Comprehensive: Income Statement and Supporting Schedules The following s a partial list of the account balances, after adjustments, of Silvoso Company on December 31, 2019:
The following information is also available:
- 1. The company declared and paid a $0.60 per share cash dividend on its common stock. The stock was outstanding the entire year.
- 2. A physical count determined that the December 31, 2019, ending inventory is $34,100.
- 3. A tornado destroyed a warehouse, resulting in a pretax loss of $12,000. The last tornado in this area had occurred 10 years earlier.
- 4. On May 1, 2019, the company sold an unprofitable division (R). From January through April, Division R (a major component of the company) had incurred a pretax operating loss of $8,700. Division R was sold at a pretax gain of $10,000.
- 5. The company is subject to a 30% income tax rate. Its income tax expense for 2019 totals $4,230. The breakdown is as follows:
- 6. The company had average shareholders’ equity of $150,000 during 2019.
Required:
- 1. As supporting documents for Requirement 2, prepare separate supporting schedules for cost of goods sold, selling expenses, general and administrative expenses, and
depreciation expense. - 2. Prepare a 2019 multiple-step income statement for Silvoso. Include any related note to the financial statements.
- 3. Prepare a 2019
retained earnings statement. - 4. Next Level What was Silvoso’s return on common equity for 2019? What is your evaluation of Silvoso’s return on common equity if last year it was 10%?
1.
Provide supporting schedules for cost of goods sold, selling expenses, general and administrative expenses, and depreciation expense.
Explanation of Solution
Cost of goods sold: Cost of goods sold is the total of all the expenses incurred by a company to sell the goods during the given period.
Schedule of cost of goods sold is a report which reports cost of goods sold in a detailed manner.
Provide the schedule of cost of goods sold:
Company S | ||
For the Year Ended December 31, 2019 | ||
Schedule 1: Cost of goods sold | ||
Particulars | Amount | Amount |
($) | ($) | |
Beginning inventory | $37,800 | |
Add: Purchases | $173,000 | |
Transportation in | $13,500 | |
Cost of purchases | $186,500 | |
Less: Purchase discount taken | ($4,100) | |
Purchases returns and allowances | ($6,200) | |
Net purchases | $176,200 | |
Cost of goods available for sale | $214,000 | |
Less: Ending inventory | ($34,100) | |
Cost of goods sold | $179,900 |
Table (1)
Provide the schedule of selling expenses:
Company S | ||
For the Year Ended December 31, 2019 | ||
Schedule 2: Selling Expenses | ||
Particulars | Amount ($) | Amount ($) |
Selling expenses: | ||
Sales commission salaries | $18,200 | |
Sales supplies used | $5,600 | |
Delivery expense | $7,700 | |
Promotion and advertising expense | $17,000 | |
Total selling expenses | $48,500 |
Table (2)
Provide the schedule of general and administrative expenses:
Company S | ||
For the Year Ended December 31, 2019 | ||
Schedule 3: General and Administrative Expenses | ||
Particulars | Amount ($) | Amount ($) |
General and Administrative Expenses: | ||
Bad debt expense | $2,700 | |
Office supplies expense | $1,400 | |
Insurance and property tax expense | $8,500 | |
Office and administrative salaries expenses | $32,000 | |
Total General and Administrative Expenses | $44,600 |
Table (3)
Provide the schedule of depreciation expenses:
Company S | ||
For the Year Ended December 31, 2019 | ||
Schedule 4: Depreciation Expenses | ||
Particulars | Amount ($) | Amount ($) |
Depreciation Expenses: | ||
Building and office equipment | $14,500 | |
Sales equipment | $9,600 | |
Total depreciation expense | $24,100 |
Table (4)
2.
Provide a multi-step income statement for the year 2019.
Explanation of Solution
Multi step income statement: A multiple step income statement refers to the income statement that shows the operating and non-operating activities of the business under separate head. In different steps of the multi-step income statement, principal operating activities are reported that starts from the record of sales revenue with all contra sales revenue account like sales returns, allowances and sales discounts.
Prepare a multi-step income statement for the year 2019.
