APPLY THE CONCEPTS: Construct the income statement

When constructing the income statement, it is important to understand that the income statement reports the revenues and expenses for a period of time, based on the matching concept. This concept is applied by matching the expenses with the revenue generated during a period by those expenses. The excess of the revenue over the expenses is called net income or net profit.

Pleasant Co. has compiled the following account balances from its general ledger on July 31, 20Y8 (the last day of its fiscal year).

+ Account balances

Account	Amount
Cash	$62,050
Accounts receivable	135,700
Supplies	13,540
Prepaid insurance	24,560
Equipment	420,089
Accounts payable	62,760
Notes payable	97,500
Common stock	108,459
Retained earnings	280,280
Dividends	45,500
Fees earned	230,000
Service revenue	150,000
Advertising expense	10,000
Wages expense	150,000
Interest expense	15,270
Utilities expense	8,500
Rent expense	43,790

Use the information given to create Pleasant Co.s annual financial statements. Construct Pleasants income statement for 20Y8.

Pleasant Co.
Income Statement
For the Year Ending July 31, 20Y8
Revenues:
Fees earned		$
Service revenue
Total revenues		$
Expenses:
Wages expense	$
Interest expense
Rent expense
Utilities expense
Advertising expense
Total expenses		$
Net income		$

Feedback

From the balances above, select the appropriate revenue and expense items, and compute the appropriate subtotals.

APPLY THE CONCEPTS: Construct the Statement of Stockholders' Equity.

The statement of stockholders' equity shows the change in statement of stockholders' equity as a result of net income and any dividends. It also serves as an important link between the income statement and the balance sheet in that it translates the effects of net income into an updated number for statement of stockholders' equity. Construct Pleasants statement of stockholders' equity for 20Y8.

Pleasant Co.
Statement of Stockholders' Equity
For the Year Ending July 31, 20Y8
	Common Stock	Retained Earnings	Total
Balances, August 1, 20Y7	$	$
Net income
Dividends
Balances, July 31, 20Y8	$	$

Feedback

Hover over the statement of stockholders' equity definition in the earlier step to review the construction of this statement. Remember that Net Income or Net Loss from the statement in the prior step is the linking value between these two statements.

APPLY THE CONCEPTS: Construct the balance sheet

The balance sheet, also known as the statement of financial position, shows the companys assets and the claims against those assets in the form of liabilities and stockholders' equity. Unlike financial statements that display financial performance over a given interval of time, the balance sheet is a snapshot of a financial position at a given point in time.

Construct Pleasants balance sheet in account form for 20Y8.

Pleasant Co.
Balance Sheet
July 31, 20Y8
Assets
	$
Total assets		$
Liabilities
	$
Total liabilities		$
Stockholders' Equity
	$
Total stockholders' equity		$
Total liabilities and stockholders' equity		$