Question

Assigned HW2: Income Statement

Presented below is information related to Festival Co. for the calendar year of 2017.

Cost of goods sold- $1,575,000

Loss on disposal of discontinued electronic division (pre-tax) - $330,000

Dividends-Preferred stock- $275,000

Loss resulting from changes in accounting principles: FIFO to AC inventory assumption (pre-tax) - $32,000

Interest revenue- $690,000

Selling expenses 495,000

Net Sales- $3,850,000

Income from operations of discontinued electronic division (pre-tax) - $280,000

Administrative expenses- $375,000

Retained earnings, 1/1 (Jan 1) - $630,000

Dividends-Common stock- $235,000

Interest expense- $795,000

Instructions:

Prepare in good form a multiple-step income statement for the year of 2017 for Festival Co. Assume a 30% tax rate and that 140,000 shares of common stock were outstanding during the year. Include an appropriate heading for the statement. All subtotals should be titled appropriately. Also determine earnings per share based on the net income figure at the bottom of the statement (round to two decimals). That is, you don't need to show per share information for different components. Please note, the items given above are in scrambled order and not all items should be reported on an income statement.

Answer 1

FESTIVAL CO
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
Sales Revenue				$3,850,000
Cost of Goods Sold				$1,575,000
Gross Profit				$2,275,000
Operating Expenses
Selling Expenses				$495,000
Administrative expenses				$375,000
Income From Operations				$1,405,000
Other Revenue and Gains
Interest Revenue				$690,000
Other Expenses and Losses
Interest Expense				$795,000
Income before taxes and extraordinary items				$1,300,000
Income Taxes @ 30%				$390,000
Income from Continuing Operations				$910,000
Discountinued Operations
Income on operations, net of tax - 280000*70%				$196,000
Loss on Disposition, net of tax - $330000*70%				($231,000)
Income before extraordinary items				$875,000
Extraordinary item - Loss from change in accounting principles, 32000*70%				($22,400)
Net Income				$852,600
Earnings per share
Income from continuing operations
($910000-$275000)/140000				4.54
Discountinued operations
Income on operations, net of tax		$196000/140000	1.40
Loss on Disposition, net of tax		$231000/140000	($1.65)	($0.25)
Income before extraordinary item				$4.29
($2925570-$87850)/492800
Extraordinary loss		$22400/140000		-0.16
Net Income ($2528570-$87850)/492800				$4.13