The income statement shown on the next page was prepared by Barbara Merino, owner of Merino's Beauty Supplies. The business is a sole proprietorship that sells skin and hair care products. An accountant who looked at the income statement told Merino that the statement does not conform to generally accepted accounting principles.

Instructions

Prepare an income statement for Merino's Beauty Supplies in accordance with generally accepted accounting principles.

The following additional information was made available by Merino:
a. On January 1, 2016, accounts receivable from customers totaled $35,000. On December 31,
2016, receivables totaled $30,250.
b. On December 31, 2016, accounts receivable amounting to $2,200 were expected to be uncollectible.
c. On January 1, 2016, accounts payable owed to merchandise suppliers were $22,000. On December 31, 2016, the outstanding accounts payable were $35,710.
d. Included in Salaries Expense is $18,000 that Merino was "paid" for her personal work in the business.
e. Included in Interest Expense is $3,400 that Merino withdrew as interest on her capital investment.
f. Miscellaneous repairs of $1,500 were charged to Store Equipment during the year. No new equipment was purchased.
g. Merino explains that since the estimated value of her store equipment has increased by $7,500 during the year, no depreciation expense was recorded. The store equipment cost $56,000 and had an estimated useful life of 10 years with estimated salvage value of $4,000.
Analyze: The entries required to correct situations a.-g. would affect several permanent accounts for Merino's Beauty Supplies. List the permanent accounts affected?

Cash Receipts from Customers Cost of Goods Sold Merchandise Inventory, Jan. 1 Payments to Creditors $510,000 S38,000 352,000 390,000 50,000 Less Merchandise Inventory, Dec. 31 Cost of Goods Sold Gross Profit on Sales 340,000 70,000 Salaries Expense Insurance Expense Payroll Taxes Expense Repairs Expense Supplies and Other Office Expenses Advertising and Other Selling Expenses Utilities Expense Interest Expense Total Expenses Net Income from Operations Incease in Market Value of Store Equipment Net Income for Yea S65,000 3,200 5,600 3,700 7,500 2,800 6,400 6,700 110,900 9,100 7,500 66,600