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The bookkeeper for the Olson Company prepared the following income

By Jessica Collins,2014-05-07 19:13
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The bookkeeper for the Olson Company prepared the following income

    The bookkeeper for the Olson Company prepared the following income statement and retained earnings statement for the year ended December 31, 2010. OLSON COMPANY December 31, 2010 Expense and profits statement Sales (net) $196,000 Less: Selling expenses (19,000) Net sales $176,400 Add: Interest revenue 2,300 Add: Gain on sale of equipment 3,200 Gross sales revenues $181,900 Less: Costs of operations Cost of goods sold $120,100 Correction of overstatements in last year’s income because of error (net of $1,650 income tax credit) 3,850

    Dividend costs (0.50 per share for 8,000 common shares) 4,000 Extraordinary loss because of earthquake (net of $1,800 income tax credits) 4,200 (132,150) Taxable revenues $49,750 Less: Income tax on income on income from continuing operations (12,480) Net income $37,270 Miscellaneous deductions Loss from operations of discontinued Division 1. (net of $900 income tax credit) $ 2,100 Administrative expenses 16,800 (18,900) Net revenues 18,370 OLSON COMPANY Retained Revenues Statements For Year Ended December 31, 2010 Beginning retained earnings $59,300 Add: Gain on sale of Division 1 (net of #1,350 income taxes) 3,150 Recalculated retained earnings $62,450 Add: Net revenues 18,370 $80,820 Less: Interest expense (3,400) Ending retained earnings $77,420 The preceding account balances are correct but have been incorrectly classified in certain instances. Prepare a corrected 2010 multiple-step income statement and a 2010 retained earnings statement. Sales (net)

1. OLSON COMPANY

     Income Statement

     For Year Ended December 31, 2010

    Sales (net) $196,000

    Cost of goods sold (120,100)

    Gross profit $ 75,900

    Operating expenses

    Selling expenses $ 19,600

    Administrative expenses 16,800

    Total operating expenses (36,400)

    Operating income $ 39,500

    Other items

    Interest revenue $ 2,300

    Gain on sale of equipment 3,200

    Interest expense (3,400) 2,100

    Pretax income from continuing operations $ 41,600

    Income tax expense (12,480)

    Income from continuing operations $ 29,120

    Results from discontinued operations

    Loss from operations of discontinued

    Division L (net of $900 income tax

    credit) $ (2,100)

    Gain on sale of Division L (net

    of $1,350 income taxes) 3,150 1,050

    Income before extraordinary items $ 30,170

    Extraordinary loss due to earthquake

    (net of $1,800 income tax credit) (4,200)

    Net Income $ 25,970

    Earnings per Common Share

    Components of Income (8,000 common shares)

    Income from continuing operations $3.64

    Results from discontinued operations 0.13

    Extraordinary loss due to earthquake (0.52)*

    Net income $3.25

    *Rounded down to balance

2. OLSON COMPANY

     Statement of Retained Earnings

     For Year Ended December 31, 2010

    Retained earnings, 1/1/2010 $ 59,300

    Less: Prior period adjustment, correction

    of overstatement in last year's income

    (net of $1,650 income tax credit)

    Adjusted retained earnings, 1/1/2010 (3,850)

    $ 55,450

    Add: Net income 25,970

     $ 81,420

    Less: Cash dividends ($0.50 per common share) (4,000)

    Retained earnings, 12/31/2010 $ 77,420

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