On October 1, Ebony Ernst organized Ernst Consulting; on October 3, the owner contributed $85,160 in assets in exchange for its common stock to launch the business. On October 31, the company’s records show the following items and amounts. Retained earnings, October 1 as $0.Cash $7,520 Cash dividends 3,190Accounts receivable 18,000 Consulting revenue 18,000Office supplies 4,310 Rent expense 4,720Land 46,000 Salaries expense 8,220Office equipment 19,190 Telephone expense 900Accounts payable 9,600 Miscellaneous expense 710Common Stock 85,160Using the above information prepare an October income statement for the business.

First you have to recognize which are the balances that affects the income statement which will be revenues (R) and expenses(E).

Common Stock (O), Cash (A), Accounts Receivable (A), Consulting Revenue (R), Office supplies (A), Rent Expense (E), Land (A), Salaries expense (E), Office equipment (A), Telephone expense (E), Accounts Payable (L), Miscellaneous expense (E) and Common Stock (O).

After recognizing the revenues and expenses we can prepare the income statement.

Sales

    Consulting Revenue US$ 18,000

Costs

    Salaries expense        US$ (8,220)

Gross Margin                   US$ 9,780

Operating expenses

    Rent Expense              US$ (4,720)

    Telephone Expense    US$ (900)

Other expenses

     Miscelanous Expense US$ (710)

Income before tax              US$ 3,450

Income Tax (35%)              US$ (1,207.50)                

Net Income                         US$ 2,242.50

(*) Assume that there´s no depreciation.