Question

Data taken from the accounting records of Sherri’s Designs on December 31 are shown.

Operating expenses	$1,000
Sales revenue	5,000
Inventory, Jan. 1, 2019	1,600
Purchases	1,200
Interest revenue	250
Loss on disposal of a discontinued component of the business (pre-tax)	400
Inventory, Dec. 31, 2019	750
Income tax expense	660

Sherri’s Designs has 2,000 shares of common stock outstanding and net income per share for 2019 was $0.63. The income tax rate is 30%.

Required:

a.	Prepare a single-step income statement.
b.	Prepare a multiple-step income statement.

Answer 1

Requirement a:

Income statement (Single step)
Revenues:
Saleas revenue	$ 5,000
Interest revenue	$ 250
Total revenues		$ 5,250
Expenses:
Cost of goods sold	$ 2,050
Operating expenses	$ 1,000
Income tax expense	$ 660
Total expenes		$ 3,710
Income form conitnuing operations		$ 1,540
Loss on disposal of a discontinued component of the business, net of taxes [400 x 70%]		$ 280
Net income		$ 1,260
Earning per share [$1260/2000]		$ 0.63

Requirement b:

Income statement (Multiple-step)
Sales revenue		$ 5,000
Cost of goods sold:
Inventory,Jan. 1, 2019	$ 1,600
Add: Purchases	$ 1,200
Less : Inventory, Dec. 31, 2019	($ 750)
Cost of goods sold		$ 2,050
Gross profit		$ 2,950
Operating expenses		$ 1,000
Operating income		$ 1,950
Non operating or other:
Interest revenue		$ 250
Net income before income tax		$ 2,200
Income tax		$ 660
Income form conitnuing operations		$ 1,540
Loss on disposal of a discontinued component of the business, net of taxes [400 x 70%]	$ 280
Net income		$ 1,260
Earning per share [$1260/2000]		$ 0.63