Exercise 1: Income Statement: Presented below is information related to Farr Com

Question

Exercise 1: Income Statement: Presented below is information related to Farr Company. Retained earnings, December 31, 2010 Sales Selling and administrative expenses Hurricane loss (pre-tax) on plant (extraordinary item) Cash dividends declared on common stock Cost of goods sold Ga 650,00 1,500,000 240,000 290,000 33,600 780,000 in resulting from computation error on depreciation charge in 2009 (pre-tax) Other revenue Other expenses 520,000 120,000 100,000 Instructions Prepare in good form a multiple-step income statement for the year 2011. Assume a 30% tax rate and that 80,000 shares of common stock were outstanding during the year

Explanation / Answer

Farr Company INCOME STATEMENT For the Year Ended December 31, 2011 Sales revenue 1500000 Cost of goods sold 780000 Gross profit 720000 Selling and administrative expenses 240000 Income from operations 480000 Other revenue 120000 Other expenses -100000 Income before income taxes 500000 Income taxes 150000 =500000*30% Income from continuing operations 350000 Extraordinary loss, net of applicable income taxes -203000 =290000*(1-30%) Net income 147000 Per share of common stock— Income from continuing operations 4.38 =350000/80000 Extraordinary loss, net of taxes -2.54 =-203000/80000 Net income 1.84

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