The following information was drawn from the accounting records of Pearson Company as of December 31,2007, before the temporary accounts had been closed. The Cash balance was \($3,000\), and Notes Payable amounted to \($2,500\). The company had revenues of \($4,000\) and expenses of \($2,500\). The company’s Land account had a \($5,000\) balance. Dividends amounted to \($500\). There was \($1,000\) of common stock issued.

Required:

a. Identify which accounts would be classified as permanent and which accounts would be classified as temporary.

b. Assuming that Pearson’s beginning balance (as of January 1, 2007) in the Retained Earnings account was \($3,500\), determine its balance after the temporary accounts were closed at the end of 2007.

c. What amount of net income would Pearson Company report on its 2007 income statement?

d. Explain why the amount of net income differs from the amount of the ending Retained Earnings balance.

e. What are the balances in the revenue, expense, and dividend accounts on January 1, 2008?