Question

The following account balances were included in the trial balance of Twain Corporation at June 30, 2017.

Sales revenue		$1,578,500		Depreciation expense (office furniture and equipment)		$7,250
Sales discounts		31,150		Property tax expense		7,320
Cost of goods sold		896,770		Bad debt expense (selling)		4,850
Salaries and wages expense (sales)		56,260		Maintenance and repairs expense (administration)		9,130
Sales commissions		97,600		Office expense		6,000
Travel expense (salespersons)		28,930		Sales returns and allowances		62,300
Delivery expense		21,400		Dividends received		38,000
Entertainment expense		14,820		Interest expense		18,000
Telephone and Internet expense (sales)		9,030		Income tax expense		102,000
Depreciation expense (sales equipment)		4,980		Depreciation understatement due to error—2014 (net of tax)		17,700
Maintenance and repairs expense (sales)		6,200		Dividends declared on preferred stock		9,000
Miscellaneous selling expenses		4,715		Dividends declared on common stock		37,000
Office supplies used		3,450
Telephone and Internet expense (administration)		2,820

The Retained Earnings account had a balance of $337,000 at July 1, 2016. There are 80,000 shares of common stock outstanding.

Using the multiple-step form, prepare an income statement for the year ended June 30, 2017. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Prepare a retained earnings statement for the year ended June 30, 2017. (List items that increase adjusted retained earnings first.)

Using the single-step form, prepare an income statement for the year ended June 30, 2017. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Prepare a retained earnings statement for the year ended June 30, 2017. (List items that increase adjusted retained earnings first.)

Answer 1

SOLUTION

1.

Twain Corporation

Income Statement

For the Year Ended June 30, 2017

Particulars	Amount ($)	Amount ($)
Sales Revenue
Sales revenue		1,578,500
Less: Sales discounts	31,150
Sales returns and allowances	62,300	93,450
Net sales		1,485,050
Cost of goods sold		896,770
Gross profit		588,280
Operating Expenses
Selling expenses
Sales commissions	97,600
Salaries and wages exp	56,260
Travel expense	28,930
Freight-out	21,400
Entertainment expense	14,820
Telephone and Internet expense	9,030
Maintenance and repairs expense	6,200
Depreciation expense	4,980
Bad debt expense	4,850
Misc. selling expenses	4,715	248,785
Administrative Expenses
Maintenance and repairs expense	9,130
Property tax expense	7,320
Depreciation expense	7,250
Supplies expense	3,450
Telephone and internet expense	2,820
Miscellaneous office expenses	6,000	35,970
Income from operations		303,525
Other Revenues and Gains
Dividend revenue		38,000
Other Expenses and Losses
Interest expense		18,000
Income before income tax		323,525
Income tax		102,000
Net income		221,525
Earnings per common share  [($221,525-$9,000)/80,000]		$2.66

2.

Twain Corporation

Retained Earnings statement

For the Year Ended June 30, 2017

Particulars	Amount ($)	Amount ($)
Retained earnings, July 1, 2016, as reported		337,000
Correction of depreciation understatement, net of tax		(17,700)
Retained earnings, July 1, 2016, as adjusted		319,300
Add: Net income		221,525
		540,825
Less: Dividends declared on preferred stock	9,000
Dividends declared on common stock	37,000	46,000
Retained earnings, June 30, 2012		494,825

3.

Twain Corporation

Income Statement

For the Year Ended June 30, 2017

Particulars	Amount ($)
Revenues
Net sales	1,485,050
Dividend revenue	38,000
Total revenues	1,523,050
Expenses
Cost of goods sold	896,770
Selling expenses	248,785
Administrative expenses	35,970
Interest expense	18,000
Total expenses	1,199,525
Income before income tax	323,525
Income tax	102,000
Net income	221,525
Earnings per common share	2.66

4.

Twain Corporation

Retained Earnings statement

For the Year Ended June 30, 2017

Particulars	Amount ($)	Amount ($)
Retained earnings, July 1, 2016, as reported		337,000
Correction of depreciation understatement, net of tax		(17,700)
Retained earnings, July 1, 2016, as adjusted		319,300
Add: Net income		221,525
		540,825
Less: Dividends declared on preferred stock	9,000
Dividends declared on common stock	37,000	46,000
Retained earnings, June 30, 2012		494,825