Company S | ||
Income Statement | ||
For the Year Ended December 31, 2019 | ||
Particulars | Amount | Amount |
($) | ($) | |
Sales | $328,600 | |
Less: Sales discount taken | ($4,900) | |
Net sales | $323,700 | |
Less: Cost of goods sold | ($179,900) | |
Gross profit | $143,800 | |
Operating expenses: | ||
Selling expenses | ($48,500) | |
General and administrative expenses | ($44,600) | |
Depreciation | ($24,100) | |
Total operating expense | ($117,200) | |
Operating income | $26,600 | |
Other item: | ||
Rent revenue | $6,900 | |
Interest expense | ($3,700) | |
Loss on sale of office equipment | ($5,000) | |
Loss due to tornado | ($12,000) | |
Pretax income from continuing operations | $12,800 | |
Less: Income tax expense (1) | ($3,840) | |
Income from continuing operation | $8,960 | |
Result from discontinued operations: | ||
Loss from operation of discontinued Division R (2) | ($6,090) | |
Gain on sale of Division R (3) | $7,000 | |
Income from discontinuing operation | $910 | |
Net income | $9,870 | |
Components of income | Earnings per common share | |
Income from continuing operation (5) | $1.12 | |
Result from discontinuing operation (6) | $0.11 | |
Net income | $1.23 |
Table (5)
Working note (1):
Calculate an amount of income taxes:
Working note (2):
Calculate loss from operation of discontinuing Division R:
Working note (3):
Calculate gain on sale of Division R:
Working note (4):
Calculate the number of common shares:
Working note (5):
Calculate income from continuing operation earnings per common share:
Working note (6):
Calculate income from discontinuing operation earnings per common share:
3.
Provide a retained earnings statement for the year 2019.
Explanation of Solution
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Provide a retained earnings statement for the year 2019.
Company S | ||
Statement of retained earning | ||
For the Year Ended December 31, 2019 | ||
Particulars | Amount($) | Amount($) |
Retained earnings, January 1, 2019 | $83,700 | |
Add: Net income | $9,870 | |
Subtotal | $93,570 | |
Less: Cash dividends declared | ($4,800) | |
Retained earnings, December 31, 2019 | $88,770 |
Table (6)
4.
Evaluate the return on common equity if it was 10% last year for Company S.
Explanation of Solution
Return on equity ratio: It is a profitability ratio that measures the profit generating ability of the company from the invested money of the shareholders. The formula to calculate the return on equity is as follows:
Evaluate the return on common equity for 2019:
Thus, the return on common equity is 6.58%.
During 2018, the return on common equity is 10%. This return has been decreased by 3% in the year 2019. The decrease in return on common equity is due to discontinue in the segment due to the tornado which incurred severe loss to the company.
Want to see more full solutions like this?
Chapter 5 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
- Comprehensive The following are Farrell Corporations balance sheets as of December 31, 2019, and 2018, and the statement of income and retained earnings for the year ended December 31, 2019: Additional information: a. On January 2, 2019, Farrell sold equipment costing 45,000, with a book value of 24,000, for 19,000 cash. b. On April 2, 2019, Farrell issued 1,000 shares of common stock for 23,000 cash. c. On May 14, 2019, Farrell sold all of its treasury stock for 25,000 cash. d. On June 1, 2019, Farrell paid 50,000 to retire bonds with a face value (and book value) of 50,000. e. On July 2, 2019, Farrell purchased equipment for 63,000 cash. f. On December 31, 2019. land with a fair market value of 150,000 was purchased through the issuance of a long-term note in the amount of 150,000. The note bears interest at the rate of 15% and is due on December 31, 2021. g. Deferred taxes payable represent temporary differences relating to the use of accelerated depreciation methods for income tax reporting and the straight-line method for financial statement reporting. Required: 1. Prepare a spreadsheet to support a statement of cash flows for Farrell for the year ended December 31, 2019, based on the preceding information. 