Question

Income Statement Preparation

      Watson Corporation has several subsidiaries and the accounts below reflect their combined amounts before income taxes and excluding the amounts noted. Watson Corporation's capital structure consists of 20,000 shares of common stock. At December 31, 2018, an analysis of the accounts and discussions with company officials revealed the following information:   

Sales	1,375,000
Purchases	820,000
Purchase Discounts	5,000
Purchase Returns	15,000
Freight in	11,000
Freight Out	8,000
Hurricane Loss	22,000
Selling Expenses	110,000
Bad Debt Expense	12,000
Cash	60,000
Accounts Receivable	90,000
Common Stock	200,000
Preferred Stock	100,000
Accumulated Depreciation	180,000
Dividend Revenue	8,000
Inventory, January 1, 2018	170,000
Inventory, December 31, 2018	182,000
Unearned Service Fees	4,400
Loss on restructuring of finance division	50,000
Gain on sale of equipment	19,000
Accrued Interest Payable	1,000
Land	370,000
Patents	100,000
Gain on Sale of Investments	23,000
General and Administrative expenses	150,000
Depreciation Expense	50,000
Retained Earnings, January 2018	270,000
Interest Expense	7,000
Allowance for doubtful accounts	5,000
Dividends Declared	51,000
Allowance for doubtful accounts	5,000
Notes Payable	200,000
Machinery and Equipment	450,000
Materials and supplies Inventory	40,000
Accounts Payable	60,000

    

     Excluded from the above numbers are the operations of the Art Department which the company decided to discontinue on November 1st. The information on the 2018 operations of the Art Department are presented below:

	2018 Operations
Sales	170,000
Cost of Goods Sold	79,000
Selling Expenses	34,000
General and Administrative Expenses	20,000
Loss on asset Sales after measurement date	10,000

The net realizable value of the remaining Art Department assets is $15,000 less than their net book value.

A 30% tax rate applies to all items.

    

      Prepare a multiple step income statement

Answer 1

Watson Company
Income Statement
Quarter Ended Dec 31, 2016
Net Sales Revenue			1375000
Cost of Good sold
Inventories , jan 1		170000
Add: purchases	820000
Add: purchases freight	11000
Less: purchase Discount	5000
Less: Purchase Return	15000
Net Purchase		811000
Cost of Good available for sale		981000
Less: Closing Inventory		182000
Cost of Good sold			799000
Gross Profit			576000
Operating Expenses:
Selling Expenses	110000
Freight Out	8000
Bad Debts	12000
Total Selling Expenses		130000
Administrative Expenses:
General and Administrative expenses	1,50,000
Depreciation Expense	50,000
Total Administrative Expenses		2,00,000
Total Operating Expenses			3,30,000
Operating Income			2,46,000
Other Gains and Losses:
Dividend Revenue		-8000
Interest expense		7000
Loss on restructuring		50000
Gain on sale of real estate		-19000
Gain on Sale of Investment		-23000	7000
Income before taxes from continuing operations before Extra-ordinary item			2,53,000
Provision for taxes (30%)			75900
Income from continuing operations before extra-ordinary item			1,77,100
Loss on art Art Department ($27,000 net of $8,100 tax)		18900
Loss on sale of Art assets ($15000 net of $4,500 tax)		10500	29400
Income before extra-ordinary item			1,47,700
Extraordinary Loss Due to Hurricane, Net of $6600 Taxes			15400
Net Income			1,32,300
Per Share of Common Stock (20,000 shares Outstanding)
Income before Extraordinary Items	7.385
Extraordinary Loss Due to Hurricane, Net of $6600 Taxes	-0.77
2018 Operations art department
Sales	1,70,000
-Cost of Goods Sold	79,000
-Selling Expenses	34,000
-General and Administrative Expenses	20,000
-Loss on asset Sales after measurement date	10,000
Net Operating income	27,000