Gear Heads, Inc., restores antique automobiles. The retained earnings balance of the corporation was \($32,000\) at December 31,2009. During 2010, the corporation paid \($40,000\) in dividends to its stockholders. At December 31,2010, the business’s accounting records show these balances:

Requirement 1. Prepare the following financial statements for Gear Heads, Inc.:

a. Income statement for the year ended December 31, 2010

b. Statement of retained earnings for the year ended December 31, 2010

c. Balance sheet at December 31, 2010

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Accounts Receivable.............. $ 5,000 Cash........... $ 7,000 Note Payable........ 25,000 Accounts Payable................ 2,000 Retained Earnings. ? Advertising Expense.... 3,000 Salary Expense. 14,000 Service Revenue 72,000 Equipment...... 78,000 Common Stock...... 20,000 Insurance Expense..... 4,000