – 73,380)



As for the stuff regarding the 7,500 shares. That relates to your EPS calculation.

Therefore, your Net Income EPS would be calculated as 171,220 / 7,500 = 22.83 per share
Which means that each share earned a Net Income of $22.83 during the year.

[kenzieb07]

Thank you sooo much! This helps a LOT. Sorry I misunderstood the first post. Hopefully I will catch on as the class moves forward. You are a great help, thanks!!

[CaptainForest]

You're welcome