Question

The following are some items of the balance sheet for Hofa, Inc., for the year ended December 31, 2019.

1. Prepare a balance sheet for December 31, 2019.
2. If the company is to announce 10% stock dividends, who do think this will impact the balance sheet?

Finished Goods	$  8,532
Current Maturities of Long-Term Debt	1,197
Accumulated Depreciation	8,957
Accounts Receivable	25,101
Sales Revenue	127,260
Treasury Stock	251
Prepaid Expenses	2,199
Deferred Taxes (long-term liability)	8,237
Interest Expense	2,410
Allowance for Doubtful Accounts	915
Retained Earnings	18,951
Raw Materials	9,576
Accounts Payable	19,021
Cash and Cash Equivalents	8,527
Sales Salaries Expense	872
Cost of Goods Sold	82,471
Investment in Unconsolidated Subsidiaries	3,559
Income Taxes Payable	8,356
Work In Process	1,984
Additional Paid-In Capital	9,614
Equipment	41,905
Long-Term Debt	15,258
Rent Income	2,468
Common Stock	3,895
Notes Payable (short-term)	7,233
Income Tax Expense	2,461

Below is the income statement for Irwin Inc. in a single-step format.

Irwin Inc Income Statement For the Year Ended December 31, 2019
Sales                       2,950,000 Rent Income                            13,560                 2,963,560 Costs and Expenses:    Cost of Sales                       2,265,120    Selling and Administrative Expenses                          322,000    Interest Expense                      46,589.00    Loss on the Sale of Plant Assets                      14,950.00                       2,756,000    Income Before Taxes $  258,000    Income Taxes                    111,555.00    Net Income $  146,000    Earnings per Share $     7.30
Required: 1. Construct multiple-step format income statement. 2. Recalculate the net income, but with the unusual loss. 3. Why do you think the unusual loss is not considered extraordinary or a disposal of a segment?

Answer 1

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Hofa Inc.
Balance Sheet
Assets	Amount $
Current Assets
Cash	8,527.00
Accounts Receivable	25,101.00
Allowance for Doubtful Accounts	(915.00)
Inventory
Finished Goods	8,532.00
Raw Materials	9,576.00
Work In Process	1,984.00
Prepaid Expenses	2,199.00
Current Assets	55,004.00
Investment in Unconsolidated Subsidiaries	3,559.00
Property, plant, and equipment
Equipment	41,905.00
Less: Accumulated Deprecation	(8,957.00)
Total Property, plant, and equipment	32,948.00
Total Assets	91,511.00
Current Liabilities
Current Maturities of Long-Term Debt	1,197.00
Accounts Payable	19,021.00
Income Taxes Payable	8,356.00
Notes Payable (short-term)	7,233.00
Current Liabilities	35,807.00
Long Term Liabilities
Deferred Taxes (long-term liability)	8,237.00
Long-Term Debt	15,258.00
Total Long Term Liabilities	23,495.00
Total Liabilities	59,302.00
Stockholders' Equity
Common Stock	3,895.00
Additional Paid-In Capital	9,614.00
Treasury Stock	(251.00)
Retained Earnings	18,951.00
Total Stockholders' Equity	32,209.00
Total Liabilities & Stockholders' Equity	91,511.00

If the company is to announce 10% stock dividends, then this will impact Retained Earnings and Common stock in the balance sheet.

Irwin Inc.
Income Statement for the year ended December 31
Particulars	Amount $	Amount $
Sales Revenue	2,950,000.00
Less: returns and allowances	-
Net Sales		2,950,000.00
Cost of sales		2,265,120.00
Gross Profit		684,880.00
Selling and Administrative Expenses	322,000.00
Operating Expense		322,000.00
Operating Income		362,880.00
Rent Income	13,560.00
Interest Expense	(46,589.00)
Other expense and income		(33,029.00)
Income from continuing operations		329,851.00
Income from discontinued operations
Loss on the Sale of Plant Assets	(14,950.00)
Income from discontinued operations-pretax		(14,950.00)
		314,901.00
Unusual loss		56,901.00
Tax expense		112,000.00
Net Income after tax		146,000.00

The unusual loss is not considered extraordinary or a disposal of a segment as it may be because of natural causes which comes under non operating items.