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 $284,220]; and (c) the balance sheet as of December 31.

Question Completion:

The adjusted trial balance for Chiara Company as of December 31 follows.

                                                                  Debit    Credit

Cash                                                        $182,200

Accounts receivable                                   51,500

Interest receivable                                      21,000

Notes receivable (due in 90 days)          169,000

Office supplies                                           15,500

Automobiles                                             175,000

Accumulated depreciation-Automobiles                $70,000

Equipment                                               142,000

Accumulated depreciation-Equipment                     19,000

Land                                                         85,000

Accounts payable                                                      98,000

Interest payable                                                        50,000

Salaries payable                                                         16,000

Unearned fees                                                          30,000

Long-term notes payable                                        152,000

Common stock                                                           51,580

Retained earnings                                                   284,220

Dividends                                                48,000

Fees earned                                                           524,000

Interest earned                                                         34,000

Depreciation expense-Automobiles     27,500

Depreciation expense-Equipment         18,500

Salaries expense                                  190,000

Wages expense                                     44,000

Interest expense                                   36,200

Office supplies expense                       35,800

Advertising expense                             60,000

Repairs expense-Automobiles             27,600

Totals                                               $1,328,800 $1,328,800

CHIARA COMPANY

a) Income Statement For Year Ended December 31

Fees earned                                                         $524,000

Interest earned                                                         34,000

Total revenue                                                      $558,000

Depreciation expense-Automobiles     27,500

Depreciation expense-Equipment         18,500

Salaries expense                                  190,000

Wages expense                                     44,000

Interest expense                                   36,200

Office supplies expense                       35,800

Advertising expense                             60,000

Repairs expense-Automobiles             27,600

Total expenses                                                   $ 439,600

Net income                                                            $118,400

CHIARA COMPANY

2. Statement of Retained Earnings For Year Ended December 31

Retained earnings, Dec.31 prior year        $284,220

Add: Net income                                             118,400

                                                                      402,620

Less: Dividends                                               48,000

Retained earnings, Dec. 31 current year  $354,620

CHIARA COMPANY

3. Balance Sheet December 31

Assets

Current assets:

Cash                                                        $182,200

Accounts receivable                                   51,500

Interest receivable                                      21,000

Notes receivable (due in 90 days)          169,000

Office supplies                                           15,500   $439,200

Long-term assets:

Automobiles                         175,000

Accumulated depreciation   70,000     105,000

Equipment                           142,000

Accumulated depreciation   19,000     123,000

Land                                                        85,000     $313,000

Total assets                                                            $752,200

Liabilities + Equity

Current liabilities:

Accounts payable                              $98,000

Interest payable                                   50,000

Salaries payable                                   16,000

Unearned fees                                    30,000      $194,000

Long-term notes payable                                        152,000

Total liabilities                                                       $346,000

Equity:

Common stock                                  $51,580

Retained earnings                            354,620    $406,200

Total equity Total liabilities and equity              $752,200

Explanation:

The financial statements above are prepared from the adjusted trial balance.  The revenue items (temporary accounts) are closed to the income statement, while the assets, liabilities, and equity accounts (permanent items) are closed to the balance sheet.  The Statement of retained earnings links the income statement and the balance sheet through the adjustments to the net income and retained earnings.

answer; the correct answer to the above statement is (true);

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