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Chapter 13: Q12SE (page 710)

Preparing a corporate income statement

ABC Corporation鈥檚 accounting records include the following items, listed in no particular order, at December 31, 2018:

Other Income and (Expenses) \( (7,200) Cost of Goods Sold \) 30,000

Net Sales 81,000 Operating Expenses 25,000

Gain on Discontinued Operations 3,600

The income tax rate for ABC Corporation is 39%.

Prepare ABC鈥檚 income statement for the year ended December 31, 2018. Omit earnings per share. Use the multi-step format.

Short Answer

Expert verified

The net Incomeof the company asper the multi-step income statement is $13,664.

Step by step solution

01

Basic Introduction-

Income statement is a financial statement of a company that is used for the analyses of financial position of the company. It includes all the revenues and expenses and determines whether the company incurred net income or loss at the end of the financial year.

02

Income statement of ABC Corporation

ABC Corporation

Income Statement

Dec 31, 2018

Net sales

$81,000

Cost of Goods Sold

($30,000)

Gross profit

$51,000

Less Operating Expenses

($25,000)

Operating Income

$26,000

Less: Other Income and (Expenses)

($7,200)

Income before Interest and tax

$18,800

Less: Income tax

($7,332)

Income from continuing operation

$11,468

Add: Gain on Discontinued Operations ($3,600*39%)

$2,196

Net Income

$13,664

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Most popular questions from this chapter

Computing earnings per share, price/earnings ratio, and rate of return on common stockholders鈥� equity

Gullo Company reported these figures for 2018 and 2017:

2018 2017

Income Statement鈥攑artial:

Net Income \( 18,900 \) 24,000

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet鈥攑artial:

Total Assets \( 285,000 \) 200,000

Paid-In Capital:

Preferred Stock鈥�11%, \(9 Par Value; 60,000 sharesauthorized, 10,000 shares issued and outstanding\) 90,000 \( 90,000

Common Stock鈥擻)1 Par Value; 45,000 sharesauthorized, 30,000 shares issued and outstanding

30,000 30,000

Paid-In Capital in Excess of Par鈥擟ommon 14,000 14,000

Retained Earnings 51,000 42,000

Total Stockholders鈥� Equity \( 185,000 \) 176,000

Learning Objectives 3, 4, 6

2. Retained Earnings Dec. 31,

2018 \(218,280

Requirements

1. Compute Gullo Company鈥檚 earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.

2. Compute Gullo Company鈥檚 price/earnings ratio for 2018. Assume the company鈥檚 market price per share of common stock is \)9. Round to two decimals.

3. Compute Gullo Company鈥檚 rate of return on common stockholders鈥� equity for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest whole percent.

Computing earnings per share and price/earnings ratio

Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket鈥檚 books include the following figures:

Preferred Stock鈥�6%, \)60 par value; 2,000 shares authorized, 1,000

shares issued and outstanding \( 60,000

Common Stock鈥擻)5 par value; 80,000 shares authorized, 48,000 shares

issued, 46,700 shares outstanding 240,000

Paid-In Capital in Excess of Par鈥擟ommon 470,000

Treasury Stock鈥擟ommon; 1,300 shares at cost (26,000)

Requirements

2. Assume Rocket鈥檚 market price of a share of common stock is $12 per share. Compute Rocket鈥檚 price/earnings ratio.

Journalizing treasury stock transactions and reporting stockholders鈥� equity

Southern Amusements Corporation had the following stockholders鈥� equity on

November 30:

Paid-In Capital:

Common Stock鈥擻(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders鈥� Equity \) 55,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

3. How many shares of common stock are outstanding after the purchase oftreasury stock?

Computing earnings per share, price/earnings ratio, and rate of return on common stockholders鈥� equity

Bianchi Company reported these figures for 2018 and 2017:

2018 2017

Income Statement鈥攑artial:

Net Income \( 34,380 \) 18,000

Dec. 31, 2018 Dec. 31, 2017

Balance Sheet鈥攑artial:

Total Assets \( 285,000 \) 280,000

Paid-In Capital:

Preferred Stock鈥�11%, \(9 Par Value; 60,000 shares

authorized, 12,000 shares issued and outstanding

\) 108,000 \( 108,000

Common Stock鈥擻)2 Par Value; 60,000 shares

authorized, 50,000 shares issued and outstanding

100,000 100,000

Paid-In Capital in Excess of Par鈥擟ommon 14,000 14,000

Retained Earnings 60,500 38,000

Total Stockholders鈥� Equity \( 282,500 \) 260,000

Requirements

2. Compute Bianchi Company鈥檚 price/earnings ratio for 2018. Assume the company鈥檚 market price per share of common stock is $9. Round to two decimals.

Preparing a statement of retained earnings

Kingston, Inc. had beginning retained earnings of \(135,000 on January 1, 2018. During the year, Kingston declared and paid \)85,000 of cash dividends and earned $75,000 of net income. Prepare a statement of retained earnings for Kingston, Inc. for the year ending December 31, 2018.
See all solutions

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