2. Prepare the statement of cash flows.arrow_forwardComprehensive The following are Farrell Corporations balance sheets as of December 31, 2019, and 2018, and the statement of income and retained earnings for the year ended December 31, 2019: Additional information: a. On January 2, 2019, Farrell sold equipment costing 45,000, with a book value of 24,000, for 19,000 cash. b. On April 2, 2019, Farrell issued 1, 000 shares of common stock for 23,000 cash. c. On May 14, 2019, Farrell sold all of its treasury stock for 25,000 cash. d. On June 1, 2019, Farrell paid 50, 000 to retire bonds with a face value (and book value) of 50, 000. e. On July 2, 2019, Farrell purchased equipment for 63, 000 cash. f. On December 31, 2019, land with a fair market value of 150,000 was purchased through the issuance of a long-term note in the amount of 150,000. The note bears interest at the rate of 15% and is due on December 31, 2021. g. Deferred taxes payable represent temporary differences relating to the use of accelerated depreciation methods for income tax reporting and the straight-line method for financial statement reporting. Required: 1. Prepare a spreadsheet to support a statement of cash flows for Farrell for the year ended December 31, 2019, based on the preceding information. 2. Prepare the statement of cash flows. (Appendix 21.1) Spreadsheet and Statement Refer to the information for Farrell Corporation in P21-13. Required: 1. Using the direct method for operating cash flows, prepare a spreadsheet to support a 2019 statement of cash flows. (Hint: Combine the income statement and December 31, 2019, balance sheet items for the adjusted trial balance. Use a retained earnings balance of 291,000 in this adjusted trial balance.) 2. Prepare the statement of cash flows. (A separate schedule reconciling net income to cash provided by operating activities is not necessary.)arrow_forwardPresented below is information related to Muscat Company at December 31, 2019, the year ended December 31, 2019 (There was no change during the year in the 12,000 shares of common stock outstanding.) Sales revenue OMR 1,100,000 Dividends declared 14,400 Depreciation on plant assets (60% selling, 40% administrative) 70,000 Rent revenue 30,000 Interest expense 17,000 Accumulated Depreciation- Building 44,000 Sales Discounts 30,000 Accumulated Depreciation- Equipment 37,000 Cash 82,000 Cost of Goods Sold 448,000 Sales returns and allowances 100,000 Sales— Wages and salaries 95,000 supplies—sales 11,400 Income taxes 45,000 administrative— Wages and salaries 135,900 Other administrative expenses 46,700 Advertising expense 20,000 Shipping supplies and expense 6,000 Instructions Which of the following is the income from operations? Select one: a.…arrow_forward
- The following data were taken from the balance sheet accounts of Pronghorn Corporation on December 31, 2019. Current assets $ 554,000 Debt investments (trading) 596,000 Common stock (par value $ 10) 455,000 Paid-in capital in excess of par 148,000 Retained earnings 800,000 Prepare the required journal entries for the following unrelated items. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (a) A 4% stock dividend is (1) declared and (2) distributed at a time when the market price per share is $ 37. (b) The par value of the common stock is reduced to $ 2 with a 5-for-1 stock split. (c) A dividend is declared January 5, 2020, and paid January 25, 2020, in bonds held as an investment. The bonds have a book value of $ 105,000 and a fair value of $ 133,000. No. Date Account Titles and…arrow_forwardIncome Statement and Retained Earnings The Huff Company presents the following partial list of account balances taken from its December 31, 2019 adjusted trial balance: Sales (net) $124,000 Operating expenses $26,300 Interest expense 4,600 Common stock, $5 par 16,500 Cost of goods sold 53,000 Retained earnings, 1/1/2019 41,700 The following information is also available for 2019 and is not reflected in the preceding accounts: 1. The common stock has been outstanding all year. A cash dividend of $1.04 per share vas declared and paid. 2. Land was sold at a pretax gain of $5,900. 3. Division X (a major component of the company) vas sold at a pretax gain of $4,670. It had incurred a $9,470 pretax operating loss during 2019. 4. A tornado, which is an unusual event in the area, caused a $5,310 pretax loss. 5. The income tax rate on all items of income is 30%. 6. The average shareholders' equity is $89,000. Required: 1. Prepare a 2019 multiple-step income statement for Huff. Round earnings…arrow_forwardprepare statement of changes Net income is 118,400arrow_forward
