Assigned HW2: Income Statement Presented below is information related to Festiva
ID: 2336538 • Letter: A
Question
Assigned HW2: Income Statement
Presented below is information related to Festival Co. for the calendar year of 2017.
Cost of goods sold- $1,575,000
Loss on disposal of discontinued electronic division (pre-tax) - $330,000
Dividends-Preferred stock- $275,000
Loss resulting from changes in accounting principles: FIFO to AC inventory assumption (pre-tax) - $32,000
Interest revenue- $690,000
Selling expenses 495,000
Net Sales- $3,850,000
Income from operations of discontinued electronic division (pre-tax) - $280,000
Administrative expenses- $375,000
Retained earnings, 1/1 (Jan 1) - $630,000
Dividends-Common stock- $235,000
Interest expense- $795,000
Instructions:
Prepare in good form a multiple-step income statement for the year of 2017 for Festival Co. Assume a 30% tax rate and that 140,000 shares of common stock were outstanding during the year. Include an appropriate heading for the statement. All subtotals should be titled appropriately. Also determine earnings per share based on the net income figure at the bottom of the statement (round to two decimals). That is, you don't need to show per share information for different components. Please note, the items given above are in scrambled order and not all items should be reported on an income statement.
Explanation / Answer
FESTIVAL CO INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017 Sales Revenue $3,850,000 Cost of Goods Sold $1,575,000 Gross Profit $2,275,000 Operating Expenses Selling Expenses $495,000 Administrative expenses $375,000 Income From Operations $1,405,000 Other Revenue and Gains Interest Revenue $690,000 Other Expenses and Losses Interest Expense $795,000 Income before taxes and extraordinary items $1,300,000 Income Taxes @ 30% $390,000 Income from Continuing Operations $910,000 Discountinued Operations Income on operations, net of tax - 280000*70% $196,000 Loss on Disposition, net of tax - $330000*70% ($231,000) Income before extraordinary items $875,000 Extraordinary item - Loss from change in accounting principles, 32000*70% ($22,400) Net Income $852,600 Earnings per share Income from continuing operations ($910000-$275000)/140000 4.54 Discountinued operations Income on operations, net of tax $196000/140000 1.40 Loss on Disposition, net of tax $231000/140000 ($1.65) ($0.25) Income before extraordinary item $4.29 ($2925570-$87850)/492800 Extraordinary loss $22400/140000 -0.16 Net Income ($2528570-$87850)/492800 $4.13