The following income statement was prepared by a new and inexperienced employee
ID: 1170007 • Letter: T
Question
The following income statement was prepared by a new and inexperienced employee in the accounting department of Phoenix, Inc., a business organized as a corporation.
Required:
a. Prepare a corrected income statement for the year ended December 31, 2018. Include at the bottom of your income statement all appropriate earnings per share figures. Assume that throughout the year the company had outstanding a weighted average of 180,000 shares of a single class of capital stock.
b. Prepare a statement of retained earnings for 2018. (As originally reported, retained earnings at December 31, 2017, amounted to $2,175,000.)
PHOENIX, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018 Net sales $ 10,800,000 Gain on sale of treasury stock 62,000 Excess of issuance price over par value of capital stock 510,000 Prior period adjustment (net of income tax) 96,000 Total revenue $ 11,468,000 Less: Cost of goods sold $ 6,000,000 Selling expenses 1,104,000 General and administrative expenses 1,896,000 Loss from settlement of litigation 24,000 Income tax on continuing operations 720,000 Operating loss on discontinued operations (net of income tax benefit) 252,000 Loss on disposal of discontinued operations (net of income tax benefit) 420,000 Dividends declared on common stock 350,000 Total costs and expenses 10,766,000 Net income $ 702,000Explanation / Answer
Solution:- a) PHOENIX, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018 Particulars Amount Amount Net sales $10,800,000 Cost and Expenses Cost of goods sold $6,000,000 Selling expensed $1,104,000 General and administrative expenses $1,896,000 Loss from settlement of litigation $24,000 Income tax on continuing operations $720,000 ($9,744,000) Income from continuing operations $1,056,000 Discontinued operations: Operating loss on discounted operations (net of income tax benefit $252,000 Loss on disposal of discontinued operations (net of income tax benefit) $420,000 ($672,000) Income before extraordinary items $384,000 Extraordinary items $0 Net income $384,000 Earning per share of common stock Earnings from continuing operations (1,056,000/180,0000 $5.87 Less:- Loss from discontinued operations (672,000/180,000) -$3.73 Earnings before extraordinary items $2.13 Add:- Extraordinary gain $0.00 Net Earnings i.e. EPS $2.13 Notes:- 1) Gain on sale of treasury dose not come in income statement. Its efforts goes directly in BS. 2) Excess of issuance price over par value of capital stock does not come to income statement. 3) Prior period adjustment (net of income tax) is not shown in current income statement b) Statement of retained earning Particulars Amount Opening balance $2,175,000 Add:- Net income $384,000 Less:- Dividend $350,000 Retained earnings on year end $2,209,000 Please feel free to ask if you have query in the comment section .
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