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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Mantego Company listed the following selected pretax items as of December 31, 2019:

Chapter 16, Problem 18P, Mantego Company listed the following selected pretax items as of December 31, 2019: Additional

Additional information:

The preferred shares had been outstanding the entire year; annual dividends were declared and paid in 2019. During 2019, 2,000 common shares were issued on July 2, and 6,000 common shares were issued on November 3. Common dividends of $12,500 were declared and paid in 2019. The company is subject to a 30% income tax rate.

Required:

Prepare Mantego’s 2019 income statement (multiple-step) and the related note.

To determine

Prepare multiple –step income statement for the Company M and also provide its necessary notes.

Explanation

Retained earnings: Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Prepare multiple –step income statement for the Company M and also provide its necessary notes:

Company M
Income statement
for the years ended December 31, 2019
ParticularsAmount in $
Sales206,000
Cost of goods sold(131,000)
Gross profit75,000
Operating expenses(19,250)
Pretax income from continued operations55,750
Income tax expense (30%)(16,725)
Income from continued operations39,025
Results of discontinued operations: 

Gain on disposal of discounted operations (net of $2,400

income tax)

5,600

Loss from discounted operations (net of $2,700 income tax

credit)

(14,000)
Net income30,625
Basic earnings per share: 
Income from continuing operations2.85
Results from discontinued operations(0.70)
Net income2.15

(Table 1)

Notes to the financial statement:

Note A: Preferred dividend of $4,800 is deducted from the income from operations and net income to ascertain the earnings available in the common stock. The resulting amount of $34,225 (income from operations) and $28,825(net income) is divided with weighted average number of shares outstanding that yields $2.85 and $2.15 respectively.

Working note (1): Calculate the number of common shares outstanding for the year 2019.

Number of  common shares outstanding} =(Number of common sharesShares issued on JulyShares issued on November)=18,0002,0006,000=10,000

Working note (2): Calculate the weighted average shares outstanding for the year 2019

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