Question

Bill-Ross Corporation is a private corporation using ASPE. At July 31, 2019, an analysis of the accounts and discussions with company officials included the following account balances and other information:

Supplies inventory	40,000
Purchase discounts	9,000
Accounts payable	30,000
Dividends declared and paid	16,000
Loss from fire (net of $4,000 tax)	12,000
Accounts receivable	$102,000
Selling expenses	46,000
Common shares (20,000 issued; no change during 2017)	200,000
Accumulated depreciation	90,000
Long term note payable (due Oct 1, 2021)	100,000
Inventory, Jan 1, 2017	72,000
Dividend revenue	10,000
Inventory, Dec 31, 2017	65,000
Unearned service revenue	3,000
Land	370,000
Accrued interest payable	1,000
Cash	60,000
Franchise	100,000
Sales	625,000
Retained earnings, Jan 1, 2017	155,000
Interest expense	8,500
Cumulative effect of change from straight-line to accelerated
depreciation (net of $2,000 tax)	-6,500
General and administrative expenses	75,000
Purchases	335,000
Allowance for doubtful accounts	5,000
Machinery and equipment	225,000

Unless indicated otherwise, you may assume a 25% income tax rate. General and administrative expenses include depreciation. There are no preferred shares issued.

Instructions

a.     Prepare a multiple-step income statement

b.    Prepare a retained earnings statement

Answer 1

Answer:

A.) Income statement

BILL-ROSE CORPORATION
Income statement
For the year ended December 31, 2019
Particulars	Amount	Amount
Sales		$                      6,25,000
Cost Of goods Sold:
Merchandise Inventory, Jan 1	$                 72,000
Purchases	$              3,35,000
Less: Purchase discounts	$                  -9,000
Net Purchases	$              3,26,000
Merchandise avilable for sale	$              3,98,000
Less: Merchandise Inventory, Dec 31	$                -65,000
Cost of Goods Sold		$                      3,33,000
Gross profit on Sales		$                      2,92,000
Operating Expenses:
Selling Expenses	$                 46,000
General and administrative expenses	$                 75,000
Total Operating expenses		$                      1,21,000
Income from operations		$                      1,71,000
Other revenues and gains:
Dividend Revenue		$                         10,000
Other expenses and losses:
Interest Expenses	$                  -8,500
loss from Fire ($12,000 + $4,000)	$                -16,000	$                        -24,500
Income before Income tax		$                      1,56,500
Income Tax ($156,500 × 25%)		$                        -39,125
Net Income for the year		$                      1,17,375
Earnings per share ($117,375 ÷ 20000)		5.87

.

.

B.) Retained Earnings statement

BILL-ROSE CORPORATION
Retained Earnings statement
For the year ended December 31, 2019
Particulars	Amount	Amount
Retained earnings, January 1, as reported		155000
Cumulative effect of change from straight line to accelerated Depreciation Method		-6500
Retained earnings, January 1, as adjusted		148500
Add: Net Income ( As per income statement)		117375
Less; Dividend Declared and paid	`	-16000
Retained earnings, December 31, 2020		101375