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Chapter 4: Question E4-17_c (page 186)

The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations \(187,000, income tax applicable to loss on discontinued operations \)25,500, and unrealized holding gain on available-for-sale securities (net of tax) \(15,000.

Gain on sale of equipment \)95,000 Cash dividends declared $150,000

Loss on discontinued operations75,000 Retained earnings January1,2017 600,000

Administrative expenses 240,000 Cost of goods sold 850,000

Rent revenue 40,000 Selling expenses 300,000

Loss on write-down of inventory 60,000 Sales revenue 1,900,000

Shares outstanding during 2017 were 100,000.

Instructions

  1. Prepare a single-step income statement.
  2. Prepare a comprehensive income statement for 2017 using the two statement format.
  3. Prepare a retained earnings statement for 2017.

Short Answer

Expert verified

(c) Balance in the retained earnings is $798,500.

Step by step solution

01

Meaning of Retained earnings

Retained earnings refer to the cumulative profits of the business entities. Such earnings are reported after the settlement of dividends to stockholders. It is shown in the liabilitiessection under the shareholder’s equity head.

02

Preparation of retained earnings statement

Roland Carlson Inc.

Retained Earnings Statement

For the year ended 2017

Particulars

Amounts ($)

Retained Earnings on January 1, 2017

600,000

Add: Net Income

348,500

948,500

Less: Cash dividend

(150,000)

Retained Earnings on December 31, 2017

$798,500

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Most popular questions from this chapter

Discuss the appropriate treatment in the financial statements of each of the following.

(a) Gain on sale of investment securities.

(b) A profit-sharing bonus to employees computed as a percentage of net income.

(c) Additional depreciation on factory machinery because of an error in computing depreciation for the previous year.

(d) Rent received from subletting a portion of the office space.

(e) A patent infringement suit, brought 2 years ago against the company by another company, was settled this year by a cash payment of $725,000.

(f) A reduction in the Allowance for Doubtful Accounts balance because the account appears to be considerably in excess of the probable loss from uncollectible receivables.

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.

The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows.XXX

  1. The beginning merchandise inventory was \(92,000 and decreased 20% during the current year.
  2. Sales discounts amount to \)17,000.
  3. 20,000 shares of common stock were outstanding for the entire year.
  4. Interest expense was \(20,000.
  5. The income tax rate is 30%.
  6. The cost of goods sold amounts to \)500,000.
  7. Administrative expenses are 20% of the cost of goods sold but only 8% of gross sales.
  8. Four-fifths of the operating expenses relate to sales activities.

Instructions

From the foregoing information prepare an income statement for the year 2017 in single-step form.

Identify at least two situations in which application of different accounting methods or accounting estimates results in difficulties in comparing companies.

Question: What is the major distinction (a) between revenues and gains and (b) between expenses and losses?
See all solutions

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