The following selected accounts and account balances were taken from the records of Nowell Company. Except as otherwise indicated, all balances are as of December 31, Year 2, before the closing entries were recorded.

Consulting revenue ........................................................................... $18,200
Cash ....................................................................................................... 35,600
Cash received from common stock issued during Year 1 ................ 6,000
Travel expense ....................................................................................... 2,100
Dividends ................................................................................................. 4,000
Cash flow from investing activities ....................................................... 5,200
Rent expense .......................................................................................... 3,500
Payment to reduce debt principal ..................................................... 10,000
Retained earnings, January 1, Year 2 ................................................. 16,200
Salary expense ....................................................................................... 7,200
Cash flow from operating activities ..................................................... 2,600
Common stock, December 31, Year 2 ............................................... 16,000
Other operating expenses .................................................................... 2,300

Required

a. Prepare the income statement Nowell would include in its Year 2 annual report.

b. Identify the accounts that should be closed to the Retained Earnings account.

c. Determine the Retained Earnings account balance at December 31, Year 2. Identify the reasons for the difference between net income and the ending balance in Retained Earnings.

d. What are the balances in the Revenue, Expense, and Dividend accounts on January 1, Year 3? Explain.