(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.

Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000

Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000

Selling expenses 65,000 Casualty loss 50,000

Administrative expenses 48,000 Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000

Interest Revenue 7,000

Effective tax rate of 34% on all items

Instructions

  1. Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
  2. Prepare a separate retained earnings statement for 2017.

Short Answer

Expert verified

a) EPS equals $3.34

b) Retained earnings statement has a balance of $1,099,340.

Step by step solution

01

Meaning of Interest Revenue

Interest revenue refers to the amount of money received by a business or an individual from investing. It is reported in the income statement under the head Non-Operating Expenses.

02

Preparing Multiple Step Income Statement

Ivan Calderon Corporation
Income Statement
For the Year Ended December 31, 2017

Net Sales

1,300,000

Cost of Goods sold

780,000

Gross Profits

520,000

Operating expenses

Selling expense

65,000

Administrative expense

48,000

Total operating expenses

113,000

Income from Operations

407,000

Other Revenues and Gains

Dividend Revenue

20,000

Interest Revenue

7,000

27,000

Other Expenses and Losses

Write off inventory due to obsolescence.

80,000

Casualty Loss

50,000

Income before Tax

304,000

Income Tax expense

103,360

Net Income

$200,640

Earnings per Share

$3.34

Working Note:

  1. Calculation of Earnings per Share

Earningspershare=NetIncome÷Outstandingcommonstock=$200,640÷60,000=$3.34

03

Preparing Separate Retained Earnings Statement for 2017

Ivan Calderon Corp.
Retained Earnings Statement
For the Year Ended December 31, 2017

Retained Earnings On December 31, 2016

980,000

Depreciation Expense net of tax

36,300

Adjusted Retained earnings

943,700

Add:

Net Income

200,640

Less: Cash Dividend Declared

45,000

Retained earnings balance on December 31, 2017

1,099,340

Working Note:

  1. Calculation of Depreciation Expense

DepreciationExpense=AmountofDepreciation×(1-Taxrate)=$55,000×(1-0.34)=$36,300

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Most popular questions from this chapter

How should the disposal of a component of a business be disclosed in the income statement?

Question: Presented below is a combined single-step income and retained earnings statement for Nerwin Company for 2017.

(000 omitted)

Net sales revenue \(640,000

Costs and expenses

Cost of goods sold \)500,000

Selling, general, and administrative expenses 66,000

Other, net 17,000

583,000

Income before income tax 57,000

Income tax 19,400

Net income 37,600

Retained earnings at beginning of period, as previously reported 141,000

Adjustment required for correction of error (7,000)

Retained earnings at beginning of period, as restated 134,000

Dividends on common stock (12,200)

Retained earnings at end of period \(159,400

Additional facts are as follows.

1. “Selling, general, and administrative expenses” for 2017 included a charge of \)8,500,000 that was usual but infrequently occurring.

2. “Other, net” for 2017 included a loss on sale of equipment of $6,000,000.

3. “Adjustment required for correction of an error” was a result of a change in estimate (useful life of certain assets reduced to 8 years and a catch-up adjustment made).

4. Nerwin Company disclosed earnings per common share for net income in the notes to the financial statements.

Instructions

Determine from these additional facts whether the presentation of the facts in the Nerwin Company income and retained earnings statement is appropriate. If the presentation is not appropriate, describe the appropriate presentation and discuss its theoretical rationale. (Do not prepare a revised statement.)

A Wall Street Journal article noted that Apple reported higher income than its competitors by using a more aggressive policy for recognizing revenue on future upgrades to its products. Some contend that Apple’s quality of earnings is low. What does the term “quality of earnings” mean?

Which statement is correct regarding IFRS?

  1. An advantage of the nature-of-expense method is that it is simple to apply because allocations of expense to different functions are not necessary.
  2. The function-of-expense approach never requires arbitrary allocations.
  3. An advantage of the function-of-expense method is that the allocation of costs to the varying functions is rarely arbitrary.
  4. IFRS requires the use of the nature-of-expense approach.

Presented below are certain account balances of Paczki Products Co.

Rent revenue \(6,500 Sales discounts \)7,800

Interest expense \(12,700 Selling expenses \)99,400

Beginning retained earnings \(114,400 Sales revenue \)390,000

Ending retained earnings \(125,000Income tax expense \)31,000

Dividend revenue \(71,000Cost of goods sold \)184,000

Sales returns and allowances \(12,400Administrative expenses \)82,500

Allocation to non controlling interest $17,000

Instructions

From the foregoing, compute the following: (a) total net revenue, (b) net income, (c) dividends declared, and (d) income attributable to controlling stockholders.

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