Question

Remesh Corporation prepared the following income statement and statement of retained earnings for the year ended December 31, 2021.

                 Remesh Corporation December 31, 2021

                                Expense and Profit Statement

                                      (Dollars in thousands)

Sales (net)                                                                               $ 206,000

Less: Selling Expenses                                                      (20,600)

Net sales                                                                   $ 185,400

Add: Interest Revenue      2,400

Add: Gain on sale of equipment              3,600

Gross Sales Revenue                                               $ 191,400

Less: Cost of operations:

         Cost of goods sold                                                          $ 126,100

         Correction of overstatement in last years

         income because of error, $5,500 (net of tax credit)                3,850

         Dividend costs ($.50 per share for 8,000 common shares)         4,000

         Unusual loss due to a hurricane, $6,400 (net of tax credit) 1,920             (135,870)

Taxable Revenues                                                                                                   55,530

Less: Income tax on income from continuing operations                                             16,659

         Net Income                                                                                                    38,871

Miscellaneous Deductions

Loss from operations of discontinued Division L, $3,600

(net of tax credit)                                                                            1,080

         Administrative expenses                                                       17,650               (18,730)

Net Revenues                                                                                                       $ 20,141

                                                       Remesh Corporation

                                                Retained Revenues Statement

                                            For Year Ended December 31, 2021

                                                       (Dollars in thousands)

Beginning retained earnings                                                                  $ 59,300

Add: Gain on sale of Division, $4,500 (net of taxes)                                     3,150

Recalculated retained earnings                                                              $ 62,450

Add: Net Revenues                                                                                 20,141

                                                                                                          $ 82,591

Less: Interest Expense                                                                           (3,310)

Ending retained earnings                                                                      $ 79,281

The preceding account balances are correct but have been incorrectly classified in certain instances. Assume an income tax rate of 30 for all items.

Instructions: Prepare a corrected 2021 “multiple-step” income statement with EPS disclosure and a 2021 retained earnings statement and in good form. Before preparing the 2021 retained earnings statement, determine the correct balance as of the beginning of the year.

Answer 1

Income Statement for the year ended 31st Dec 2021	$	$
Net Sales		$      206,000
Cost of Goods sold		$      126,100
Gross Profit		$         79,900
Expenses
Administrative expenses	$       17,650
Selling Expenses	$       20,600	$         38,250
Operating Income		$         41,650
Other (Income)/ Expenses
Interest Expense	$         3,310
Interest Income	$       (2,400)
Gain on sales of equipment	$       (3,600)	$         (2,690)
Earnings before Taxes		$        44,340
Tax on earnings (44340*0.3)		$         13,302
Earnings from Continuing Opeartions		$        31,038
Discontinuing Operations
(Earnings) / Loss from Discontinuing Opeartions (3600*0.7)	$         2,520
(Gain)/loss on Sales of division (4500*0.7)	$       (3,150)	$            (630)
Income before extraordinary items		$        31,668
Less : Extraordinary items (Unusal loss on huricane , 6400*0.7)		$           4,480
Net Income		$        27,188
Basic Earnings Per Share (24038/8000)		$             3.40
Statement of Retained earnings for the year ended 31st Dec 2021	$
Retained Earnings as on 31st Dec 2020 (Orignal)	$       59,300
Less: Prior period adjustments (5500*0.7)	$         3,850
Retained Earnings as on 31st Dec 2020 (Adjusted)	$       55,450
Net Income for 2021	$       27,188
Total	$       82,638
Less : Dividends declared in 2021	$         4,000
Retained Earnings as on 31st Dec 2021	$      78,638