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 2010 financial statements with him. The following income statement and balance sheet were prepared by the company's president:

Required
1. Prepare a corrected income statement for the year ended December 31, 2010.
2. Prepare a statement of retained earnings for the year ended December 31, 2010. (The actual balance of Retained Earnings on January 1, 2010, was $42,700. Note that the December 31, 2010, 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, 2010.
4. Draft a memo to the president explaining the major differences between the income statement she prepared and the one youprepared.

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Hometown Cleaners Inc. Income Statement For the Year Ended December 31, 2010 Revenues Accounts receivable $15,200 32,500 Cleaning revenue cash sales 47700 Expenses Dividends Accounts payable Utilities Salaries and wages $ 4,000 4,500 12,200 17100 37,800 $ 9,900 Net income Hometown Cleaners Inc. Balance Sheet December 31, 2010 Assets Liabilities and Stockholders' Equity Cash Building and equipment Less: Notes payable Land 7400 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 $77400 stockholders' equity 77400