Following are the income statements for Martha’s Miscellaneous for Year 1 and Ye
ID: 2425050 • Letter: F
Question
Following are the income statements for Martha’s Miscellaneous for Year 1 and Year 2:
Martha’s Miscellaneous Comparative Statements of Income and Retained Earnings
$
%
Year 2
Year 1
Change
Change
Sales revenue
$700,000
$650,000
Cost of goods sold
500,000
455,000
Gross profit
$200,000
$195,000
Payroll expense
$ 50,000
$ 42,250
Insurance expense
30,000
29,000
Rent expense
18,000
18,000
Depreciation
35,000
15,000
Total expenses
$133,000
$104,250
Operating income
$ 67,000
$ 90,750
Interest expense
(7,000)
(5,000)
Gain on vehicle sale
25,000
—
Loss on sale of securities
(25,000)
—
Interest revenue
75,000
50,000
Net income before interest and taxes
$135,000
$135,750
Income taxes
40,000
40,250
Net income
$ 95,000
$ 95,500
Dividends
38,000
38,000
Total retained earnings
$ 57,000
$ 57,500
Retained earnings, 1/1
193,500
136,000
Retained earnings, 12/31
$250,500
$193,500
Required
Complete the comparative income statement by computing dollar change ($ change) and percentage change (% change).
Martha’s Miscellaneous Comparative Statements of Income and Retained Earnings
$
%
Year 2
Year 1
Change
Change
Sales revenue
$700,000
$650,000
Cost of goods sold
500,000
455,000
Gross profit
$200,000
$195,000
Payroll expense
$ 50,000
$ 42,250
Insurance expense
30,000
29,000
Rent expense
18,000
18,000
Depreciation
35,000
15,000
Total expenses
$133,000
$104,250
Operating income
$ 67,000
$ 90,750
Interest expense
(7,000)
(5,000)
Gain on vehicle sale
25,000
—
Loss on sale of securities
(25,000)
—
Interest revenue
75,000
50,000
Net income before interest and taxes
$135,000
$135,750
Income taxes
40,000
40,250
Net income
$ 95,000
$ 95,500
Dividends
38,000
38,000
Total retained earnings
$ 57,000
$ 57,500
Retained earnings, 1/1
193,500
136,000
Retained earnings, 12/31
$250,500
$193,500
Explanation / Answer
Answer:
Martha’s Miscellaneous Comparative Statements of Income and Retained Earnings $ % Year 2 Year 1 Change Change Sales revenue $700,000 $650,000 $50,000 7.69% Cost of goods sold $500,000 $455,000 $45,000 9.89% Gross profit $200,000 $195,000 $5,000 2.56% Payroll expense $50,000 $42,250 $7,750 18.34% Insurance expense $30,000 $29,000 $1,000 3.45% Rent expense $18,000 $18,000 $0 0.00% Depreciation $35,000 $15,000 $20,000 133.33% Total expenses $133,000 $104,250 $28,750 27.58% Operating income $67,000 $90,750 -$23,750 -26.17% Interest expense -$7,000 -$5,000 -$2,000 40.00% Gain on vehicle sale $25,000 $0 $25,000 Loss on sale of securities -$25,000 $0 -$25,000 Interest revenue $75,000 $50,000 $25,000 50.00% Net income before interest and taxes $135,000 $135,750 -$750 -0.55% Income taxes $40,000 $40,250 -$250 -0.62% Net income $95,000 $95,500 -$500 -0.52% Dividends $38,000 $38,000 $0 0.00% Total retained earnings $57,000 $57,500 -$500 -0.87% Retained earnings, 1/1 $193,500 $136,000 $57,500 42.28% Retained earnings, 12/31 $250,500 $193,500 $57,000 29.46%