Exercise 4-4 The financial records of Headland Inc. were destroyed by fire at th

Question

Exercise 4-4

The financial records of Headland Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.

From the foregoing information prepare an income statement for the year 2017 in single-step form. (Round earnings per share to 2 decimal places, e.g. 1.48.)

1. The beginning merchandise inventory was $92,600 and decreased 20% during the current year. 2. Sales discounts amount to $20,500. 3. 29,620 shares of common stock were outstanding for the entire year. 4. Interest expense was $26,600. 5. The income tax rate is 30%. 6. Cost of goods sold amounts to $515,700. 7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales. 8. Four-fifths of the operating expenses relate to sales activities.

Explanation / Answer

Answer

Income statement for the year 2017 in single-step form:

Adm. exp =1/5 * operating exp

103140 = 1/5*operating exp

operating exp =515700

Hence, Selling exp. =4/5*515700

Selling exp =$412560

Particulars Calculations Amount Amount Gross sales 103140/8% 1289250 Sales discount (20500) Net Sales 1268750 Cost of good sold 515700 Administrative Exp. 20%*515700 103140 Selling Exp.(W.N.) 412500 Interest Exp. 26600 Total Exp. 1058000 Income before taxes 210750 Taxes 30%*210750 63225 Net income after tax 147525 Earning per share Net income/No.of shares 147525/29620 4.98

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