Following are the accounts of Creative Ads, Inc., an agency that develops marketing materials for print, radio, and television. The agency's first year of operations ended on January 31, 2011.

REQUIRED

1. Prepare the income statement, statement of retained earnings, and balance sheet for Creative Ads.

2. Explain the difference between Income Taxes Expense and Income Taxes Payable.

3. Review the financial statements and comment on the financial challenges that Creative Ads faces.

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Income Taxes PayableS $ 19,400 24,900 Accounts Payable Accounts Receivable Advertising Service Revenue Cash Common Stock Dividends Equipment Rental Expense Income Taxes Expense 6,800 13,500 86,000 1,300 1,600 19,100 Marketing Expense 165,200Office Rent Expense 1,800 5,000 Salaries Expense Salaries Payable Supplies 37,200Utilities Expense 560