Acc201 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.

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

+ Account balances

Account	Amount
Cash	$62,870
Accounts receivable	136,550
Supplies	14,450
Prepaid insurance	25,500
Equipment	422,131
Accounts payable	64,970
Notes payable	95,480
Common stock	136,981
Retained earnings	276,560
Dividends	47,120
Fees earned	240,000
Service revenue	125,000
Advertising expense	10,000
Wages expense	150,000
Interest expense	15,550
Utilities expense	9,500
Rent expense	45,320

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

Revenues:
Accounts receivableAdvertising expenseCashRetained earningsFees earnedFees earned		$Fees earned
Accounts payableEquipmentInterest expenseService revenueSuppliesService revenue		Service revenue
Total revenues		$fill in the blank 5640a2f66f94fdd_5
Expenses:
EquipmentNotes payableSuppliesDividendsWages expenseWages expense	$Wages expense
DividendsNotes payableEquipmentInterest expenseService revenueInterest expense	Interest expense
Accounts receivableCashFees earnedCapital stockRent expenseRent expense	Rent expense
Accounts payableCashService revenueRetained earningsUtilities expenseUtilities expense	Utilities expense
Advertising expenseAccounts payableCashNotes payablePrepaid insuranceAdvertising expense	Advertising expense
Total expenses		$fill in the blank 5640a2f66f94fdd_16
Net incomeNet lossNet income		$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 Coldwater's statement of stockholders' equity for 20Y8.

	Common Stock	Retained Earnings	Total
CashCommon stockBalances,October 31, 20Y8Balances, November 1, 20Y7Balances, November 1, 20Y7	$Balances, November 1, 20Y7	$Balances, November 1, 20Y7	Balances, November 1, 20Y7
CashNet incomeRent expenseRetained earningsNet income		Net income	Net income
CashCommon stockDividendsTotal expensesDividends		Dividends	Dividends
CashCommon stockBalances, October 31, 20Y8Balances, November 1, 20Y7Balances, October 31, 20Y8	$Balances, October 31, 20Y8	$Balances, October 31, 20Y8	Balances, October 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 company's 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 Coldwater's balance sheet in account form for 20Y8.

Assets
Accumulated depreciationCashNotes payableService revenueFees earnedCash	$Cash
Accounts payableAccounts receivableAdvertising expenseDividendsInterest expenseAccounts receivable	Accounts receivable
Advertising expenseRetained earningsSuppliesCommon stockNotes payableSupplies	Supplies
Interest expenseNotes payablePrepaid insuranceEquipmentRent expensePrepaid insurance	Prepaid insurance
Accounts payableAccounts receivableInterest expenseEquipmentWages expenseEquipment	Equipment
Total assets
Liabilities
Accounts payableAccounts receivableCashPrepaid insuranceSuppliesAccounts payable	$Accounts payable
Common stockUtilities expenseCashNotes payableFees earnedNotes payable	Notes payable
Total liabilities
Stockholders' Equity
CashCommon stockFees earnedPrepaid insuranceRent expenseCommon stock	$Common stock
Accounts payableEquipmentPrepaid insuranceRetained earningsService revenueRetained earnings	Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity