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Income statement preparation On December 31, 2015, Cathy Chen, a self-employed certified public accountant (CPA),...

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Accounting

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 $357,000 for her accounting services. She had two employees, a bookkeeper and a clerical assistant. In addition to her monthly salary of $7,970, Ms. Chen paid annual salaries of $48,200 and $36,500 to the bookkeeper and the clerical assistant, respectively. Employment taxes and benefit costs for Ms. Chen and her employees totaled $34,900 for the year. Expenses for office supplies, including postage, totaled $10,300 for the year. In addition, Ms. Chen spent $16,800 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 $2,650 per month. Depreciation expense on the office furniture and fixtures was $15,500 for the year. During the year, Ms. Chen paid interest of $14,600 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.

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