Answered Essay: The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations $187,000, inco

Quiz 1 (15 marks) The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations $187,000, income tax applicable to loss on discontinued operations $25,500, and unrealized holding gain on available-for-sale securities (net of tax) $15,000. Gain on sale of equipment Loss on discontinued operations Administrative expenses Rent revenue Loss on write-down of inventory $ 95,000 75,000 240,000 40,000 60,000 $ 150,000 600,000 850,000 300,000 1,900,000 Cash dividends declared Retained earnings January 1, 2017 Cost of goods sold Selling expenses Sales revenue Shares outstanding during 2017 were 100,000. Instructions (a) Prepare a multiple-step income statement. (b) Prepare a comprehensive income statement for 2017, using the two statement format.

The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations $187,000, income tax applicable to loss on discontinued operations $25,500, and unrealized holding gain on available-for-sale securities (net of tax) $15,000. Shares outstanding during 2017 were 100,000. Instructions (a) Prepare a multiple-step income statement. (b) Prepare a comprehensive income statement for 2017, using the two statement format.

Expert Answer

 

(a)                                                                                       Roland Carlson Inc.
Income Statement
For the Year Ended December 31, 2017
Revenues
Sales…………………………………………………………………………………………………………                                                                                                                                                                                                                                                                                                                                                       $1,900,000
Rent revenue             40,000
                  Total revenues………………………………………………………………………………. 1,940,000
Expenses
                  Cost of goods sold………………………………………………………………………….. 850,000
                  Selling expenses……………………………………………………………………………. 300,000
                  Administrative expenses………………………………………………………………….      240,000
                                  Total expenses……………………………………………………………………. $1,390,000
Income from continuing operations before
income tax………………………………………………………………………………….
550,000
                Income tax………………………………………………………………………….     187,000
Income from continuing operations…………………………………………………… 363,000
Discontinued operations
                Loss on discontinued operations…………………………………………….. $75,000
                Less: Applicable income tax reduction…………………………………….. 25,500       49,500
Income before extraordinary items…………………………………………………… 313,500
Extraordinary items:
                Extraordinary gain……………………………………………………………….. 95,000
                Less: Applicable income tax…………………………………………………… 32,300       62,700
376,200
                Extraordinary loss………………………………………………………………… 60,000
                Less: Applicable income tax reduction…………………………………….. 20,400       39,600
Net income…………………………………………………………………………………… $ 336,600

 

Per share of common stock:
                Income from continuing operations ($363,000 ÷ 100,000)………………………………… $3.63
                Loss on discontinued operations, net of tax…………………………………………………..    (.49)
                Income before extraordinary items ($313,500 ÷ 100,000)………………………………… 3.14
                Extraordinary gain, net of tax…………………………………………………………………….. .63
                Extraordinary loss, net of tax………………………………………………………………………    (.40)
                Net income ($336,600 ÷ 100,000)………………………………………………………………… $3.37
(b)                                                                                       Roland Carlson Inc.
Retained Earnings Statement
For the Year Ended December 31, 2017
Retained earnings, January 1………………………………………………………………………………… $600,000
Add: Net income………………………………………………………………………………………………… 336,600
$936,600
Less: Dividends declared………………………………………………………………………………………    150,000
Retained earnings, December 31…………………………………………………………………………… $786,600
(c)                                                                                      Roland Carlson Inc.
Comprehensive Income Statement
For the Year Ended December 31, 2017
Net income……………………………………………………………………………………………… $336,600
Other comprehensive income
      Unrealized holding gain………………………………………………………………………….     15,000
Comprehensive income……………………………………………………………………………… $351,600
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