Chapter 3, Problem 3.2P

Learning Goal 1

P3-2 1ncome statement preparation On December 31, 2019, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During the year, she charged her clients $360,000 for 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 tax-deductible 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 2019.

1. a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2019.
2. b. Evaluate her 2019 financial performance.