(TCO C) Presented below is information related to Blue Skies Company. Retained e

Question

(TCO C) Presented below is information related to Blue Skies Company. Retained earnings, December 31, 20X2 $650,000 Sales 1,400,000 Selling and administrative expenses 240,000 Hurricane loss (pre-tax) on plant (extraordinary item) 290,000 Cash dividends declared on common stock 33,600 Cost of goods sold 780,000 Gain resulting from computation error on depreciation charge in 20X1 (pre-tax) 520,000 Other revenue 120,000 Other expenses 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. Show EPS computations as well.

Explanation / Answer

sales 1,400,000 less:cost of goods sold - 780,000 Gross margin 620,000 less: selling and administration expense - 240,000 operating income 380,000 Extra ordinary gain /loss Hurricane loss (pre-tax) on plant (extraordinary item) -290,000 Gain resulting from computation error on depreciation charge in 20X1 (pre-tax) 520,000 Other income /expense other revenue 120,000 other expense - 100,000 Income before tax 630,000 less:Tax @30%    [630,000 *.30] - 189000 net income 441,000 Number of sahres outstading 80000 EPS = [Net income /number of shares] $ 5.5125 per share

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