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Chapter 13: Q5TI (page 695)

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

Other Income and (Expenses) \( (6,000) Cost of Goods Sold \) 29,200

Net Sales Revenue 70,800 Operating Expenses 22,000

Gain on Discontinued Operations 4,800

The income tax rate for Rocky Corporation is 30%. Prepare Rocky鈥檚 income statement for the year ended December 31, 2018.

Omit earnings per share. Use a multi-step format

Short Answer

Expert verified

Net Income for the year ended December 31, 2018, is $12,880

Step by step solution

01

Basic Introduction-

Income statement is a financial statement that represents financial position of a corporation in the market. It includes all the revenue and expenses of a corporation to determine the net income or net loss earned or incurred by a corporation.

02

Income Statement-

Income Statement

December 31, 2018

Net Sales Revenue

$70,800

Cost of Goods Sold

($29,200)

Gross profit

$41,600

Less: Operating Expenses

($22,000)

Operating Income

$19,600

Other Income and (Expenses)

($6,000)

Income from continuous operations

$13,600

Less: Income tax

($4,080)

Income after Tax

$9,520

Gain on Discontinued Operations

$3,360

Net Income

$12,880

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Most popular questions from this chapter

What is the effect on the accounting equation when cash dividends are declared?

What is the effect on the accounting equation when cash dividends are paid?

Accounting for the purchase and sale of treasury stock

Discount Furniture, Inc. completed the following treasury stock transactions in 2018:

Dec. 1 Purchased 1,900 shares of the company鈥檚 \(1 par value common stock as treasury stock, paying cash of \)5 per share.

15 Sold 200 shares of the treasury stock for cash of \(8 per share.

20 Sold 1,000 shares of the treasury stock for cash of \)1 per share. (Assume the balance in Paid-In Capital from Treasury Stock Transactions on December 20 is $2,400.)

Requirements

1. Journalize these transactions. Explanations are not required.

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders鈥� equity on its balance sheet at June 30, 2018:

Preferred Stock鈥�7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders鈥� Equity \) 17,640,000

Common Stock鈥擻(1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)500,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.

Lena Kay and Kathy Lauder have a patent on a new line of cosmetics. They need additional capital to market the products, and they plan to incorporate the business. They are considering the capital structure for the corporation. Their primary goal is to raise as much capital as possible without giving up control of the business. Kay and Lauder plan to invest the patent (an intangible asset, which will be transferred to the company鈥檚 ownership in lieu of cash) in the company and receive 100,000 shares of the corporation鈥檚 common stock. They have been offered \(100,000 for the patent, which provides an indication of the fair market value of the patent. The corporation鈥檚 plans for a charter include an authorization to issue 5,000 shares of preferred stock and 500,000 shares of \)1 par common stock. Kay and Lauder are uncertain about the most desirable features for the preferred stock. Prior to incorporating, they are discussing their plans with two investment groups. The corporation can obtain capital from outside investors under either of the following plans:

鈥� Plan 1. Group 1 will invest \(150,000 to acquire 1,500 shares of 6%, \)100 par nonvoting, noncumulative preferred stock.

鈥� Plan 2. Group 2 will invest \(100,000 to acquire 1,000 shares of \)5, no-par preferred stock and \(70,000 to acquire 70,000 shares of common stock. Each preferred share receives 50 votes on matters that come before the common stockholders.

Requirements Assume that the corporation has been chartered (approved) by the state.

1. Journalize the issuance of common stock to Kay and Lauder. Explanations are not required.

2. Journalize the issuance of stock to the outsiders under both plans. Explanations are not required.

3. Net income for the first year is \)180,000, and total dividends are $30,000. Prepare the stockholders鈥� equity section of the corporation鈥檚 balance sheet under both plans at the end of the first year.

4. Recommend one of the plans to Kay and Lauder. Give your reasons

What are the basic rights of stockholders?
See all solutions

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