Question

Instructions

(a) Prepare a multiple-step income statement.

(b) Prepare a retained earnings statement.

Porter Corporation's capital structure consists of 50,000 shares of common stock. At December 31, 2010 an analysis of the accounts and discussions with company officials revealed the following information:

Sales $1,100,000

Purchase discounts 18,000

Purchases 642,000

Income from operations of discontinued product line 35,000

Loss on disposal of discontinued production line 70,000

Selling expenses 128,000

Cash 60,000

Accounts receivable 90,000

Unrealized gain on available for sale securities 12,000

Common stock 200,000

Accumulated depreciation – machinery 180,000

Dividend revenue 8,000

Inventory, January 1, 2010 152,000

Inventory, December 31, 2010 125,000

Unearned service revenue 4,400

Interest payable 1,000

Land 370,000

Retained earnings, January 1, 2010 290,000

Interest expense 17,000

Administrative expenses 170,000

Dividends declared 24,000

Allowance for doubtful accounts 5,000

Notes payable (maturity 7/1/13) 200,000

Machinery 450,000

Materials 40,000

Accounts payable 60,000

Pension loss from minimum pension adjustment 20,000

Correction of error – overstatement of depreciation expense in 2015   32,000

Assume an income tax rate of 30%

Answer 1

Ans. a. Preparation of multiple step income statement;

                                                                 Porters Corporation

                            Income statement for the period ended 31 December 2010

Sales revenue

Net sales                                                                                                                      $1,100,000

Cost of goods sold

Opening stock                                               152,000

Purchases                                        642,000

Less; Purchase discounts                  18,000

Net purchases                                               624,000

Cost of goods available for sale                                  776,000

Less; Closing stock                                                    125,000

Cost of goods sold                                                                                                      (-)651,000

Gross Profit                                                                                                                      449,000

Operating Expenses

Selling expenses                                                        128,000

Administrative expenses                                             170,000                                                              

Total operating expenses                                                                                             298,000

Income from operations                                                                                               747,000

Other Revenues and Gains

Dividend revenue                                                                                                               8,000

Other Expenses and Losses

Interest expense                                                                                                             (-)17,000

Income before taxes and extraordinary item and

cumulative effect of change in accounting principle                                                738,000

Income Taxes (30% of income 738,000)                                                                   (-) 221400

Income before discontinued operations, extraordinary item and

cumulative effect of change in accounting principle                                                 516,600

Income from operations of discontinued product line                          35,000

Loss on disposal of discontinued production line                             (-)70,000

Income before extraordinary item and

cumulative effect of change in accounting principle 481,600                                                                                                                                        

Pension loss from minimum pension adjustment (-)20,000

Net income $ 46 1,600

Earnings per share (net income 461,000/common stock 50000) $ 9.232         

Ans. b.Preparation of Retained Earnings statement;

Porters Corporation

                            Retained Earnings statement for the period ended 31 December 2010

Balance, January 1 ,2010 as previously reported                         $290,000

Correction of error – overstatement of depreciation expense      (-)32,000

Adjusted balance of retained earnings at January 1,2010 258,000

Add: Net income   46 1,600                                  

719,600

Less: Cash dividends declared   24,000      

Balance, December 31 , 2010 $695,600

Note:The other account balances in the adjusted trial balance that are not used for the solution requested