Question

Comprehensive Problem 4
Part 2:

Note: You must complete part 1 before part 2.

After all of the transactions for the year ended December 31, 2016, had been posted [including the transactions recorded in part (1) and all adjusting entries], the data that follows were taken from the records of Equinox Products Inc.

Income statement data:
Advertising expense	$150,000
Cost of merchandise sold	3,700,000
Delivery expense	30,000
Depreciation expense—office buildings and equipment	30,000
Depreciation expense—store buildings and equipment	100,000
Dividend revenue	4,500
Gain on sale of investment	4,980
Income from Pinkberry Co. investment	76,800
Income tax expense	140,500
Interest expense	21,000
Interest revenue	2,720
Miscellaneous administrative expense	7,500
Miscellaneous selling expense	14,000
Office rent expense	50,000
Office salaries expense	170,000
Office supplies expense	10,000
Sales	5,254,000
Sales commissions	185,000
Sales salaries expense	385,000
Store supplies expense	21,000
Retained earnings and balance sheet data:
Accounts payable	$194,300
Accounts receivable	545,000
Accumulated depreciation—office buildings and equipment	1,580,000
Accumulated depreciation—store buildings and equipment	4,126,000
Allowance for doubtful accounts	8,450
Available-for-sale investments (at cost)	260,130
Bonds payable, 5%, due 2024	500,000
Cash	246,000
Common stock, $20 par (400,000 shares authorized; 100,000 shares issued, 94,600 outstanding)	2,000,000
Dividends:
Cash dividends for common stock	155,120
Cash dividends for preferred stock	100,000
Goodwill	500,000
Income tax payable	44,000
Interest receivable	1,125
Investment in Pinkberry Co. stock (equity method)	1,009,300
Investment in Dream Inc. bonds (long term)	90,000
Merchandise inventory (December 31, 2016), at lower of cost (FIFO) or market	778,000
Office buildings and equipment	4,320,000
Paid-in capital from sale of treasury stock	13,000
Excess of issue price over par—common stock	886,800
Excess of issue price over par—preferred stock	150,000
Preferred 5% stock, $80 par (30,000 shares authorized; 20,000 shares issued)	1,600,000
Premium on bonds payable	19,000
Prepaid expenses	27,400
Retained earnings, January 1, 2016	9,319,725
Store buildings and equipment	12,560,000
Treasury stock (5,400 shares of common stock at cost of $33 per share)	178,200
Unrealized gain (loss) on available-for-sale investments	(6,500)
Valuation allowance for available-for-sale investments	(6,500)

On your own paper, in the working papers, or using a spreadsheet, prepare the following:

a. Prepare a multiple-step income statement for the year ended December 31, 2016, concluding with earnings per share. In computing earnings per share, assume that the average number of common shares outstanding was 100,000 and preferred dividends were $100,000. (Round earnings per share to the nearest cent.) Save your calculations and enter the requested amounts below.

b. Prepare a retained earnings statement for the year ended December 31, 2016. Save your calculations and enter the requested amounts below.

c. Prepare a balance sheet in report form as of December 31, 2016. Save your calculations and enter the requested amounts below.

If required, only use the minus sign to indicate net loss before income tax, net loss, or a deficit balance in retained earnings.

Gross profit	$
Total selling expenses	$
Total administrative expenses	$
Total operating expenses	$
Income from operations	$
Net other expenses and income	$
Income tax	$
Net income	$
Earnings per common share (rounded to the nearest cent)	$
Retained earnings, January 1, 2016	$
Total current assets	$
Investment in Dream Inc. bonds	$
Total property, plant, and equipment	$
Total assets	$
Total current liabilities	$
Net long-term liabilities	$
Total liabilities	$
Total paid-in capital preferred 5% stock	$
Total paid-in capital common stock, $20 par	$
Total paid-in capital	$
Retained earnings, December 31, 2016	$
Total stockholders' equity

Answer 1

a. Income Statement

Equinox Products Inc.
Income Statement
For the year ended 31st December 2016
Sales 5254000 Less: Cost of Merchandise Sold 3700000 Gross Profit 1554000 Operating Expenses Selling Expenses Advertising Expenses 150000 Sales Commission 185000 Delivery Expense 30000 Miscellaneous Selling Expense 14000 Total 379000 Administrative Expenses Office Supplies Expense 10000 Store Supplies Expense 21000 Depreciation Expense- Office Buildings and Equipment 30000 Depreciation Expense- Store Buildings and Equipment 100000 Miscellaneous Administrative Expense 7500 Office Rent Expense 50000 Office Salaries Expense 170000 Sales Salaries Expense 385000 Total 773500 Operating Income 401500 Non-Operating Income & Other Expenses Interest Revenues 2720 Gain on Sale of Investments 4980 Dividend Revenue 4500 Income from Pinkberry Co. Investment 76800 Less:Interest Expenses 21000 Total 68000 Income before Tax 469500 Income Tax Expense 140500 Net Income 329000 Less: Preference Dividend 100000 Net Income after Preference Dividend 229000 Average number of Common Shares 100000 Earnings Per share (Rounded off to nearest cent)    $ 2.29 b. Statement of Retained Earnings: Equinox Products Inc. Statement of Retained Earnings For the year ended 31st December 2016 Retained Earnings as on 1st Jan 2016 9319725 Add: Net Income 329000 Less: Cash Dividend for Preferred Stock 100000 Less: Cash Dividend for Common Stock 155120 Retained Earnings as on 31st Dec 2016 9363605 c. Balance Sheet in Report Form Equinox Products Inc. Balance Sheet 31st December 2016