Question

Delta Corporation's capital structure consists of 20,000 common shares at December 31. At December 31, 2020 an analysis of the accounts and discussions with company officials revealed the following information:

       Sales.................................................................................................        $1,300,000

       Inventory, January 1, 2020..............................................................        150,000

       Purchases.........................................................................................        728,000

       Purchase discounts...........................................................................        18,000

       Inventory, December 31, 2020........................................................        130,000

       Tornado loss (net after $18,000 tax) ..............................................        42,000

       Selling expenses..............................................................................        148,000

       Cash.................................................................................................        60,000

       Accounts receivable........................................................................        90,000

       Common shares...............................................................................        200,000

       Accumulated depreciation...............................................................        180,000

       Dividend revenue............................................................................. 22,000

       Unearned service revenue................................................................        4,400

       Accrued interest payable.................................................................        1,000

       Land.................................................................................................        370,000

       Patents..............................................................................................        100,000

       Retained earnings, January 1, 2020.................................................        350,000

       Interest expense...............................................................................        15,000

       Prior years cumulative effect of change from straight-line to accelerated

       depreciation (net after $15,000 tax)..................................................... 45,000

       General and administrative expenses..............................................        172,000

       Dividends declared..........................................................................        52,750

       Allowance for doubtful accounts.....................................................        5,000

       Notes payable (maturity July 1, 2021).............................................        200,000

       Machinery and equipment...............................................................        450,000

       Materials and supplies inventory.......................................................        40,000

       Accounts payable............................................................................        60,000

Unless indicated otherwise, you may assume a 25% income tax rate.

Required:

a)    Prepare, in good form, a multiple-step income statement

b)    Prepare, in good form, a retained earnings statement.

Answer 1

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Delta Corporation's
Income Statement	Amount $	Amount $
Sales Revenue	1,300,000.00
Total Revenue		1,300,000.00
Less: Cost of Goods Sold
Inventory, January 1, 2020	150,000.00
Add: Purchases	728,000.00
Less: Purchases Discounts	18,000.00
Less: Inventory, December 31, 2020..	130,000.00
Cost of Goods Sold		730,000.00
Gross profit		570,000.00
Selling expense	148,000.00
General and administrative expenses	172,000.00
Operating expenses		320,000.00
Operating income		250,000.00
Other income (expenses)
Dividend revenue	22,000.00
Interest expense	(15,000.00)
Other income (expenses)		7,000.00
Income from continuing operations before tax		257,000.00
Less: Income Tax		64,250.00
Income from continuing operations		192,750.00
Discontinued operations:
Tornado Loss (net of tax)		(42,000.00)
Earning before prior period items		150,750.00
Prior years cumulative effect of change from straight-line to accelerated depreciation (net after $15,000 tax)		(45,000.00)
Net Income		105,750.00
Statement of retained earnings		Amount $
Opening Balance		350,000.00
Add: Net Income		105,750.00
Less: Dividend declared		52,750.00
Retained earnings on Dec 31, 2020		403,000.00