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In: Accounting

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

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.)

Solutions

Expert Solution

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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