Question

P4.1B:   Karlin Company Information for 2020.

Retained earnings , January 1, 2020 2,250,000

Sales revenue 53,000,000

Cost of goods sold   33,000,000

Interest revenue 120,000

Selling and administrative expenses 8,900,000

Write-off of goodwill 2,100,000

Income taxes for 2020 3,650,000

Loss on the sale of investments 53,000

Loss due to hurricane damage 1,100,000

Gain on the disposition of the retail division (net of tax) 23,000

Loss on operations of the retail division (net of tax) 231,000

Dividends declared on common stock 350,000

Dividends declared on preferred stock 125,000

INSTRUCTIONS:1. Prepare a multiple-step income statement 2. Prepare a separate Retained Earnings StatementOn September 15, Karlin sold the retail operations to Shark CorpAssume that 60,000 shares of common stock are outstanding.

Answer 1

• Answer -

Income statement:

Karlin Company
Income Statement
For the Year Ended December 31, 2020
Sales revenue		$53000000
Cost of goods sold		($33000000)
Gross profit (loss)		$20000000
Selling and administrative expenses		($8900000)
Income from operations		$11100000
Other revenue and gains
Interest revenue	$120000
		$120000
Other expenses and losses
Write-off of goodwill	($2100000)
Loss on sale of investments	($53000)
Loss from hurricane damage	($1100000)
		($3253000)
Income from continuing operations before income tax		$7967000
Income tax		($365000)
Income from continuing operations		$4317000
Discontinuing operations
Loss on operations, net of applicable tax	($231000)
Gain on the disposition of the retail division	$23000
		($208000)
Net income (loss)		$4109000
Earnings per share:
Income from continuing operations		$69.87
Discontinuing operations
Loss on operations, net of applicable tax	($3.85)
		($3.85)
Net income (loss)		$66.02

Calculation:

1. Income from continuing operations per share:

= [(Income from continuing operations - Dividend declared on preferred stock) / Number of shares outstanding]

= [($4317000 - $125000) / 60000 shares]

= $69.87

2. Loss on operations, net of applicable tax per share:

= [Loss on operations, net of applicable tax / Number of shares outstanding]

= [$231000 / 60000 shares]

= $3.85

Retained earnings statement:

Dickinson Company
Retained Earnings Statement
For the Year Ended December 31, 2020
Retained Earnings, January 1		$2250000
Add: Net income (loss)		$4109000
		$6359000
Less:
Dividends-Preferred stock	($125000)
Dividends-Common stock	($350000)
		($475000)
Retained Earnings, December 31		$5884000