Question

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

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

Short answer

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

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

Step-by-step solution

Meaning of Single-Step Income Statement

A single-step income statement is a simplified format of presenting net income generated by a business entity. Such an income statement directly reports the revenues and expenses and ascertains net income.

Preparation of single-step income statement

In the books of Twain Corporation Single-step Income Statement For the year ended June 30, 2017
Particulars	Amounts ($)
Revenues
Net sales	1,485,050
Add: Dividend revenue	38,000
Total revenues	1,523,050
Expenses
Cost of goods sold	896,770
Selling expenses	248,785
Administrative expenses	35,970
Interest expenses	18,000
Total expenses	(1,199,525)
Income before tax	323,525
Less: Income tax expense	(102,000)
Net income	221,525
Earnings per share (221525-9000)/80000	$2.66

Preparation of statement of retained earnings

In the books of Twain Corporation Retained Earnings Statement For the year ended June 30, 2017
Particulars	Amounts ($)
Balance as of 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 of June 30, 2017	$494,825