Question

The following incorrect income statement was prepared by the accountant of the Axel Corporation:

AXEL CORPORATION Income Statement For the Year Ended December 31, 2021
Revenues and gains:
Sales revenue				$	680,000
Interest revenue					41,000
Gain on sale of investments					88,000
Total revenues and gains					809,000
Expenses and losses:
Cost of goods sold	$	370,000
Selling expense		68,000
Administrative expense		88,000
Interest expense		25,000
Restructuring costs		64,000
Income tax expense		48,500
Total expenses and losses					663,500
Net Income				$	145,500
Earnings per share				$	1.46

Required:
Prepare a multiple-step income statement for 2021 applying generally accepted accounting principles. The income tax rate is 25%. (Amounts to be deducted should be indicated with a minus sign. Round EPS answer to 2 decimal places.)

Answer 1

Alex Corporation

Income statement

   For the Year Ended 31st December, 2021

Particulars	$	$
Sales Revenue		680,000
Less cost of goods sold		370,000
Gross profit		310,000
Less operating expenses:
Restructuring expense	64,000
Selling expense	68,000
Administrative expense	88,000
Total operating expenses		220,000
Operating income		90,000
Less Non operating gain and expenses
Income tax expense	(48,500)
Gain on sale of investment	88,000
Interest revenue	41,000
Interest expense	(25,000)
Total non operating gain and expenses		55,500
Net profit		145,500
Earnings per share

Earnings before income tax is 194,000

Income tax expense = 194,000 × 25% = $48,500

Earnings per share = income available to common share holders / weighted average number of common shares outstanding

Weighted average number of common shares outstanding = 145,500 / 1.46 = 145,500

Earnings per share = 145,500 / 99,657 = $1.46

Interest revenue $41,000 , gain on sale of investment are taken in non operating gains and expenses section of income statement. Interest expenses $25,000 and income tax expense of $48,500 is included in non operating gain and expenses section of the multiple step income statement. Restructuring expense $64,000 is an operating expense. $68,000 selling expense is an operating expense.

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