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The following account balances were included in the trial balance of Twain Corporation at June 30, 2017.

Sales revenue \(1,578,500

Depreciation expense (office furniture and equipment) \)7,250

Sales discounts \(31,150

Cost of goods sold \)896,770

Property tax expense \(7,320

Salaries and wages expense (sales) \)56,260

Bad debt expense (selling) \(4,850

Sales commissions \)97,600

Maintenance and repairs expense (administration) \(9,130

Travel expense (salespersons) \)28,930

Delivery expense \(21,400

Office expense \)6,000

Entertainment expense \(14,820

Sales returns and allowances \)62,300

Telephone and Internet expense (sales) \(9,030

Dividends received \)38,000

Depreciation expense (sales equipment) \(4,980

Interest expense \)18,000

Maintenance and repairs expense (sales) \(6,200

Income tax expense \)102,000

Miscellaneous selling expenses \(4,715

Depreciation understatement due to error—2014 (net of tax) \)17,700

Office supplies used \(3,450

Telephone and Internet expense (administration) \)2,820

Dividends declared on preferred stock \(9,000

Dividends declared on common stock \)37,000

The Retained Earnings account had a balance of $337,000 at July 1, 2016. There are 80,000 shares of common stock outstanding.

Instructions

(a) Using the multiple-step form, prepare an income statement and a retained earnings statement for the year ended June 30, 2017.

Short Answer

Expert verified

The net income of the company is $221,525.

The balance in the statement of retained earnings is $494,825.

Step by step solution

01

Meaning of Multi-Step Income Statement

A multi-step income statement follows a specific format to present the revenues and expenses of a business concern. It represents the operating and non-operating earnings and expensesseparately.

02

Preparation of multi-step income statement

In the books of Twain Corporation

Multi-step Income Statement

For the year ended June 30, 2017

Particulars

Details

Amounts ($)

Sales revenue

1,578,500

Less: Sales discount

31,150

Less: Sales returns and allowances

62,300

(93,450)

Net sales

1,485,050

Less: Cost of goods sold

(896,770)

Gross profit

588,280

Operating expenses

Sales commissions

97,600

Salaries and wages

56,260

Travel expense

28,930

Delivery expense

21,400

Entertainment expense

14,820

Telephone and internet expense

9,030

Maintenance and repairs expense

6,200

Depreciation expense

4,980

Bad debt expense

4,850

Miscellaneous selling expense

4,715

(248,785)

Administrative expenses

Maintenance and repair expense

9,130

Property tax expense

7,320

Depreciation expense

7,250

Supplies expense

3,450

Telephone and internet expense

2,820

Miscellaneous office expenses

6,000

(35,970)

Operating income

303,525

Other gains and revenues

Dividend revenue

38,000

Other expenses and losses

Interest expense

(18,000)

Income before tax

323,525

Less: Income tax expense

(102,000)

Net income

$221,525

Earnings per share ($221,525-9000)/80000

$2.66

03

Preparation of retained earnings statement

In the books of Twain Corporation

Retained Earnings Statement

For the year ended June 30, 2017

Particulars

Amounts ($)

Balance as on July 1, 2016

337,000

Correction of depreciation understatement

(17,700)

Add: Net income

221,525

Less: Dividend declared on preferred stock

(9,000)

Less: Dividend declared on common stock

(37,000)

Balance as on June 30, 2017

$494,825

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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?

(Multiple-Step Statement) The following balances were taken from the books of Alonzo Corp. on December 31, 2017.

Interest revenue \(86,000 Accumulated depreciation equipment \)40,000

Cash \(51,000 Accumulated depreciation—buildings \)28,000

Sales revenue \(1,380,000 Notes receivable \)155,000

Accounts receivable \(150,000 Selling expenses \)194,000

Prepaid insurance \(20,000 Accounts payable \)170,000

Sales returns and allowances \(150,000 Bonds payable \)100,000

Allowance for doubtful accounts \(7,000 Administrative and general expense \)97,000

Sales discounts \(45,000 Accrued liabilities \)32,000

Land \(100,000 Interest expense \)60,000

Equipment \(200,000 Notes payable \)100,000

Buildings \(140,000 Loss from earthquake damage \)150,000

Cost of goods sold \(621,000 Common stock \)500,000

Retained earnings $21,000

Assume the total effective tax rate on all items is 34%.

Instructions

Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year.

Brisky Corporation had net sales of \(2,400,000 and interest revenue of \)31,000 during 2017. Expenses for 2017 were cost of goods sold \(1,450,000, administrative expenses \)212,000, selling expenses \(280,000, and interest expense \)45,000. Brisky’s tax rate is 30%. The corporation had 100,000 shares of common stock authorized and 70,000 shares issued and outstanding during 2017. Prepare a single-step income statement for the year ended December 31, 2017.

State some of the more serious problems encountered in seeking to achieve the ideal measurement of periodic net income. Explain what accountants do as a practical alternative.

The non-controlling interest section of the income statement is:

(a) required under GAAP but not under IFRS.

(b) required under IFRS but not under GAAP.

(c) required under IFRS and GAAP.

(d) not reported under GAAP or IFRS.

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