The following information was taken from the records of Gibson Inc. for the year

ID: 2387977 • Letter: T

Question

The following information was taken from the records of Gibson Inc. for the year 2010. Income tax applicable to income from continuing operations $119,000; income tax applicable to loss on discontinued operations $25,500; income tax applicable to extraordinary gain $32,300; income tax applicable to extraordinary loss $20,400; and unrealized holding gain on available-for-sale securities $15,000.

Extraordinary gain $95,000 Cash dividends declared $150,000
Loss on discontinued operations 75,000 Retained earnings, January 1, 2010 600,000
Administrative expenses 240,000 Cost of goods sold 850,000
Rent revenue 40,000 Selling expenses 300,000
Extraordinary loss 60,000 Sales 1,700,000

Shares outstanding during 2010 were 100,000.

(a) Prepare a single-step income statement for 2010. (Round per share common stock to 2 decimal places, e.g. 5.25 and all other answers to zero decimal places, e.g. 2,250. For per share common stock use either a negative sign preceding the number, e.g. -0.45 or parenthesis, e.g. (0.45) for negative numbers. Enter all other amounts as positive amounts and subtract where necessary. List multiple entries from largest to smallest amount, e.g. 10, 5, 2.)

Prepare a retained earnings statement for 2010. (Enter all amounts as positive amounts and subtract where necessary.)

Show how comprehensive income is reported using the second income statement format.

Explanation / Answer

Revenues

Sales.......................................................................................................................

$1,900,000

Rent revenue

40,000

Total revenues.........................................................................................

1,940,000

Expenses

Cost of goods sold...................................................................................

850,000

Selling expenses.......................................................................................

300,000

Administrative expenses.........................................................................

240,000

Total expenses.............................................................................

$1,390,000

Income from continuing operations before
income tax............................................................................................

550,000

Income tax...................................................................................

187,000

Income from continuing operations......................................................

363,000

Discontinued operations

Loss on discontinued operations................................................

$75,000

Less: Applicable income tax reduction......................................

25,500

49,500

Income before extraordinary items.......................................................

313,500

Extraordinary items:

Extraordinary gain.....................................................................

95,000

Less: Applicable income tax.......................................................

32,300

62,700

376,200

Extraordinary loss......................................................................

60,000

Less: Applicable income tax reduction......................................

20,400

39,600

Net income...............................................................................................

$ 336,600

Per share of common stock:

Income from continuing operations ($363,000 ÷ 100,000).............................

$3.63

Loss on discontinued operations, net of tax....................................................

(.49)

Income before extraordinary items ($313,500 ÷ 100,000)..............................

3.14

Extraordinary gain, net of tax..........................................................................

.63

Extraordinary loss, net of tax...........................................................................

(.40)

Net income ($336,600 ÷ 100,000).....................................................................

$3.37

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(b)

Retained Earnings Statement

For the Year Ended December 31, 2010

Retained earnings, January 1.......................................................................................

$600,000

Add: Net income............................................................................................................

336,600

$936,600

Less: Dividends declared..............................................................................................

150,000

Retained earnings, December 31..................................................................................

$786,600

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(c)

Comprehensive Income Statement

For the Year Ended December 31, 2010

Net income...........................................................................................................

$336,600

Other comprehensive income

Unrealized holding gain................................................................................

15,000

Comprehensive income.......................................................................................

$351,600