Question

Snowman Co. had the following December 31, 2017, account balances (listed in alphabetical order):

Account	12/31/2017 Balance
Administrative and Office Salaries Expense	$29,500
Advertising Expense	14,100
Bad Debt Expense	1,900
Common Stock, $10 par	110,000
Cost of Goods Sold	191,200
Depreciation Expense: Buildings & Office Equipment	10,000
Depreciation Expense: Sales Equipment	8,500
Dividend Revenue	900
Gain on Sale of Sales Equipment (pretax)	5,000
Interest Expense	4,900
Office Supplies Expense	1,800
Property Tax Expense	7,700
Retained Earnings, January 1, 2017	428,900
Sales	366,700
Sales Discounts Taken	5,200
Sales Salaries Expense	16,500
Sales Supplies Expense	4,600
Transportation out (deliveries)	6,000

Additional information not included in the above.

The tax rate is 30%

On April 1, 2017, the company sold Division M (a component of the company), which had been unprofitable for several years. For the first 3 months of 2017, Division M had operating revenues of $25,000 and operating expenses of $33,800. The division assets had a historical cost of $80,000, had been depreciated for seven years using the straight line method, allowing for a $5,000 residual value, and a ten year life. The assets were sold for $45,000.

In the middle of December, 2017, the company incurred a material $5,500 pretax loss as a result of a flood on a river that floods once every 25 years.

During a review of the 2017 entries to ascertain what adjusting entries needed to be made, it was discovered that Legal Fees of $14,000, incurred in 2015 and associated with researching a potential patent were capitalized to the account patents in 2015. The patent was never applied for and the product idea was scrapped. In 2016 patent amortization was recorded, based on a twenty-year patent life. No amortization entry was recorded in 2017.

The company paid cash dividends of $.90 per share on its common stock. All the stock was outstanding for the entire year.

While making its December 31, 2017 adjusting entries, the company conducted an analysis of its recent favorable experience with uncollectible accounts receivable, and decided to reduce the percentage used in computing bad debt expense. The use of the new percentage resulted in the $1,900 bad debt expense being $500 less than the amount that would have been calculated using the old percentage.

During 2017, the company elected to switch from the completed contract method to the percentage of completion method for the work performed by its Consulting Division. This division has been in existence since 2015. The effect of this change was an increase in revenue in 2015 of $15,000, an increase in 2016 of $20,000 and an increase in 2017 of $25,000. The percentage of completion method was applied to all consulting revenue recorded in 2017. Consulting revenue is combined with other sales revenue for reporting purposes on the financial statements.

REQUIRED:

Prepare a single step Income Statement for Snowman Co. being sure to differentiate between Selling Expenses and Administrative Expenses.

Prepare a Statement of Retained Earnings for Snowman Co.

Where needed, provide schedules to show the details of your calculations and numbers.

Which of the “additional information” items would require footnote disclosure? Briefly explain what the footnote would need to state or explain.

Answer 1

Income statement of SNOWMAN CO. form 1 jan 2017 to dec 17
Particular	Amount
Sales	3,66,700.00
less discount	-5,200.00
Net Sales	3,61,500.00
Other Income	5,900.00
Total income	3,67,400.00
Cost of GOOD SOLD	1,91,200.00
Administration Expenses	39,000.00
advertisement expenses	14,100.00
Bad debts	1,900.00
Depreciation on building & office equiments	10,000.00
depreciation on sales equiments	8,500.00
Interest expenses	4,900.00
Selling Expenses	15,200.00
Amortisation of Patient	13,300.00
Loss on Material	220.00
Total operating Expenses	2,98,320.00
Profit from operating operation	69,080.00
Non Operating Income
Revenue	25,000.00
Less Expenses	33,800.00
Add Profit sales of aSSets	17,500.00
Total Non operating Income	8,700.00
Total Profit from operating and non operating operation	77,780.00
Less Tax	23,334.00
Profit after tax	54,446.00
Less Dividend Paid	9,900.00
Transfer to retain Earning	44,546.00

Foot Note
1	Company incurred material loss from food which accured once in 25 year which is $5500
2	Company has changed its bad debts calculation method . Currect year bad debts is 1900 which is 500 less than old method
3	Company has changed its work contract method they switched from percentage completion to completion method .from the change revenue is incred by $60000. In which 15000 related with 2015, 20000 with 2016 and current year increase is 25000

Statement of Retain Earning
Particular	Amount
Opening balance as on 1st january 2017	428900
Add:-Current Year Profit
Operating profit	48,356.00
Non Operating Profit	6,090.00
Less Dividend paid	9900
Clossing balance as on 31st dec 2017	4,73,446.00

Working note

Working note
1	calculation of other income
	dividend Revenue	900
	Gain on sales of sales euiments	5000
		5900
2	Calculation of Selling Expenses
	Sales salaries	4,600.00
	Transport out	6,000.00
	sales supplies Expenses	4,600.00
	Total	15,200.00
3	Calculation of Administration Expenses
	Office supplies expenses	1,800.00
	property tax	7,700.00
	Administratio AND Office salaries	29,500.00
	Total	39,000.00
4	Loss on material
	This loss is incurred once in 25 year so expenses should be distributed in 25 year
	220.00
5	Amortisation of patient
	Total fees paid	14000
	depreciation booked	700
	Curent year Amortistion	13300
6	Loss on sales of non opertating investment
	Assets Value	80000
	Less Accumulated Depreciation	52500
	Book Value	27500
	Selling Price	45000
	Profit sales of assets	17500