- es On January 1, 2024, Displays Incorporated had the following account balances: Account Title Cash Accounts receivable. Supplies Inventory Land Accounts payable Notes payable (5%, due next year) Common stock Retained earnings Totals From January 1 to December 31, the following summary transactions occurred: a. Purchased inventory on account for $335,000. b. Sold inventory on account for $595,000. The cost of the inventory sold was $315,000. c. Received $560,000 from customers on accounts receivable. d. Paid freight on inventory received, $29,000. e. Paid $325,000 to inventory suppliers on accounts payable of $334,000. The difference reflects purchase discounts of $9,000. f. Paid rent for the current year, $47,000. The payment was recorded to Rent Expense. g. Paid salaries for the current year, $155,000. The payment was recorded to Salaries Expense. Year-end adjusting entries: Requirement a. Supplies on hand at the end of the year are $5,000. b. Accrued interest expense on notes…arrow_forwardQuestion: Prepare a statement of profit or loss and other comprehensive income for the year ended 31 December 2021 Below is the list of nominal ledger balances of Tonson Plc at 31 December 2021. Tonson’s financial year end is at 31 December. Nominal ledger closing balances at 31 December 2021 The following information is relevant. 1. Closing inventory at 31 December 2021 is £45,000 On further investigation of the suspense account in the trial balance above, it was discovered that: An expense of £8,250 for legal services had been posted to the suspense account and a cash receipt of £15,750 had been posted to the suspense account. This represented the disposal proceeds from selling equipment, which had been purchased on 1 March 2017 at a cost of £48,000. Tonson depreciates non-current assets as follows: buildings at 1 per cent on a straight-line basis plant and equipment at 10 per cent on a straight-line basis motor vehicles at 20 per cent on a reducing balance basis.…arrow_forwardHelp me be cleararrow_forward
- Presented below is information related to Sheridan Corp. for the year 2020. The information is meant for a multiple-step income statement for 2020. Assume that 69,920 shares if common stock are outstanding for the entire year. Net sales $ 1,196,000 Write-off of inventory due to obsolescence $ 73,600 Cost of goods sold 717,600 Depreciation expense omitted by accident in 2019 50,600 Selling expenses 59,800 Casualty loss 46,000 Administrative expenses 44,160 Cash dividends declared 41,400 Dividend revenue 18,400 Retained earnings at December 31, 2019 901,600 Interest revenue 6,440 Effective tax rate of 20% on all items I had an income statement that for the most part was right that follows: SHERIDAN CORP.Income Statement For the Year Ended December 31, 2020 Revenue: Net Sales $1196000 COGS $717600 = Gross Profit $478400 Operating Expenses: Selling Exp $59800 Admin Exp $44160 = Total Operating Exp $103960…arrow_forwardSplish Corporation began operations on January 1, 2019. During its first 3 years of operations, Splish reported net income and declared dividends as follows: Net income Dividends declared $-0- 63,000 63,000 2019 2020 2021 $50,400 157.500 201,600 The following information relates to 2022. Income before income tax Prior period adjustment: understatement of 2020 depreciation expense (before taxes) Cumulative decrease in income from change in inventory methods (before taxes) Dividends declared (of this amount, $31.500 will be paid on Jan. 15, 2023) Effective tax rate (a) Balance, January 1, as Reported Prepare a 2022 retained earnings statement for Splish Corporation. (List items that increase adjusted retained earnings first.) Correction for Depreciation Error Net of Tax Cumulative Decrease in Income from Change in Inventory Methods Net of Tax Balance, January 1, as Adjusted Add: Net Income /(Loss) Less Dividends Declared $277.200 $31.500 $56,700 $126,000 SPLISH CORPORATION Retained…arrow_forwardPresented below is X Corporation's selected data for 2020: Retained earnings January 1.2020 Pretax Income Stock dividends declared During the year, the company changed its inventory method from FIFO to LIFO which had resulted in a $6,000,000 2,000,000 330,000 40.000 pretax increase in income by: Cash dividends de clared During 2020. the company discovered that the 2019 depreciation expense were overstated by a net of tax am ount of: Tax rate 225.000 70.000 30% CIEO toarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning