Prepare an income statement for the year 2014 starting with income from continui
ID: 2455709 • Letter: P
Question
Prepare an income statement for the year 2014 starting with income from continuing operations before taxes.
Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding
for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)
P4-4 (Multiple- and Single-Step Income, Retained Earnings) The following account balances were included
in the trial balance of Twain Corporation at June 30, 2014.
Sales revenue $1,578,500 Depreciation expense (offi ce
Sales discounts 31,150 furniture and equipment) $ 7,250
Cost of goods sold 896,770 Property tax expense 7,320
Salaries and wages expense (sales) 56,260 Bad debt expense (selling) 4,850
Sales commissions 97,600 Maintenance and repairs
Travel expense (salespersons) 28,930 expense (administration) 9,130
Delivery expense 21,400 Offi ce expense 6,000
Entertainment expense 14,820 Sales returns and allowances 62,300
Telephone and Internet expense (sales) 9,030 Dividends received 38,000
Depreciation expense (sales equipment) 4,980 Interest expense 18,000
Maintenance and repairs expense (sales) 6,200 Income tax expense 102,000
Miscellaneous selling expenses 4,715 Depreciation understatement
Offi ce supplies used 3,450 due to error—2011 (net of tax) 17,700
Telephone and Internet expense Dividends declared on
(administration) 2,820 preferred stock 9,000
Dividends declared on common
stock 37,000
The Retained Earnings account had a balance of $337,000 at July 1, 2013. There are 80,000 shares of common
stock outstanding.
Instructions
(a) Using the multiple-step form, prepare an income statement and a retained earnings statement for
the year ended June 30, 2014.
(b) Using the single-step form, prepare an income statement and a retained earnings statement for the
year ended June 30, 2014.
Explanation / Answer
Ans 1
Ans 2
Mutiple Step Details Amount Amount Sales revenue 15,78,500 Sales returns and allowances 62,300 Net Sales 15,16,200 Less Cost of Goods Sold 8,96,770 Gross Margin 6,19,430 Operating Expenses Administrative Expenses Property tax expense 7320 Depreciation expense Office Furniture and equipment 7250 expense (administration) 9130 Office expense 6000 Entertainment expense 14820 Telephone and Internet expense 2,820 47340 Selling Expenses Salaries and wages expense (sales) 56,260 Bad debt expense (selling) 4850 Travel expense (salespersons) 28930 Delivery expense 21400 Telephone and Internet expense (sales) 9030 Depreciation expense (sales equipment) 4980 Maintenance and repairs expense (sales) 6,200 Miscellaneous selling expenses 4715 1,36,365 Total Operating Expenses 1,83,705 Operating Profit 4,35,725 Interest expense 18,000 Profit Before tax 4,17,725 Other Income(Expenses) Dividends received 38,000.00 Net Profit Before tax 4,55,725.00 Less tax 1,02,000.00 Net Profit from continiuing operations 3,53,725.00 Depreciation understatement net off tax 17,700 Offi ce supplies used due to error 3,450.00 Net Impact of accounting Error 21,150.00 Net Profit 3,32,575.00 Retained Earnings at the beginnng 3,37,000.00 Add net Profit 3,32,575.00 Less preference Dividend 9,000.00 Less Dividend on common stock 37,000.00 Retained Earnings at the end 6,23,575.00Ans 2
Single Step Details Amount Amount Sales revenue 15,78,500 Sales returns and allowances 62,300 Net Sales 15,16,200 Less Cost of Goods Sold 8,96,770.00 Administrative Expenses 50,790.00 Selling Expenses 1,54,065.00 Interest expense 18,000.00 Dividends received -38,000.00 Less tax 1,02,000.00 Total Cost 11,83,625.00 Net Profit 3,32,575.00 Retained Earnings at the beginnng 3,37,000.00 Add net Profit 3,32,575.00 Less preference Dividend 9,000.00 Less Dividend on common stock 37,000.00 Retained Earnings at the end 6,23,575.00