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Just after preparing the adjusting entries for the year, thelong-time controller

ID: 2451963 • Letter: J

Question

Just after preparing the adjusting entries for the year, thelong-time controller at Parrot Company took a leave of absence. Herinexperienced assistant did his best to prepare financialstatements from the information the controller had left behind. Hehad particular difficulty with the income statement.

     The item labeled sales expense is thesum of the amounts charged customers during the year for goods andservices provided.

Income Statement

December 31, 2007

Salesexpense                                                                       $260,722

Cost of goodssold                                                                  102,690

Netprofit                                                                                  158,032

Operating expenses:

  Wages                                  $59,780

  Utilities                                     9,002

  Interest                                  14,420

Depreciation                           13,510

Total operatingexpense                                                          97,712

Operatingincome                                                                  $60,320

Advertisingexpense                                                                  9,968

Pretaxincome                                                                        $50,352

Income taxexpense                                                                 13,150

Netincome                                                                            $63,502

Earnings per share common stock

    ($64,502 ÷ 15,000shares)                                                      $4.30

Required:

Explanation / Answer

INCOME STATEMENT

Particulars

Amount ($)

Amount ($)

INCOME STATEMENT

Particulars

Amount ($)

Amount ($)

Sales 260,722.00 Less: Cost of goodssold 102,690.00 Gross Profit 158,032.00 Operatign Expenses: Wages 59,780.00 Utilities 9,002.00 Advertising expenses 9,968.00 78,750.00 EBIT & D (Earnings before Interest,Tax & Depreciation) 79,282.00 Less: Interest 14,420         Depreciation 13,510 27,930.00 EBT (Earnings before Taxes) 51,352.00 Less: Income Tax Expenses 13,150.00 NetIncome 38,202.00 Earnings Per Share on Common Stock = Net Income / Total Outstanding Shares                                                              = $38,202 / 15,000 shares                                              EPS        = $2.55