Hometown Cleaners Inc. operates a small dry-cleaning business. The company has always maintained a complete and accurate set of records. Unfortunately, the company's accountant left in a dispute with the president and took the 2017 financial statements with him. The following income statement and balance sheet were prepared by the company's president:

The president is very disappointed with the net income for the year because it has averaged $25,000 over the last ten years. She has asked for your help in determining whether the reported net income accurately reflects the profitability of the company and whether the balance sheet is prepared correctly.
Required
1. Prepare a corrected income statement for the year ended December 31, 2017.
2. Prepare a statement of retained earnings for the year ended December 31, 2017. (The actual balance of Retained Earnings on January 1, 2017, was $42,700. Note that the December 31, 2017, Retained Earnings balance shown is incorrect. The president simply ''plugged in'' this amount to make the balance sheet balance.)
3. Prepare a corrected balance sheet at December 31, 2017.
4. Draft a memo to the president explaining the major differences between the income statement she prepared and the one you prepared.

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Hometown Cleaners Inc. Income Statement For the Year Ended December 31, 2017 Revenues Accounts receivable Cleaning revenue-cash sales $15,200 32,500 $47,700 Expenses Dividends Accounts payable Utilities Salaries and wages $4,000 4,500 12,200 17,100 37,800 $ 9,900 Net income Hometown Cleaners Inc. Balance Sheet December 31, 2017 Assets Cash Building and equipment Notes payable Land Liabilities and Stockholders' Equity $ 7,400 80,000 (50,000) 40,000 Cleaning revenue credit sales Capital stock Net income Retained earnings $26,200 20,000 9,900 21,300 Total liabilities and Total assets $77,400 stockholders' equity $77,400