1. By: Arash Foroudi Becky Truax Julio Perez Ken Chen
Acc 207 Question #12
By:
Arash Foroudi
Becky Truax
Julio Perez
Ken Chen

2. Question #12
Pest Away Corporation was organized by three individuals on Jan. 1, 2006 to provide insect extermination services. At the end of 2006, the following income statement was prepared.

3. Pest Away Corporation Income Statement For the year ended Dec. 31, 2006
Revenues
Service revenue (cash) $192,000
Service revenue (credit) $24,000
Total Revenues $216,000
Expenses
Salaries Expense $76,000
Rent expense ,000
Utilities Expense ,000
Advertising Expense ,000
Supplies Expense ,000
Interest Expense ,000
Total expenses ,000
Pretax income ,000
Income Tax expense ,000
Net Income $39,000

4. Question 1&2 1. What was the average monthly revenue amount?
Answer:$18,000
2.What was the monthly rent amount?
Answer: $1750

5. Question 3&4 3.Explain why supplies are reported as an expense.
Answer: Supplies are considered assets until they are used. When they are used to earn revenues during the period, they become an expense; therefore, it is reported as an expense.
4.Explain why interest is reported as an expense.
Answer:Interest is the cost of using borrowed funds, which is used to support a company to earn more revenues; thus, it is also reported as an expense.

6. Question 5&6
5.Can you determine how much cash the company had on Dec. 31, 2006? Explain.
Answer: The amount of cash cannot be determined by the income statement by itself because the income statement and the retained earnings are put on the balance sheet. The amount of cash that the company had on December 31,2006 can only be determined on the balance sheet and the statement of cash flow.
6.If the company had a market value of $468,000, what is its price/earnings ratio?
Answer: price/earnings ratio= market value/net income ,000/39,000= 12