On December 31, 2015, Cathy Chen, a self-employed certified public accountant (C
ID: 2633528 • Letter: O
Question
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 $360,000 for her accounting services. She had two employees, a
bookkeeper and a clerical assistant. In addition to her monthly salary of $8,000,
Ms. Chen paid annual salaries of $48,000 and $36,000 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 $10,400 for the year. In addition, Ms. Chen spent $17,000 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 taxdeductible
expense) were $2,700 per month. Depreciation expense on the office
furniture and fixtures was $15,600 for the year. During the year, Ms. Chen paid
interest of $15,000 on the $120,000 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
Explanation / Answer
B) In the first year of business, all operating expenses of the business was covered & it generated a net profit of $38,500.
Sales Revenue $360,000 Less: Operating Expenses Salaries $180,000 Employment Taxes and Benefits $34,600 Supplies $10,400 Travel & Entertainment $17,000 Lease Payment $32,400 Depreciation expense $15,600 Total Operating expense $290,000 Operating Profits $70,000 Less: Interest Expenses $15,000 Net Profits before taxes $55,000 Less: Taxes(30%) $16,500 Net Prifit after taxes $38,500Related Questions
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