Question

Presented below are selected ledger accounts of Sunland Corporation as of December 31, 2017.

Cash $67,100

Administrative expenses 106,500

Selling expenses 84,980

Net sales 543,300

Cost of goods sold 261,800

Cash dividends declared (2017) 20,730

Cash dividends paid (2017) 17,400

Discontinued operations (loss before income taxes) 44,200

Depreciation expense, not recorded in 2016 35,500

Retained earnings, December 31, 2016 96,240

Effective tax rate 30%

a) Compute net income for 2017.
b) Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information. Assume 18,040 shares of common stock were outstanding during 2017.

Answer 1

SOLUTION

(A) Calculation of net income for 2017-

Particulars	Amount ($)
Net sales	543,300
Less: Cost of goods sold	(261,800)
Gross profit	281,500
Less: Expenses
Administrative expenses	(106,500)
Selling expenses	(84,980)
Discontinued operations-loss	(44,200)
Income before income tax	45,820
Income tax @30%	13,746
Net income	32,074

(B) Partial Income statement

Particulars	Amount ($)	Amount ($)
Income from continuing operations before income tax *	90,020
Income tax expense @30%	27,006
Income from continuing operations		63,014
Loss from discontinued operation before tax	44,200
Less: Income tax benefit on discontinued opeartion	13,260
Loss on disconinued opeartions after tax		30,940
Net income		32,074
Earnings per share-
Income from continuing operations (63,014/18,040 shares)		3.49
Loss on discontinuing operations (30,940 / 18,040 shares)		(1.72)
Earnings per share		1.77

*Income from continuing operations before income tax

Sales-Cost of goods sold - Administrative expense - Selling expense

= 543,300 - 261,800 - 106,500 - 84,980 = 90,020