Reference no: EM132538590

Income statement preparation On December 31, 2003, Cathy Chen, a self employed certified public accountant (CPA), completed her first full year in business. During the year, she billed $180,000 for her accounting services. She had two employees: a bookkeeper and a clerical assistant. In addition to her monthly salary of $4,000, Ms. Chen paid annual salaries of $24,000 and $18,000 to the bookkeeper and the clerical assistant, respectively. Employment taxes and benefit costs for Ms. Chen and her employees totaled $17,300 for the year. Expenses for office supplies, including postage, totaled $5,200 for the year. In addition, Ms. Chen spent $8,500 during the year on tax-deductible travel and entertainment associated with client visits and new business development. Lease payments for the office space rented (a tax-deductible expense) were $1,350 per month. Depreciation expense on the office furniture and fixtures was $7,800 for the year. During the year, Ms. Chen paid interest of $7,500 on the $60,000 borrowed to start the business. She paid an average tax rate of 30 percent during 2003.

Required

Question a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2003.

Question b. Evaluate her 2003 financial performance.