Question

Robin Mackey is a business major at Southern Missouri University. Robin is struggling with an accounting homework assignment to prepare an income statement for Wambaugh Inc., an imaginary firm. Robin has decided that the following should be included in this income statement:
-Costs of Goods Sold
-Income Taxes Payable
-Accounts Receivable
-Income Expense
-Earnings per Share
-Loss of Discontinued Operations (net of taxes)
-Net sales
-Possible loss from Lawsuit
-Accounts Payable
-Dividends (declared by the Board of Directors)
-Gain on Sale of Equipment
-Salaries Payable
-Selling and Administrative Expenses
-Stock Dividends Distributable

Help Robin complete her homework assignment by answering the following questions:
A. Which of the items listed should be included in Wambaugh Inc.’s income statement?
B. In what order should these items appear in the income statement?
C. Where will the remaining items appear in the financial statements? Will any of the amounts not be included in the actual financial statements? If so, explain.

Answer 1

A)Financial statement is a set of books comprising of Income statement ,Statement of changes in equity ,Balance sheet and cash flow statement.

Income statement is prepared to show net income earned or net loss incurred during the period .In other words ,It shows ,Revenue or gain earned and expenses or loss incurred .

Items Part of Income statement :

Cost of Goods sold	Expense
Income expense	Expense
Earning per share	Disclosed In income statement
-Loss of Discontinued Operations (net of taxes)	Loss
Net sales	Revenue
Gain on Sale of Equipment	Gain
Selling and Administrative Expenses	Expense

B)

1	Net sales
2	cost of goods sold
3	selling and administrative expense
4	Gain on sale of equipment
5	Income expense   (it means income tax expense)
6	Loss of Discontinued Operations (net of taxes)
7	Earning per share

(C)Other Items to be Included in Financial statement:

Income Taxes Payable	Balance sheet
Accounts Receivable	Balance sheet
Accounts Payable	Balance sheet
Dividends (declared by the Board of Directors)	Statement of changes in equity or statement of retained earning
Salaries Payable	Balance sheet
Stock Dividends Distributable	Statement of changes in equity or statement of retained earning

Items that will appear in notes to financial statement (that is not a part of financial statement) is Possible loss from Lawsuit

Since this loss is possible not probable.