he following incorrect income statement was prepared by the accountant of the Ax
ID: 2352199 • Letter: H
Question
he following incorrect income statement was prepared by the accountant of the Axel Corporation:AXEL CORPORATION
Income Statement
For the Year Ended December 31, 2013
Revenues and gains:
Sales $ 880,000
Interest and dividends 50,000
Gain from litigation settlement 100,000
Total revenues and gains 1,030,000
Expenses and losses:
Cost of goods sold $ 415,000
Selling expenses 77,000
Administrative expenses 97,000
Interest 38,000
Restructuring costs 73,000
Income taxes 132,000
Total expenses and losses 832,000
Net Income $ 198,000
Earnings per share $ 1.98
Required:
Prepare a multiple-step income statement for 2013 applying generally accepted accounting principles. The income tax rate is 40%. The gain from litigation settlement is considered an unusual and infrequent event and the amount is material. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)
Explanation / Answer
follow thisTarget Sales Volume (in dollars) = Fixed Costs + Target Operating Income 10. Contribution Margin Ratio = $145,000 + $30,000 .35 = $500,000 per month 11. At the break-even point, a company earns a total contribution margin exactly equal to its fixed costs. By dividing the unit contribution margin into this required total contribution margin, we can determine the number of units that must be sold to enable the company to cover its fixed costs. 12. If the contribution margin ratio is 35%, variable costs must account for the other 65% of total revenue. If 65% of total revenue is equal to $26 per unit, the unit sales price must be $26
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