Income Statement and Retained Earnings The Huff Company presents the following p
ID: 2333626 • Letter: I
Question
Income Statement and Retained Earnings
The Huff Company presents the following partial list of account balances taken from its December 31, 2016 adjusted trial balance:
The following information is also available for 2016 and is not reflected in the preceding accounts:
The common stock has been outstanding all year. A cash dividend of $1.46 per share was declared and paid.
Land was sold at a pretax gain of $7,100.
Division X (a major component of the company) was sold at a pretax gain of $4,600. It had incurred a $9,430 pretax operating loss during 2016.
A tornado, which is an unusual event in the area, caused a $5,380 pretax loss.
The income tax rate on all items of income is 30%.
The average shareholders' equity is $90,000.
Required:
1. Prepare a 2016 multiple-step income statement for Huff. Round earnings per share computations to two decimal places.
2. Prepare a 2016 retained earnings statement.
3. Compute the 2016 return on common equity. Round to one decimal place.
%
Sales (net) $124,000 Operating expenses $20,000 Interest expense 3,100 Common stock, $5 par 16,500 Cost of goods sold 56,000 Retained earnings, 1/1/2016 44,500Explanation / Answer
Hey there !!
In this question we have been provided with various adjustments and we need to prepare Statement of Profit and loss incorporating these adjustments.
Let us prepare SPL first.
Now let us calculate Dividend payable :
Now we can prepare statement of retained earnings:
We also have to calculate return on equity.
I hope the above solution and working is clear to you now. Do let me know in case of any concerns.
All the best!! Happy studying !!!
HUFF COMPANY Income Statement (Multi-Step) For Year Ended December 31, 2016 Sales $124,000 Cost of goods sold -$56,000 Operating expenses -$20,000 Interest expense -$3,100 Net Operating profit $44,900 Other items Profit from Sale of Land $7,100 Extraordinary Loss from Tornado -$5,380 Profit on sale of Division X $4,600 Net profit from Extrarodinary items $6,320 Total Profit $51,220 Results from discontinued operations -$9,430 Profit during the Year $41,790 Less : Taxes $12,537 Net profit $29,253 Less : Dividend Components of Income No of Share 16500 EPS = 29253/16500 $1.77 DPS $1.46