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Preparing an Income Statement and a Statement of Comprehensive Income The following pretax amounts are taken...

Preparing an Income Statement and a Statement of Comprehensive Income

The following pretax amounts are taken from the adjusted trial balance of Avoca Auto Corp. at December 31, 2020, its annual year-end.

Sales Revenue $416,000

Cost of good sold 176,000

operating expenses 128,000

gain on debt retirement 32,000

interest expense 12,800

loss from discontinued operations. 80,000

retained earnings balance, December 31, 2019 48,000

dividends declared and paid 40,000

unrealized holding gain on debt investment securities, net of tax 6,400

Common stock, weighted average shares outstanding 16,000 Shares

Required

a. Prepare a single-step income statement. Assume an average 25% tax rate on all items. Include earnings per share disclosures.
b. Prepare a comprehensive income statement by showing a separate but consecutive statement of comprehensive income. Ignore earnings per share disclosures.
c. Compute the ending retained earnings balance at December 31, 2020.

  • Enter revenues and gains and expenses and losses in the order of the largest dollar amount to the smallest dollar amount.
  • Do not use negative signs with any of your answers.
  • Round the per share amounts to two decimal places.

Solutions

Expert Solution

a)

Avoca Auto Corp.

STATEMENT OF INCOME

FOR THE PERIOD FROM JANUARY 1,2020 TO DECEMBER 31,2020

PARTICULARS AMOUNT($)
SALES REVENUE 416000
COST OF GOODS SOLD 176000
GROSS PROFIT 240000
OPERATING EXPENSES 128000
INCOME FROM OPERATONS 112000
OTHER REVENUES AND EXPENSES
GAIN ON DEBT RETIREMENT 32000
INTEREST EXPENSES (12800)
LOSS FROM DISCONTINUED OPERATION (80000)
PRE TAX INCOME 51200
TAXES
INCOME TAX EXPENSES(25%) 12800
NET INCOME 38400
gain on debt investment securities( net of tax) 6400
TOTAL NET INCOME 44800
BALANCE RETAINED EARNINGS(OPENING) 48000
TOTAL EARNINGS 92800
EARNINGS PER SHARE(92800/16000) 5.8
DIVIDEND DECLARED AND PAID 40000
DIVIDEND PER SHARE (40000/16000) 2.5

b)

Avoca Auto Corp.

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2020

PARTICULARS AMOUNT($)
SALES REVENUE 416000
COST OF GOODS SOLD 176000
GROSS PROFIT 240000
OPERATING EXPENSES 128000
INTEREST EXPENSES 12800
INCOME FROM CONTINUNG OPERATION BEFORE INCOME TAXES 99200
INCOME TAXES(25%) 24800
INCOME FROM CONTINUING OPERATIONS 74400
DISCONTINUED OPERATIONS(LOSS) 80000
TAX SAVINGS ON DISCONTINUED OPERATION LOSS (20000)
LOSS FROM DISCONTINUED OPERATION AFTER TAX 60000
EXTRA ORDINARY ITEMS
GAIN ON DEBT RETIREMENT 32000
INCOME TAX EXPENSES ON GAIN(32000*25%) (8000)
GAIN ON DEBT INVESTMENT (AFTER TAX) 6400
TOTAL GAIN(AFTER TAX) 30400
COMPREHENSIVE INCOME 44800

c)

Calculation of Retained earnings for the year ended 2020

Opening balance:48000

Current year profit:44800

Total:92800

Dividend declared and paid :40000

Closing balance of retained earnings for 2020:52800

ekkarill92 answered 11 hours ago
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