Exercise 4-6 The following balances were taken from the books of Headland Corp.

Question

Exercise 4-6 The following balances were taken from the books of Headland Corp. on December 31, 2017. Interest revenue $87,950 Accumulated depreciation—equipment $41,950 Cash 52,950 Accumulated depreciation—buildings 29,950 Sales revenue 1,381,950 Notes receivable 156,950 Accounts receivable 151,950 Selling expenses 195,950 Prepaid insurance 21,950 Accounts payable 171,950 Sales returns and allowances 151,950 Bonds payable 101,950 Allowance for doubtful accounts 8,950 Administrative and general expenses 98,950 Sales discounts 46,950 Accrued liabilities 33,950 Land 101,950 Interest expense 61,950 Equipment 201,950 Notes payable 101,950 Buildings 141,950 Loss from earthquake damage 151,950 Cost of goods sold 622,950 Common stock 501,950 Retained earnings 22,950 Assume the total effective tax rate on all items is 34%. Prepare a multiple-step income statement; 100,000 shares of common stock were outstanding during the year. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Explanation / Answer

Prepare a multiple-step income statement

Sales revenue 1381950 Less: Sales return and allowance -151950 Less: Sales discount -46950 198900 Net Sales 1183050 Less: Cost of goods sold -622950 Gross profit 560100 Operating expense Less: Administrative and general expense -98950 Less: Selling expense -195950 Total operating expense -294900 Operating income 265200 Other income Interest revenue 87950 Other expense Interest expense 61950 Loss from earthquake 151950 -125950 Income before tax 139250 Less; Income tax -47345 Net income 91905 Share outstanding 100000 EPS 0.92

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