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
Intermediate Accounting: Reporting And Analysis
- 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. (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_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.arrow_forwardIncome Statement and Retained Earnings Huff Company presents the following items derived from its December 31, 2019, adjusted trial balance: 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 1.28 per share was declared and paid. 2. Land was sold at a pretax gain of 6,300. 3. Division X (a major component of the company) was sold at a pretax gain of 4,700. It had incurred a 9,500 pretax operating loss during 2019. 4. A tornado, which is an unusual event in the area, caused a 5,400 pretax loss. 5. The income tax rate on all items of income is 30%. 6. The average shareholders equity is 90,000. Required: 1. Prepare a 2019 multiple-step income statement for Huff. 2. Prepare a 2019 retained earnings statement. 3. Compute the 2019 return on common equity (Net Income 4 Average Shareholders Equity).arrow_forward
- Visual Inspection Noble Companys accounting records provided the following changes in account balances and other information for 2019: Additional information: Net income was 9,900. Dividends were declared and paid. Land was sold for 1,700. No land was purchased. A building was purchased for 23,000. No buildings and equipment were sold. Bonds payable were issued at the end of the year. Two hundred shares of stock were issued for 15 per share. The beginning cash balance was 4,800. Required: Using visual inspection, prepare a 2019 statement of cash flows for Noble.arrow_forwardIncluded in the December 31, 2018, Jacobi Company balance sheet was the following shareholders equity section: The company engaged in the following stock transactions during 2019: Required: 1. Prepare journal entries to record the preceding transactions. 2. Prepare the December 31, 2019, shareholders equity section (assume that 2019 net income was 270,000).arrow_forwardIncome Statement, Lower Portion Cunningham Company reports a retained earnings balance of 365,200 at the beginning of 2019. For the year ended December 31, 2019, the company reports pretax income from continuing operations of 150,500. The following information is also available pertaining to 2019: 1. The company declared and paid a 0.72 cash dividend per share on the 30,000 shares of common stock that were outstanding the entire year. 2. The company incurred a pretax 21,000 loss as a result of an earthquake, which is not unusual for the area. This is included in the 150,500 income from continuing operations. 3. The company sold Division P (a component of the company) in May. From January through May, Division P had incurred a pretax loss from operations of 33,000. A pretax gain of 15,000 was recognized on the sale of Division P. Required: Assuming that all the pretax items are subject to a 30% income tax rate: 1. Complete the lower portion of Cunningham's 2019 income statement beginning with Pretax Income from Continuing Operations. Include any related note to the financial statements. 2. Prepare an accompanying retained earnings statement.arrow_forward
- Multiple-Step and Single-Step Income Statements, and Statement of Comprehensive Income On December 31, 2019, Opgenorth Company listed the following items in its adjusted trial balance: Additional data: 1. Seven thousand shares of common stock have been outstanding the entire year. 2. The income tax rate is 30% on all items of income. Required: 1. Prepare a 2019 multiple-step income statement. 2. Prepare a 2019 single-step income statement. 3. Prepare a 2019 statement of comprehensive income.arrow_forwardPrince Corporations accounts provided the following information at December 31, 2019: What should be the current balance of retained earnings? a. 520,000 b. 580,000 c. 610,000 d. 670,000arrow_forwardGray Company lists the following shareholders equity items on its December 31, 2018, balance sheet: The following stock transactions occurred during 2019: Required: 1. Prepare journal entries to record the preceding transactions. 2. Prepare the December 31, 2019, shareholders equity section (assume that 2019 net income was 225,000).arrow_forward
- Reinhardt Company reported revenues of $122,000 and expenses of $83,000 on its 2019 income statement. In addition, Reinhardt paid of dividends during 2019. On December 31, 2019, Reinhardt prepared closing entries. The net effect of the closing entries on retained earnings was a(n): a. decrease of $4,000. b. increase of $35,000. c. increase of $39,000. d. decrease of $87,000.arrow_forwardBalance Sheet Calculations Cornerstone Development Companys balance sheet information at the end of 2019 and 2020 is provided in random order, as follows: Additional information: At the end of 2019, (a) the amount of long-term liabilities is twice the amount of current liabilities and (b) there are 2,900 shares of common stock outstanding. During 2020, the company (a) issued 100 shares of common stock for 25 per share, (b) earned net income of 20,600, and (c) paid dividends of 1 per share on the common stock outstanding at year-end. Required: Next Level Fill in the blanks lettered (a) through (p). All of the necessary information is provided. (Hint: It is not necessary to calculate your answers in alphabetical order.)arrow_forwardRoseau Company is preparing its annual earnings per share amounts to be disclosed on its 2019 income statement. It has collected the following information at the end of 2019: 1. Net income: 120,400. Included in the net income is income from continuing operations of 130,400 and a loss from discontinued operations (net of income taxes) of 10,000. Corporate income tax rate: 30%. 2. Common stock outstanding on January 1, 2019: 20,000 shares. 3. Common stock issuances during 2019: July 6, 4,000 shares; August 24, 3,000 shares. 4. Stock dividend: On October 19, 2019, the company declared a 10% stock dividend that resulted in 2,700 additional outstanding shares of common stock. 5. Common stock prices: 2019 average market price, 30 per share; 2019 ending market price, 27 per share. 6. 7% preferred stock outstanding on January 1, 2019: 1,000 shares. Terms: 100 par, nonconvertible. Current dividends have been paid. No preferred stock issued during 2019. 7. 8% convertible preferred stock outstanding on January 1, 2019: 800 shares. The stock was issued in 2018 at 130 per share. Each 100 par preferred stock is currently convertible into 1.7 shares of common stock. Current dividends have been paid. To date, no preferred stock has been converted. 8. Bonds payable outstanding on January 1, 2019: 100,000 face value. These bonds were issued several years ago at 97 and pay annual interest of 9.6%. The discount is being amortized in the amount of 300 per year. Each 1,000 bond is currently convertible into 22 shares of common stock. To date, no bonds have been converted. 9. Compensatory share options outstanding: Key executives may currently acquire 3,000 shares of common stock at 20 per share. The options were granted in 2018. To date, none have been exercised. The unrecognized compensation cost (net of tax) related to the options is 4 per share. Required: 1. Compute the basic earnings per share. Show supporting calculations. 2. Compute the diluted earnings per share. Show supporting calculations. 3. Show how Roseau would report these earnings per share figures on its 2019 income statement. Include an explanatory note to the financial statements.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College