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Q9E.

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 184

Short Answer

(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.

Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000

Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000

Selling expenses 65,000 Casualty loss 50,000

Administrative expenses 48,000 Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000

Interest Revenue 7,000

Effective tax rate of 34% on all items

Instructions

  1. Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
  2. Prepare a separate retained earnings statement for 2017.

a) EPS equals $3.34

b) Retained earnings statement has a balance of $1,099,340.

See the step by step solution

Step by Step Solution

Meaning of Interest Revenue

Interest revenue refers to the amount of money received by a business or an individual from investing. It is reported in the income statement under the head Non-Operating Expenses.

Preparing Multiple Step Income Statement

Ivan Calderon Corporation
Income Statement
For the Year Ended December 31, 2017

Net Sales

1,300,000

Cost of Goods sold

780,000

Gross Profits

520,000

Operating expenses

Selling expense

65,000

Administrative expense

48,000

Total operating expenses

113,000

Income from Operations

407,000

Other Revenues and Gains

Dividend Revenue

20,000

Interest Revenue

7,000

27,000

Other Expenses and Losses

Write off inventory due to obsolescence.

80,000

Casualty Loss

50,000

Income before Tax

304,000

Income Tax expense

103,360

Net Income

$200,640

Earnings per Share

$3.34

Working Note:

  1. Calculation of Earnings per Share

Preparing Separate Retained Earnings Statement for 2017

Ivan Calderon Corp.
Retained Earnings Statement
For the Year Ended December 31, 2017

Retained Earnings On December 31, 2016

980,000

Depreciation Expense net of tax

36,300

Adjusted Retained earnings

943,700

Add:

Net Income

200,640

Less: Cash Dividend Declared

45,000

Retained earnings balance on December 31, 2017

1,099,340

Working Note:

  1. Calculation of Depreciation Expense

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