The following balances were taken from the books of Carla Corp. on December 31,

Question

The following balances were taken from the books of Carla Corp. on December 31, 2017.

Assume the total effective tax rate on all items is 34%.

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Interest revenue $88,200 Accumulated depreciation—equipment $42,200 Cash 53,200 Accumulated depreciation—buildings 30,200 Sales revenue 1,382,200 Notes receivable 157,200 Accounts receivable 152,200 Selling expenses 196,200 Prepaid insurance 22,200 Accounts payable 172,200 Sales returns and allowances 152,200 Bonds payable 102,200 Allowance for doubtful accounts 9,200 Administrative and general expenses 99,200 Sales discounts 47,200 Accrued liabilities 34,200 Land 102,200 Interest expense 62,200 Equipment 202,200 Notes payable 102,200 Buildings 142,200 Loss from earthquake damage 152,200 Cost of goods sold 623,200 Common stock 502,200 Retained earnings 23,200

Explanation / Answer

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

Calculations:

C1 -

Gross profit = Net Sales - Cost of Goods Sold

= $ 1,182,800 - 623,600

= $ 559,600

C2 -

Income From Operations = Gross Profit - Operating Expences

= $ 559,600 - $ 295,400

= $ 264,200

C3 -

Income Before taxes = (Income From operations + Non operating Incomes) - Non Operating Expences

= ($ 264,200 + $ 88,200) - $ 62,200

= $ 290,200

C4 -

Income Tax = Income Before taxes * Rate/100

= $ 290,200 * 34/100

= $ 98,668

C5 -

Net Income = Income Before Extraordinary item - Extraordinary items after reductions

= $ 191,532 - $100,452

= $ 91,080

C6 -

Earnigs Per Share (EPS) = Net Income / Shares

= $ 91,080 / 100,000

= $ .91

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Carla Corp.
Income Statement
For the Year Ended December 31, 2017 Sales Revenue $       1,382,200    Sales    Less: Sales returns and allowances $          152,200    Less: Sales discounts $            47,200 $           199,400 Net sales revenue $       1,182,800 Less: Cost Of Goods Sold $           623,200 Gross profit (C1) $           559,600 Operating Expenses    Selling expenses $          196,200    Admin. & General Expenses $            99,200 $           295,400    Income from operations (C2) $           264,200 Non Operating Revenues and Gains    Add: Interest revenue $             88,200 Non Operating Expenses and Losses    Less: Interest expense $             62,200 Income before taxes (C3) $           290,200 Less: Income tax (C4) $             98,668 Income before extraordinary item $           191,532 Extraordinary items    Loss from earthquake $          152,200    Less: Applicable tax reduction ($ 152,200 X .34) $            51,748 $           100,452 Net income (C5) $             91,080 Earnings Per Share (EPS) (C6) $                  0.91

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