Question

Financial Statement Project

Browning Company has the following ledger accounts and adjusted balances as of December 31, 2017. All accounts have normal balances. Browning’s income tax rate is 40%. Browning has 300,000 shares of Common Stock authorized and 100,000 shares of Common Stock issued and outstanding.

         Accounts Payable…………………………….   26,000

         Accounts Receivable………………………… 180,000

         Accumulated Depreciation-Building…………   50,000

         Administrative Expenses…………………….    40,000

         Allowance for Doubtful Accounts……………   20,000

         Mortgage Payable …………..………………. 250,000*

         Building……………………………………… 500,000

         Cash………………………………………….   26,000

         Common Stock……………………………… 300,000

         Cost of Goods Sold…………………………. 380,000

         Dividends……………………………………   20,000

         Income from Operations of Division X……..    40,000

         (Division X is a component of Browning Company)

         Interest Revenue……………………………..   20,000

         Inventory……………………………………...280,000

         Land (held for future use)...…………………. 200,000

         Loss from Sale of Division X........................... 80,000

         (Division X is a component of Browning Company)

         Loss on Sale of Investments.……………….. .. 10,000

         Paid-In Capital in Excess of Par……………...116,000

         Patent………………………………………… 30,000

         Prepaid Insurance……………………………. 10,000**

         Retained Earnings, January 1, 2017………… 250,000

         Sales Discounts………………………………. 20,000

         Sales Revenue………………………………..990,000

         Selling Expenses……………………………. 130,000

*$25,000 of the principal comes due in 2018.

**Two years insurance paid in advance.

Instructions:

Use this information to prepare a multiple-step income statement, a retained earnings statement, and a classified balance sheet.

Answer 1

1	Browing Company
	Income Statement
	For the month ended December 31, 2017
	Revenue
	Sales	990,000
	Less: Sales Discount	20,000
		970,000
	Less: Cost of goods sold	380,000
	Gross Profit		590,000
	Expenses
	Administrative expenses	40,000
	Selling Expenses	130,000	170,000
	Operating income		420,000
	Other income and expenses
	Interest Income	20,000
	Loss on Sale of Investments	(10,000)	10,000
	Income before income taxes and extraordinary items		430,000
	Income from Operations of Division X	40,000
	Loss from Sale of Division X	(80,000)	(40,000)
	Income before income taxes		390,000
	Less: Income Tax		156,000
	Net Income		234,000
2	Browing Company
	Statement of Retained Earnings
	For the month ended December 31, 2017
	Retained Earnings, Jan 1	250,000
	Add: Net Income / (loss)	234,000
		484,000
	Less: Dividend	20,000
	Retained Earnings, Dec 31	464,000
3	Browing Company
	Balance Sheet
	December 31, 2017
	Assets
	Current Assets
	Cash	26,000
	Accounts Receivable	180,000
	Less: Allowance for Doubtful Accounts	(20,000)
	Inventory	280,000
	Prepaid Insurance	10,000
	Total		476,000
	Non-Current Assets
	Land (held for future use)	200,000
	Building	500,000
	Less: Accumulated Depreciation - Building	(50,000)
	Patent	30,000
	Total		680,000
	Total assets		1,156,000
	Liabilities and Stockholders' Equity
	Current Liabilities
	Accounts Payable	26,000
	Mortgage Payable (due in 2018)	25,000
	Total		51,000
	Non-Current Liabilities
	Mortgage Payable	225,000
	Total		225,000
	Total Liabilities		276,000
	Stockholders' Equity
	Capital Stock	300,000
	Retained Earnings	464,000
	Paid-In Capital in Excess of Par	116,000
	Total Stockholders' Equity		880,000
	Total Liabilities and Stockholders' Equity		1,156,000