Question

1.

A. Prepare a multiple-step income statement for the year ended December 31, Year 1, 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. Enter all amounts as positive numbers EXCEPT in the Other income and expenses. In that section only, enter amounts that represent other expenses as negative numbers using a minus sign. Round earnings per share to the nearest cent.) • Refer to the Chart of Accounts for exact wording of account titles. • Refer to the Labels and Amount Descriptions for exact wording of text entries. 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 investments 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 20Y2 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, Year 1), 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 886,800 -Preferred 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, Year 1 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)

Answer 1

Income statement for the period ended december 31
sales		5254000
less:cost of merchandise sold		3700000
Gross margin		1554000
less:selling and administrative expense
selling expense
Advertising expense	150000
Delivery expense	30000
Sales commissions	185000
Sales salaries expense	385000
Miscellaneous selling expense	14000	764000
Administrative expense
Depreciation expense-office buildings and equipment	30000
Depreciation expense-store buildings and equipment	100000
Office rent expense	50000
Office salaries expense	170000
Office supplies expense	10000
Store supplies expense	21000
Miscellaneous administrative expense	7500	388500
Total selling and administrative expense		1152500
operating income		401500
other income and /(expense)
Dividend revenue	4500
Gain on sale of investments	4980
Income from Pinkberry Co. investment	76800
Interest revenue	2720
Interest expense	(21000)
Total other income /(expense)		68000
Income before tax		469500
Income tax expense		(140500)
Net income		329000
dividend to preferred stockholders		(100000)
earning available to common stockholders [A]		229000
number of common stock [B]		100000
Earning per share [A/B]	229000/100000	$2.29