Question

Prepare a multi step income statement.

30% tax rate and 100,000 shares of common stock where outstanding during the year.

Retained earnings December 31, 2012

Retained earnings Dec 31,2012 2350000

Sales 2600000

Selling and administrative expenses 240000

Earthquake loss (pre-tax) on plant 250000

Cash dividends declared on common stock 53600

Cost of goods sold 1000000

Gain resulting from computation error on depreciation charge in 2009 (pre-tax) 520000

Other revenue 80000

Other expenses 50000

Answer 1

Multiple step income statement

Particular amount Sales $2600000 Less: cost of goods sold $1000000 Gross profit $1600000 Operating expenses: Selling and administrative expenses ($240000) Income from operation $1360000 Other revenue $80000 Other expenses ($50000) Net income before tax $1390000 Income tax expense @30% ($417000) Income before extraordinary items $973000 Extraordinary loss, net of applicable income tax of $75000 ($175000) Net income $798000

Income per share of common stock(100000 shares)
Income before extraordinary loss	$9.73
Less: extraordinary loss	($1.75)
Net income	$7.98

Note: to rectify the error or mistake relating to prior period, it should be adjusted to the carrying amount of asset or liability as of the first accounting period shown with an offset to the begining retained earning balance in that same account period. So we are not showing Gain resulting from computation error on depreciation charge in 2009.