Question

Question: A Preparing an income statement

The following information was taken from the records of Chua Motorsports, Inc. at November 30, 2018:

Learning Objective 5

Net Income \(65,500

Selling Expenses

Administrative Expenses

Income from Discontinued Operations

Cost of Goods Sold

Treasury Stock—Common (5,000 shares)

Net Sales Revenue

\) 110,000

115,000

2,500

510,000

75,000

819,000

Common Stock, \(12 Par Value,

10,000 shares authorized and issued \) 120,000

Preferred Stock, $7 No-Par Value,

7,000 shares issued 490,000

Income Tax Expense: Continuing

Operations 20,000

Income Tax Expense: Income from

Discontinued Operations 1,000

Prepare a multi-step income statement for Chua Motorsports for the fiscal year ended November 30, 2018. Include earnings per share.

Short answer

Answer

A multi-step income statement for the fiscal year ended November 30, 2018 shows net income $65,500 and earnings per share is $3.30.

Step-by-step solution

Basic calculations

$$\begin{gathered} \mathbf{Income}\mathbf{}\mathbf{from}\mathbf{}\mathbf{Discountinued}\mathbf{}\mathbf{Operations}\mathbf{}\mathbf{Less}\mathbf{}\mathbf{Applicable}\mathbf{}\mathbf{Tax}\mathbf{=}\mathbf{Income}\mathbf{}\mathbf{from}\mathbf{}\mathbf{Discountinued}\mathbf{}\mathbf{Operations}\mathbf{-}\mathbf{Income}\mathbf{}\mathbf{Tax}\mathbf{}\mathbf{Expnses} \\ \mathbf{=}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500}\mathbf{-}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{500} \end{gathered}$$

 Step 2: Multi-step income statement-

Income Statement November 30, 2018
Net Sales Revenue	$819,000
Cost of goods sold	$510,000
Gross Profit	$309,000
Less: Operating Expenses-
Selling Expenses	($110,000)
Administrative Expenses	($115,000)
Operating Income	$84,000
Less: Income Tax Expense: Continuing Operations	($20,000)
Income from Continuing Operations	$64,000
Income from Discontinued Operations less applicable tax	$1,500
Net Income	$65,500
Less: Preferred dividend (7,000 * $7)	($49,000)
Earnings available	$16,500
No of equity shares issued and outstanding (10,000 – 5,000)	5,000
Earnings per share (a/b)	$3.30